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 ("MD&A") should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. For a similar detailed discussion comparing fiscal 2020 and 2019, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report on Form 10-K for the year ended August 31, 2020. 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. 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 • Annual Subscription Value ("ASV") • Client and User Additions • Employee Headcount • Results of Operations • Non-GAAP Financial Measures • Liquidity and Capital Resources • Off-Balance Sheet Arrangements • Foreign Currency • Critical Accounting Estimates • New Accounting Pronouncements Executive Overview FactSet Research Systems Inc. and its wholly-owned subsidiaries (collectively, "we," "our," "us," the "Company" or "FactSet") is a global financial data and analytics company with open and flexible technology and a purpose to drive the investment community to see more, think bigger, and do their best work. Our strategy is to become the leading open content and financial analytics platform in the industry that delivers differentiated advantage for our clients’ success. For over 40 years, the FactSet platform has delivered expansive data, sophisticated analytics, and flexible technology that global financial professionals need to power their critical investment workflows. Over 160,000 asset managers and owners, bankers, wealth managers, corporate firms, including private equity and venture capital firms, and others use our personalized solutions to identify opportunities, explore ideas, and gain a competitive advantage, in areas spanning investment research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting across the investment lifecycle. We provide financial data and market intelligence on securities, companies and industries to enable our clients to research investment ideas, as well as offering them the capabilities to analyze, monitor and manage their portfolios. We combine dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, cloud-based digital solutions, and application programming interfaces ("APIs"). Our revenue is primarily derived from subscriptions to our products and services such as workstations, portfolio analytics, and market data. We advance our industry by comprehensively understanding our clients’ workflows, solving their most complex challenges, and helping them achieve their goals. By providing them with the leading open content and analytics platform, an expansive universe of concorded data they can trust, next-generation workflow support designed to help them grow and see their next best action, and the industry’s most committed service specialists, FactSet puts our clients in a position to outperform. We are focused on growing our business through three reportable segments ("segments"): the Americas, EMEA and Asia Pacific. Refer to Note 19, Segment Information, in the Notes to the Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K for further discussion. Within each of our segments, we primarily deliver insight and information through our three workflow solutions: Research & Advisory; Analytics & Trading; and Content & Technology ("CTS"). 30 Table of Contents Business Strategy Client needs and market dynamics continue to evolve at an accelerated pace with an increasing demand for differentiated, personalized, and connected data, an ongoing shift to multi-asset class investing, and cost rationalization as the shift from active to passive investing continues. Clients are seeking new cloud-based solutions that enable self-service and automation, open and flexible systems, and increased efficiencies when integrating and managing data as part of their own broader digital transformations. FactSet’s strategy focuses on building the leading open content and analytics platform that delivers differentiated advantages for our clients’ success – in keeping with our purpose of enabling the investment community to see more, think bigger and do their best work. We want to be the trusted partner of choice for clients, to anticipate their needs and provide them with the most innovative solutions to make them more efficient. This includes transforming the way our clients discover, decide, and act on an opportunity using our digital platform; purposefully increasing our pace and speed to market by streamlining how we work; and investing in our future workforce. To execute on our strategy, we plan on the following: • Growing our digital platform: Scaling up our Content Refinery by providing the most comprehensive and connected inventory of industry, proprietary, and third-party data for the financial community, including granular data for key industry verticals, private companies, wealth, and environmental social and governance ("ESG"). Driving next-generation workflow solutions by creating personalized and integrated solutions to streamline workflows which includes solutions for asset managers, asset owners, sell side, wealth and corporate clients. Our goal is to deliver tangible efficiencies to our clients by connecting data and analytics with a cloud based eco-system, enabling them to manage work more effectively through an integrated investment lifecycle. • Delivering execution excellence: Building a more agile and digital first-minded organization that increases the speed of our product creation and go-to-market strategy. To capitalize on market trends and give our clients innovative tools, we plan to release new products built on a cloud-based digital foundation as well as migrating our existing data and applications to the cloud. Additionally, we expect to rationalize our existing product portfolio to reinvest in higher return products. • Driving a growth mindset: Recruiting, training and empowering a diverse and operationally efficient workforce to drive sustainable growth. To drive a more performance-based culture, we are investing in talent who can create leading technological solutions, efficiently execute our go-to-market strategy and achieve our growth targets. At the center of our strategy is the relentless focus on our clients and their FactSet experience. We want to be a trusted partner and service provider, offering hyper-personalized digital products for clients to research ideas, uncover relevant insights, and leverage cognitive computing to help get the most out of their data and analytics. Additionally, we continually evaluate business opportunities such as acquisitions and partnerships to help us expand our capabilities and competitive differentiators across the investment portfolio lifecycle. We are focused on growing our global business in three segments: the Americas, EMEA and Asia Pacific. We believe this geographical strategic alignment helps us better manage our resources, target our solutions and interact with our clients. We further execute on our