FACTSET RESEARCH SYSTEMS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS FactSet Research Systems Inc. CONSOLIDATED STATEMENTS OF INCOME – Unaudited Three Months Ended Six Months Ended February 28, February 28, (In thousands, except per share data) 2022 2021 2022 2021 Revenues $ 431,119 $ 391,788 $ 855,844 $ 779,993 Operating expenses Cost of services 199,395 195,523 406,544 383,611 Selling, general and administrative 108,376 80,132 203,291 159,219 Total operating expenses 307,771 275,655 609,835 542,830 Operating income 123,348 116,133 246,009 237,163 Other income (expense), net Interest expense, net ( 1,673 ) ( 1,814 ) ( 3,167 ) ( 2,843 ) Other income (expense), net 281 347 ( 956 ) 578 Income before income taxes 121,956 114,666 241,886 234,898 Provision for income taxes 12,018 18,023 24,301 37,049 Net income $ 109,938 $ 96,643 $ 217,585 $ 197,849 Basic earnings per common share $ 2.91 $ 2.55 $ 5.77 $ 5.21 Diluted earnings per common share $ 2.84 $ 2.50 $ 5.63 $ 5.12 Basic weighted average common shares 37,837 37,916 37,685 37,961 Diluted weighted average common shares 38,761 38,620 38,628 38,658 The accompanying notes are an integral part of these Consolidated Financial Statements. 4 Table of Contents FactSet Research Systems Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – Unaudited Three Months Ended Six Months Ended February 28, February 28, (In thousands) 2022 2021 2022 2021 Net income $ 109,938 $ 96,643 $ 217,585 $ 197,849 Other comprehensive income (loss), net of tax Net unrealized gain on cash flow hedges* 4,805 1,303 4,810 1,187 Foreign currency translation adjustment (losses) gains ( 2,983 ) 9,277 ( 21,696 ) 9,610 Other comprehensive income (loss) 1,822 10,580 ( 16,886 ) 10,