growth strategy by offering data, products, and analytical applications within our three workflow solutions: Research & Advisory; Analytics & Trading; and CTS. Fiscal 2021 Year in Review Revenue for the fiscal year 2021 was $1.6 billion, an increase of 6.5% from the prior year. Revenue increased across 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 & Trading, followed by CTS and Wealth. Revenue also grew due to the benefit from our annual price increase. The revenue growth of 6.5% was primarily 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). Operating income increased 7.8% and diluted earnings per share ("EPS") increased 7.4% compared with the prior year. This increase in operating income and EPS was primarily driven by revenue growth of 6.5%, a decrease in non-compensatory employee related expenses, an impairment of an investment that occurred in fiscal 2020 and a decrease in professional fees. This increase was partially offset by higher spend in employee compensation, including stock-based compensation and 31 Table of Contents increased computer-related expenses. Additionally, EPS benefited from a reduction in interest expense and diluted weighted average shares outstanding compared with the prior year period. Our clients and users reached new highs of 6,453 and 160,932, respectively, in fiscal 2021. Over the last 12 months, we returned $382.6 million to stockholders in the form of share repurchases and dividends. As of August 31, 2021, our employee count was 10,892, up 3.9% in the past 12 months, due primarily to an increase in net new employees of 6.6% in Asia Pacific and 0.7% in EMEA, partially offset by a decrease of 1.5% in the Americas. Of our total employees, as of August 31, 2021, 7,080 were located in Asia Pacific, 2,439 were located in the Americas and 1,373 were located in EMEA. Our centers of excellence, located in India, the Philippines, and Latvia, primarily focus on content collection that benefits all our segments. We garnered multiple awards during fiscal 2021, with honors spanning multiple workflows, including research, risk, performance, trading, and wealth management. Our expanding suite of datasets stood out, most notably in the ESG and alternative categories, for its depth and innovation in delivery mechanisms. We were recognized by over thirty industry awards and rankings reports, including winning three categories in WatersTechnology’s 2021 Inside Market Data & Inside Reference Data awards: best alternative data provider, best ESG data provider, and best overall data or service provider for 2021. Client Service / Customer Success Our client service teams are a critical component of our comprehensive value proposition, and include a versatile group of financial data and modeling experts, with extensive knowledge of financial markets and FactSet solutions. Our client service teams take a consultative approach to understand our clients’ challenges and objectives to strategically leverage our workflow solutions and deliver support of the highest standard. Our clients have continuous access to our support desk, trained to respond to both project and technical support questions. A client-centric approach is foundational to our ongoing achievements, therefore client satisfaction is critical to how we measure our success. According to our global client satisfaction survey, greater than 94% of respondents were satisfied or very satisfied with our 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. In response to the COVID-19 pandemic, we implemented a business continuity plan with a dedicated incident management team to respond quickly and provide ongoing guidance so that we could continue offering our clients uninterrupted products, services and support while also protecting our employees. We believe these actions have been successful and that the pandemic, and our responses, have not significantly affected the financial results for our 2021 fiscal year. At the outset of the pandemic, we required the vast majority of our employees at our offices across the globe (including our corporate headquarters) to work remotely and implemented global travel restrictions for our employees. Since that time, we have begun to re-open many of our offices globally, utilizing a three-phased approach to provide flexibility for employees wishing to work from our offices with a focus on social distancing and safety while acting consistently with applicable local regulations. We anticipate that the ability to open offices will vary significantly from region to region based on a number of factors, including the availability of COVID-19 vaccines and the spread of COVID-19 variants. We have worked with local organizations to procure vaccines for our employees and encouraged them to get vaccinated. Our offices will not re-open fully until local authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied. As of August 31, 2021, 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. Based on our success in working in a remote environment during the COVID-19 pandemic, we expect to implement a new work standard under which employees in many of our locations, where permitted by local laws and regulations, and where the role permits, will have the opportunity to choose between different work arrangements. These include working either in a hybrid arrangement, where an employee can split time between working from the office and working from a pre-approved remote location, or a fully remote arrangement, where an employee can work entirely from a pre-approved remote location. 32 Table of Contents Our revenue, earnings, and ASV are relatively stable and predictable as a result of our subscription-based business model. To date, the COVID-19 pandemic has not had a material negative impact on our revenue, earnings or ASV. We incurred additional expenses at the start of the COVID-19 pandemic, particularly relating to equipment to enable our employees to support our clients while working remotely, which were not material to our fiscal 2021 results. As we have continued to work in remote and hybrid environments, reductions in discretionary spending, particularly travel and entertainment, have more than offset any related increased expenses. Given our transition to our new work standard, we anticipate that many of these expense reductions will continue going forward, as we incur less travel and entertainment spending than we did pre-pandemic and seek to reduce our spending on office space that is no longer necessary in our new work environment. 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. Annual Subscription Value ("ASV") As of August 31, 2021, organic annual subscription value ("organic ASV") plus Professional Services totaled $1.7 billion, an increase of 7.2% over August 31, 2020. Organic ASV increased across all our geographic segments with the majority of the increase related to the Americas, followed by EMEA and Asia Pacific. We believe ASV reflects our ability to grow recurring revenue and generate positive cash flow and is the key indicator of the successful execution of our business strategy. – "ASV" at any point in time represents our forward-looking revenue for the next 12 months from all subscription services currently being supplied to client, excluding revenues from Professional Services. – "Organic ASV" at any point in time equals our ASV excluding ASV from acquisitions and dispositions completed within the last 12 months and the effects of foreign currency movements on the current year period. – "Professional Services" are revenues derived from project-based consulting and implementation. – "Organic ASV plus Professional Services" at any point in time equals the sum of Organic ASV and Professional Services. Organic ASV plus Professional Service The following table presents the calculation the calculation of Organic ASV plus Professional Services as of August 31, 2021. With proper notice provided as contractually required, our clients can add to, delete portions of, or terminate service, subject to certain limitations. (in millions) As of August 31, 2021 As reported ASV plus Professional Services (1) $ 1,688.3 Currency impact (2) 1.6 Acquisition ASV (3) (11.4) Organic ASV plus Professional Services $ 1,678.5 Organic ASV plus Professional Services growth rate 7.2 % (1) Includes $24.1 million in Professional Services fees as of August 31, 2021. (2) The impact from foreign currency movements. (3) Acquired ASV from acquisitions completed within the last 12 months. As of August 31, 2021, Organic ASV plus Professional Services was $1.7 billion, an increase of 7.2% compared with August 31, 2020. The increase in year-over-year Organic ASV was largely attributed to existing clients, followed by new client sales and existing client price increases, partially offset by existing client cancellations. Organic ASV increased across all our geographic segments with the majority of the increase related to the Americas, followed by EMEA and Asia Pacific. This increase was driven by additional sales in our workflow solutions, primarily in Research, followed by Analytics & Trading and CTS. Sales increased in Research mainly due to higher demand for our workstations. Sales increased in Analytics & Trading mainly from our portfolio analytics, portfolio reporting, performance and reporting, front office, and risk and quantitative solutions. CTS sales increased primarily due to core and premium content sets, specifically related to company financial data and data management solutions. 33 Table of Contents Segment ASV As of August 31, 2021, ASV from the Americas was $1,039.4 million, an increase from $956.6 million as of August 31, 2020. Americas organic ASV increased to $1029.2 million as of August 31, 2021, a 7.4% increase compared with August 31, 2020. As of August 31, 2021, ASV from EMEA was $450.0 million, an increase from $426.0 million as of August 31, 2020. EMEA organic ASV increased to $451.3 million as of August 31, 2021, a 5.6% increase compared with August 31, 2020. As of August 31, 2021, Asia Pacific ASV was $174.7 million, an increase from $156.5 million as of August 31, 2020. Asia Pacific organic ASV increased to $174.6 million as of August 31, 2021, a 12.3% increase compared with August 31, 2020. The increase in organic ASV across all our geographic segments was largely attributed to increased sales to existing clients, followed by new client sales and existing client price increases, partially offset by existing client cancellations. The increased organic ASV in the Americas was primarily driven by increased sales for Research, followed by higher sales of Analytics & Trading and CTS. The EMEA organic ASV increase was mainly driven by higher sales of CTS followed by Analytics & Trading. The Asia Pacific organic ASV increase was primarily due to increased sales of Research, Analytics & Trading, and CTS. Buy-side and Sell-side Organic ASV Growth Buy-side and sell-side Organic ASV growth rates at August 31, 2021, compared with August 31, 2020, were 6.5% and 12.0%, respectively. Buy-side clients account for approximately 83% of our Organic ASV, consistent with the prior year period, and primarily include asset managers, asset owners, wealth managers, hedge funds and corporate firms. The remainder of our Organic ASV is derived from sell-side firms and primarily include broker-dealers, banking and advisory, private equity and venture capital firms. Client and User Additions As of and for the Year Ended August 31, 2021 2020 Change Clients (1) 6,453 5,875 9.8 % Users (2) 160,932 141,136 14.0 % (1) The client count includes clients with ASV of $10,000 and above. (2) In the second quarter of fiscal 2021, we revised our user count methodology to include users across all our products, including workstations, StreetAccount and other workflow solutions. The prior year user count was adjusted to reflect this change for comparison purposes. Our client count includes clients with ASV of $10,000 and above. Our total client count was 6,453 as of August 31, 2021, a net increase of 9.8%, or 578 clients in the last 12 months, mainly due to an increase in corporate and wealth management clients and third-party data providers. The client count increase was mainly driven by demand for our integrated content and workflow solutions, which are further enhanced by our continued investment in product innovation. 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, 2021, there were 160,932 professionals using FactSet, representing a net increase of 14.0%, or 19,796 users, in the last 12 months, primarily driven by an increase in wealth advisory professionals from our wealth management clients, as well as an increase in sell-side users from our banking clients. The increase in users was mainly due to a new wealth management client, improvement in our client retention and increased new hiring at our banking clients. Annual ASV retention was greater than 95% of ASV for the period ended August 31, 2021 and August 31, 2020. When expressed as a percentage of clients, annual retention was approximately 91.0% for the period ended August 31, 2021, an improvement from approximately 90% for the period ended August 31, 2020. Employee Headcount As of August 31, 2021, our employee headcount was 10,892, up 3.9% in the past 12 months, due primarily to an increase in net new employees of 6.6% in Asia Pacific and 0.7% in EMEA, partially offset by a decrease of 1.5% in the Americas. Of our total 34 Table of Contents employee headcount at August 31, 2021, 7,080 were located in Asia Pacific, 2,439 were located in the Americas and 1,373 were located in EMEA. Results of Operations For an understanding of the significant factors that influenced our performance during fiscal 2021 and 2020, 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. The following table summarizes the results of operations for the periods described: Years ended August 31, (in thousands, except per share data) 2021 2020 $ Change % Change Revenue $ 1,591,445 $ 1,494,111 $ 97,334 6.5 % Cost of services $ 786,400 $ 695,446 $ 90,954 13.1 % Selling, general and administrative $ 331,004 $ 359,005 $ (28,001) (7.8) % Operating income $ 474,041 $ 439,660 $ 34,381 7.8 % Net income $ 399,590 $ 372,938 $ 26,652 7.1 % Diluted earnings per common share $ 10.36 $ 9.65 $ 0.71 7.4 % Diluted weighted average common shares 38,570 38,646 Revenue Revenue increased 6.5% to $1.6 billion in fiscal 2021, compared with $1.5 billion from the same period in the prior year. The increase in revenue was largely attributed to increased sales to existing clients, followed by new client sales and existing client price increases, partially offset by existing client cancellations. Revenue increased across all our segments, primarily from the Americas, followed by EMEA and Asia Pacific, driven by increased revenue in all our workflow solutions, mainly in Analytics & Trading, CTS, and Research, compared with the prior year. Organic revenue increased to $1.6 billion for the fiscal year ended 2021, a 6.3% increase over the prior year period. (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). The revenue growth of 6.5% was composed of organic revenue growth of 6.3%, a 30 basis point increase from foreign currency exchange rate fluctuations, partially offset by a 10 basis point decrease from deferred revenue fair value adjustments from purchase accounting and acquisition-related revenue. Revenue by Segment Years ended August 31, (in thousands) 2021 2020 $ Change % Change Americas $ 1,008,046 $ 943,649 $ 64,397 6.8 % % of revenue 63.3 % 63.2 % EMEA $ 427,700 $ 406,498 $ 21,202 5.2 % % of revenue 26.9 % 27.2 % Asia Pacific $ 155,699 $ 143,964 $ 11,735 8.2 % % of revenue 9.8 % 9.6 % Consolidated Revenue $ 1,591,445 $ 1,494,111 $ 97,334 6.5 % Americas revenue increased 6.8% to $1,008.0 million in fiscal 2021, compared with $943.6 million from the same period in the prior year. The increase in revenue was largely attributed to increased sales to existing clients, followed by new client sales and existing client price increases, partially offset by existing client cancellations. This revenue growth was mainly due to increased sales in all of our workflow solutions, primarily in Analytics & Trading and CTS. The revenue growth of 6.8% was due to 35 Table of Contents organic revenue growth of 6.3% and a 50 basis point increase in acquisition-related revenue and deferred revenue fair value adjustments from purchase accounting. EMEA revenue increased 5.2% to $427.7 million in fiscal 2021, compared with $406.5 million from the same period in the prior year. The increase in revenue was largely attributed to increased sales to existing clients, followed by new client sales and existing client price increases, partially offset by existing client cancellations. This revenue growth was mainly due to increased sales in all of our workflow solutions, primarily in CTS and Analytics & Trading. The revenue growth of 5.2% was driven by organic revenue growth of 3.7%, a 110 basis point increase from foreign currency exchange rate fluctuations and a 40 basis point increase from deferred revenue fair value adjustments from purchase accounting. Asia Pacific revenue increased 8.2% to $155.7 million in fiscal 2021, compared with $144.0 million from the same period in the prior year. The increase in revenue was largely attributed to increased sales to existing clients, followed by new client sales and existing client price increases, partially offset by existing client cancellations. The revenue growth was mainly due to increased sales in all of our workflow solutions, primarily in Analytics & Trading. The revenue growth of 8.2% was due mainly to organic revenue growth of 8.0% and a 20 basis point increase from foreign currency exchange rate fluctuations. Revenue by Workflow Solution Revenue increased 6.5% for fiscal 2021, compared with the same period in the prior, primarily driven by Analytics & Trading and CTS. The increase in Analytics & Trading was mainly driven by increased sales in our portfolio reporting, portfolio analytics, risk and quantitative solutions and performance and reporting. CTS sales increased primarily due to core and premium content sets, specifically related to company financial data and data management solutions. Operating Expenses (in thousands) Years ended August 31, 2021 2020 $ Change % Change Cost of services $ 786,400 $ 695,446 $ 90,954 13.1 % Selling, general and administrative ("SG&A") 331,004 359,005 (28,001) (7.8) % Total operating expenses $ 1,117,404 $ 1,054,451 $ 62,953 6.0 % Operating income $ 474,041 $ 439,660 $ 34,381 7.8 % Operating Margin 29.8 % 29.4 % 1.4 % Cost of Services Cost of services increased 13.1% to $786.4 million in fiscal 2021 compared with $695.4 from the same period in the prior year. Cost of services, expressed as a percentage of revenue, was 49.4% during fiscal 2021, an increase of 290 basis points over the prior year period. This increase was primarily due to an increase in employee compensation costs, including stock-based compensation, and computer-related expenses. Employee compensation costs increased 150 basis points mainly due to higher annual base salaries and a net increase in employee headcount of 408 employees, with the majority of the compensation from new employee headcount included in cost of services, an increase in year-over-year variable compensation, and an increase in stock based compensation expense. Computer-related expenses increased by 150 basis points, primarily due to increased technology investments related to our migration to cloud-based hosting services, licensed software arrangements, and a 30 basis point increase in the amortization of intangibles, due to a higher investment in capitalized software that has been placed into service. This increase was partially offset by increased capitalization of compensation costs related to development of our internal-use software projects, as well as a shift in headcount to lower cost locations. Selling, General and Administrative Selling, general and administrative ("SG&A") expenses decreased 7.8% to $331.0 million during fiscal 2021, compared with $359.0 million from the same period in the prior year. SG&A expenses, expressed as a percentage of revenue, were 20.8% in fiscal 2021, a decrease of 320 basis points over the prior year period. This decrease was primarily due to a decrease in non- 36 Table of Contents compensatory employee related expenses, an impairment on an investment in a company in fiscal 2020, and a decrease in professional fees, partially offset by increased compensations costs. Non-compensatory employee-related expenses, inclusive of travel, entertainment and office expenses, decreased 150 basis points, mainly due to restrictions and impacts related to the COVID-19 pandemic, as most employees continued to work from home. The prior year investment impairmen t res ulted in a 110 basis point decrease in the current year. Professional fees decreased 50 basis points, primarily due to the completion of certain projects to support our technology plan and business transformation activities and lower tax consulting and accounting fees, compared with the prior year period. The decrease was partially offset by an increase in employee compensation costs of 70 basis points, primarily driven by higher annual base salaries and a net increase in employee headcount, as well as higher variable compensation expense. Operating Income and Operating Margin Operating income increased 7.8% to $474.0 million in fiscal 2021 compared with $439.7 million in the prior year. Operating income increased primarily due to revenue growth, inclusive of our annual price increase, a reduction in non-compensatory employee related expenses, a prior year investment impairment, decreased professional fees and occupancy costs, partially offset by an increase in employee compensation costs, including stock-based compensation, and computer-related expenses. Operating income was negatively impacted by movements in foreign currency exchange rates on a year-over-year basis. Our operating margin increased in fiscal 2021 to 29.8%, compared with 29.4% for fiscal 2020. Operating margin increased primarily due to a decrease in non-compensatory employee related expenses, a prior year investment impairment, decreased professional fees and occupancy costs, partially offset by higher employee compensation costs and computer-related expenses. Operating Income by Segment Our internal financial reporting structure is based on three reportable segments, the Americas , EMEA and Asia Pacific. Refer to Note 19 , Segment Information , for further discussion regarding our segments. Years ended August 31, (in thousands) 2021 2020 $ Change % Change Americas $ 218,180 $ 182,037 $ 36,143 19.9 % EMEA 159,704 165,317 (5,613) (3.4) % Asia Pacific 96,157 92,306 $ 3,851 4.2 % Total Operating Income $ 474,041 $ 439,660 $ 34,381 7.8 % Americas Americas operating income increased 19.9% to $218.2 million during fiscal 2021, compared with $182.0 million from the prior year. The increase was primarily due to revenue growth of 6.8%, inclusive of our annual price increase, a reduction in non-compensatory employee related expenses, a prior year investment impairment and lower professional fees, partially offset by an increase in employee compensation expense and computer-related expenses. 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. Professional fees decreased, primarily due to the completion of certain projects to support our technology plan and business transformation activities, as well as lower tax consulting fees, compared with the prior year period. The expense decreases were partially offset by higher employee compensation expense, mainly due to increased annual base salaries, an increase in year-over-year variable compensation, partially offset by higher capitalization of compensation costs related to development of our internal-use software projects, and increases in computer-related expenses, due to increased technology investments, including costs from cloud-based hosting and licensed software arrangements. Additionally, amortization of intangible assets increased, primarily due to a higher investment in capitalized software that has been placed into service. 37 Table of Contents EMEA EMEA operating income decreased 3.4% to $159.7 million during fiscal 2021, compared with $165.3 million from the prior year. The decrease in EMEA operating income was primarily due to an increase in employee compensation costs, bad debt expense, and amortization of intangibles, partially offset by revenue growth of 5.2%, inclusive of our annual price increase and a reduction in non-compensatory employee related expenses. Operating income was negatively impacted by movements in foreign currency exchange rates on a year-over-year basis. Employee compensation increased primarily due to a net increase in employee headcount over the past 12 months, increased annual base salaries, higher variable compensation and higher vacation expense. 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. Asia Pacific Asia Pacific operating income increased 4.2% to $96.2 million during fiscal 2021, compared with $92.3 million from the prior year. The increase in Asia Pacific operating income was mainly due to revenue growth of 8.2%, inclusive of our annual price increase, and a reduction in non-compensatory employee related expenses, partially offset by an increase in employee compensation costs. Operating income was favorably 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 investments in technology to allow employees to work from home. Employee compensation increased mainly due to a 6.6% increase in our Asia Pacific workforce in the last 12 months and increased annual base salaries. Income Taxes, Net Income and Diluted Earnings per Share Years ended August 31, (in thousands) 2021 2020 $ Change % Change Provision for income taxes $ 68,027 $ 54,196 $ 13,831 25.5 % Net income $ 399,590 $ 372,938 $ 26,652 7.1 % Diluted earnings per common share $ 10.36 $ 9.65 $ 0.71 7.4 % Income Taxes The fiscal 2021 provision for income taxes was $68.0 million, compared with $54.2 million in fiscal 2020, an increase of 25.5%. The increase was primarily due to net changes in jurisdictional pre-tax book income in fiscal 2021, compared with the prior year. Additionally, the increase was driven by a $4.4 million lower windfall tax benefit from stock-based compensation for fiscal 2021, compared with fiscal 2020, changes in tax rates in certain jurisdictions, and a lower benefit from finalizing prior year tax returns of $1.2 million. The increase was partially offset by the impact of the true-up of certain foreign deferred tax balances, and higher research and development tax credits. Net Income and Diluted Earnings per Share Net income increased 7.1% to $399.6 million during fiscal 2021 compared with $372.9 million in fiscal 2020. Diluted earnings per share increased 7.4% to $10.36 in fiscal 2021 compared with $9.65 in fiscal 2020. Net income and diluted EPS increased primarily due to increased operating income and a reduction in interest expense, partially offset by an increase in the provision for income taxes. Interest expense decreased as a result of a decrease in LIBOR compared with the prior year, which reduced the interest rate under our 2019 Revolving Credit Facility. Refer to Note 13, Debt of the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on LIBOR and the 2019 Revolving Credit Facility. 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 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 38 Table of Contents 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 an unaudited reconciliation of revenue to adjusted revenue and organic revenue. Twelve Months Ended August 31, (In thousands) 2021 2020 $ Change % Change Revenue $ 1,591,445 $ 1,494,111 $ 97,334 6.5 % Deferred revenue fair value adjustment (1) 539 4,192 (3,653) (87.1) % Adjusted revenue 1,591,984 1,498,303 93,681 6.3 % Acquired revenue (2) (4,119) — (4,119) Currency impact (3) 4,472 — 4,472 Organic revenue $ 1,592,337 $ 1,498,303 $ 94,034 6.3 % (1) The amortization effect of the purchase accounting adjustment on the fair value of acquired deferred revenue. (2) Revenues from acquisitions completed within the last 12 months. (3) The impact from foreign currency movements over the past 12 months. 39 Table of Contents The table below provides an unaudited reconciliation of operating income, operating margin, net income and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS. Twelve Months Ended August 31, (In thousands, except per share data) 2021 2020 Change Operating income $ 474,041 $ 439,660 7.8 % Deferred revenue fair value adjustment 539 4,192 Intangible asset amortization 23,257 22,269 Impairment of Investment — 16,500 Transformation costs (1) 14,113 16,478 Restructuring / severance 5,028 51 Real estate charges 716 4,253 Adjusted operating income $ 517,694 $ 503,403 2.8 % Operating margin 29.8 % 29.4 % Adjusted operating margin (2) 32.5 % 33.6 % Net income $ 399,590 $ 372,938 7.1 % Deferred revenue fair value adjustment 456 3,385 Intangible asset amortization 19,672 17,773 Impairment of Investment — 16,500 Transformation costs (1) 11,938 13,171 Restructuring / severance 4,253 41 Real estate charges 606 3,399 Income tax items (3) (4,466) (7,085) Adjusted net income (2) $ 432,049 $ 420,122 2.8 % Diluted earnings per common share $ 10.36 $ 9.65 7.4 % Deferred revenue fair value adjustment 0.01 0.10 Intangible asset amortization 0.51 0.46 Impairment of Investment — 0.42 Transformation costs (1) 0.31 0.34 Restructuring / severance 0.11 — Real estate charges 0.02 0.08 Income tax items (3) (0.12) (0.18) Adjusted diluted earnings per common share (4) $ 11.20 $ 10.87 3.0 % Weighted average common shares (Diluted) 38,570 38,646 (1) Costs primarily related to professional fees associated with the ongoing multi-year investment plan. (2) Adjusted operating margin is calculated as adjusted operating income divided by adjusted revenue as shown in the organic revenue table above. (3) Income tax items for the year ended August 31, 2021 reflects tax expenses primarily related to a reduction in the estimated foreign pre-tax book income as well as an increase in estimated U.S. pre-tax book income. This was partially offset by a benefit from the finalization of the prior year tax return. Income tax items for the year ended August 31, 2020 includes income tax expenses primarily due to finalization of the prior year tax return. (4) For purposes of calculating adjusted net income and adjusted diluted earnings per share, deferred revenue fair value adjustments and intangible asset amortization were taxed at the annual effective tax rates of 17.8% for fiscal 2021 and 17.7% for fiscal 2020. 40 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 use these sources of liquidity to, among other things, service our existing and future debt obligations, fund our working capital requirements, 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 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, 2021, 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, 2021. 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, 2021 and August 31, 2020. The principal balance is payable in full on the maturity date. 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, 2021. The variable rate of interest on the 2019 Revolving Credit Facility 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. There is currently a global transition, known as reference rate reform, away from referencing the LIBOR, and other interbank offered rates, and toward new reference rates. As a result of the reference rate reform initiative, these interbank offered rates, including LIBOR are expected to be discontinued. Refer to Note 3, Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on our evaluation of reference rate reform on our Consolidated Financial Statements. Including the effects of the interest rate swap agreemen t, the weighted average interest rate on amounts outstanding under our 2019 Revolving Credit Facility was 1.38% and 2.20% for the twelve months ended August 31, 2021 and August 31, 2020, respectively. Interest on the outstanding balance under the 2019 Revolving Credit Facility is payable quarterly, in arrears, and on the maturity date. The 2019 Credit Agreement contains covenants and requirements restricting certain of our activities, which are usual and customary for this type of loan. In addition, the 2019 Credit Agreement requires that we maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA (as defined in the 2019 Credit Agreement) below a specified level as of the end of each fiscal quarter. We were in compliance with all the covenants and requirements within the 2019 Credit Agreement as of August 31, 2021. Letters of Credit From time to time, we are required to obtain letters of credit in the ordinary course of business. Approximately $2.8 million of standby letters of credit have been issued in connection with our leased office spaces as of August 31, 2021. These standby letters of credit utilize the same covenants included in the 2019 Credit Agreement. Refer to Note 13, Debt of the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on these covenants. 41 Table of Contents Uses of Liquidity Returning Value to Shareholders For the year ended August 31, 2021, we returned $382.6 million to stockholders in the form of share repurchases and dividends. Share Repurchase Program Under our share repurchase program, we may repurchase shares of our common stock from time to time in the open market and privately negotiated transactions, subject to market conditions. In fiscal 2021, we repurchased 0.8 million shares for $264.7 million under our existing share repurchase program compared with 0.7 million shares for $199.6 million in fiscal 2020. A total of $199.9 million remains authorized for future share repurchases as of August 31, 2021. 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. Capital Expenditures For the year ended August 31, 2021, capital expenditures were $61.3 million, compared with $77.6 million during the same period a year ago, a decrease of $16.3 million. Capital expenditures decreased as the cost related to the build-out of our office space in the Philippines during the year ended August 31, 2021 was less than the cost related to the build-out of our new corporate headquarters in Norwalk, Connecticut and office space in India during the prior year period. This decrease was partially offset by higher expenditures related to the development of capitalized internal-use software during the year ended August 31, 2021 compared with the prior year. Dividends On August 9, 2021, our Board of Directors approved a regular quarterly dividend of $0.82 which was paid on September 16, 2021. During fiscal 2021, the quarterly dividend increased $0.05 per share or 6.5%, which marked the 22nd consecutive year we have increased dividends, highlighting our continued commitment to returning value to stockholders. Over the last 12 months, we have paid 117.9 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. Acquisitions During fiscal 2021, we completed acquisitions of businesses, with the most significant cash flows related to the acquisition of Truvalue Labs, Inc. ("TVL") on November 2, 2020. We acquired all of the outstanding shares of TVL for a purchase price of $41.9 million, subject to working capital and other adjustments. TVL is a leading provider of ESG information. TVL applies artificial intelligence driven technology to over 100,000 unstructured text sources in multiple languages, including news, trade journals, and non-governmental organizations and industry reports, to provide daily signals that identify positive and negative ESG behavior. The acquisition of TVL further enhances our commitment to providing industry leading access to ESG data across our platforms. Refer to Note 7, Acquisition, in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further discussion of the TVL acquisition. Contractual Obligations Purchase obligations represent committed payments due in future periods to our various data vendors and for other goods and services. These purchase commitments are agreements that are enforceable and legally binding on us, and they specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of August 31, 2021 and 2020, we had total purchase commitments with suppliers of $191.9 million and $226.0 million, respectively. We also have contractual obligations related to our lease liabilities and outstanding debt. Refer to Note 12, Leases and Note 13, Debt for information regarding lease commitments and outstanding debt obligations, respectively. Our purchase obligations consist of two primary arrangements, data content and hosting services. Data content is an integral component of the value we provide to our clients. Hosting services support our technology investments related to our migration to cloud-based hosting services, the majority of which rely on third-party hosting providers. Of the $191.9 million in purchase commitments, $84.0 million relates to hosting services and $78.7 million relates to data content. Additional commitments relate primarily to third-party software providers. 42 Table of Contents Summary of Cash Flows The table below, for the periods indicated, provides selected cash flow information: Years ended August 31, (in thousands) 2021 2020 $ Change % Change Net cash provided by operating activities $ 555,226 $ 505,840 $ 49,386 9.8 % Net cash used in investing activities (135,992) (73,632) (62,360) 84.7 % Net cash used in financing activities (322,711) (218,075) (104,636) 48.0 % Effect of exchange rate changes on cash and cash equivalents (263) 11,673 (11,936) (102.3) % Net increase in cash and cash equivalents $ 96,260 $ 225,806 $ (129,546) (57.4) % Cash and cash equivalents aggregated to $681.9 million as of August 31, 2021, compared with $585.6 million as of August 31, 2020. Our cash and cash equivalents increased $96.3 million during the twelve months ended August 31, 2021, primarily due to inflows of $555.2 million from net cash provided by operating activities and $64.2 million in proceeds from the exercise of employee stock options, partially offset by cash outflows of $264.7 million in share repurchases, $117.9 million in dividend payments, $58.1 million for the acquisition of businesses and $61.3 million of capital expenditures. Our cash and cash equivalents are held in numerous locations throughout the world, with $266.9 million within the Americas, $369.3 million within EMEA (predominantly within the UK, Germany, and France) and the remaining $45.8 million within Asia Pacific (predominantly within the Philippines and India) as of August 31, 2021. We intend to reinvest substantially all of our accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. As a result of the U.S. Tax Cuts and Jobs Act ("TCJA"), we believe that the income tax impact if such earnings were repatriated would be minimal. Operating For fiscal 2021, net cash provided by operating activities was $555.2 million compared with $505.8 million for fiscal 2020, an increase of $49.4 million. This increase was primarily driven by higher net income and the timing of tax payments in certain jurisdictions, partially offset by certain working capital changes, inclusive of increases in variable compensation accruals. Investing For fiscal 2021, net cash used in investing activities was $136.0 million, representing a $62.4 million increase from the prior year. This increase was mainly due to the acquisition of businesses, primarily related to the acquisition of TVL for approximately $41.9 million in cash, net of cash acquired, and a $16.3 million decrease in capital expenditures. Financing For fiscal 2021, net cash used by financing activities was $322.7 million, representing a $104.6 million increase in cash outflows compared with the prior year. Financing activities were impacted by a $65.1 million increase in share repurchases, a $31.3 million decrease in proceeds from employee stock plans, and an increase of $7.5 million in dividend payments. 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 capitalized internal use software. 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: 43 Table of Contents Years ended August 31, (in thousands) 2021 2020 Net cash provided by operating activities $ 555,226 $ 505,840 Capital expenditures (1) (61,325) (77,642) Free cash flow $ 493,901 $ 428,198 (1) Capital expenditures are included in net cash used in investing activities during each fiscal period reported and include property, equipment, leasehold improvements and internal-use software. For fiscal 2021, we generated free cash flow of $493.9 million compared with $428.2 million in fiscal 2020, an increase of $65.7 million. This increase reflects an increase of $49.4 million in cash provided by operating activities and decreases in capital expenditures of $16.3 million. Off-Balance Sheet Arrangements At August 31, 2021 and 2020, 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, primarily within the EMEA and Asia Pacific segments, where approximately 78% of our employees are located, are exposed to volatility in currency exchange rates through translation of the foreign subsidiaries' net assets or liabilities from their respective functional currencies into U.S. dollars, using an end of period exchange rate. The net translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders’ equity. During fiscal 2021, foreign currency movements decreased operating income by $5.4 million, compared with a $5.0 million increase to operating income in the prior year. To mitigate the foreign currency exposure, we entered into a series of forward contracts to hedge a portion of our British Pound Sterling, Euro, Indian Rupee, and Philippine Peso exposures ranging from 25% to 75% over their respective hedged periods as of August 31, 2021. The current foreign currency forward contracts are set to mature at various points between the first quarter of fiscal 2022 through the fourth quarter of fiscal 2022. As of August 31, 2021, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was ₱1.4 billion and Rs2.6 billion, respectively. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with Euros and British Pound Sterling was €33.8 million and £37.7 million, respectively. A loss on foreign currency forward contracts of $5.0 million was recorded into operating income during fiscal 2021, compared with a loss of $1.6 million in fiscal 2020. Critical Accounting Estimates We prepare the Consolidated Financial Statements in conformity with GAAP, 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 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 estimates and judgments that we believe to have the most significant impacts to our Consolidated Financial Statements are described below. Income Taxes 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 44 Table of Contents 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, research and development ("R&D") and other tax credits, tax audit settlements, incentive-stock options and the foreign derived intangible income ("FDII") deduction. Our annual effective tax rate was 14.5%, 12.7% and 16.4% in fiscal 2021, 2020 and 2019, 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 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, 2021 , we had gross unrecognized tax benefits totaling $14.9 million, including $1.3 million of accrued interest, recorded as Taxes Payable (non-current) within the Consolidated Balance Sheets. Refer to Note 11, Income Taxes in the Notes to the 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 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 17, Stock-Based Compensation in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information. 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. We 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, we consider such factors as macro-economic conditions, industry and market conditions in which we operate, including the competitive environment and significant changes in demand for our services. We also consider the share price both in absolute terms and in relation to peer companies. If the qualitative analysis indicates that it is more likely than not the fair value of a reporting unit is less than its 45 Table of Contents carrying amount or if we elect not to perform a qualitative analysis, a quantitative analysis is performed to determine whether a goodwill impairment exists. The quantitative goodwill impairment analysis is used to identify potential impairment by comparing the 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 the 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. We completed our annual goodwill impairment test during the fourth quarter of fiscal 2021. 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 a quantitative goodwill impairment test was not performed. Our identifiable intangible assets consist of acquired content databases, client relationships, software technology, and trade names resulting from acquisitions, which have been fully integrated into our operations, as well as internal-use software. 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, 2021 was 9.1 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, 2021 and 2020. 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 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, 2021 and 2020 was $135.0 million and $121.1 million, respectively. Refer to Note 9, Goodwill and Note 10, Intangible Assets in the Notes to the 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 and lease right-of-use ("ROU") assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows (undiscounted and excluding interest charges). If the estimated future cash flows are less than the carrying value of the asset, an impairment loss is recognized to the extent that such asset's carrying value exceeds its fair value, based on the most appropriate valuation technique, including discounted cash flows. In determining indicators for impairment, we take various factors into account, including, but not limited to, a significant decline in our expected future cash flows; changes in expected useful life; unanticipated competition; slower growth rates, ongoing maintenance and improvements of the assets, or changes in the usage or operating performance. A significant amount of judgment is involved in determining if an indicator of impairment has occurred and in calculating the inputs to the impairment calculation such as estimates related to future cash flows and asset fair values, forecasting asset useful lives and selecting the discount rate that reflects the risk inherent in future cash flows. If actual results are not consistent with our estimates and assumptions included in our impairment assessment, we may be exposed to losses that could be material. There have been no long-lived asset impairment charges and no change to our impairment assessment methodology for each of the last three years. The carrying value of long-lived assets was $131.4 million as of August 31, 2021 and $133.1 million as of August 31, 2020. Refer to Note 8, Property, Equipment and Leasehold Improvements in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information. Contingencies We are subject to various legal proceedings, claims and litigation that have arisen in the ordinary course of business, which involve inherent uncertainties including, but not limited to, employment matters, and commercial and intellectual property litigation. Assessing the probability of loss for such contingencies and determining how to accrue the appropriate liabilities 46 Table of Contents requires judgment. If actual results differ from our assessments, our financial position, results of operations, or cash flows would be affected. 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, if any, are recognized separately from the business combination and are expensed as incurred. New Accounting Pronouncements Refer to Note 3, Summary of Significant Accounting Policies in the Notes to the 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.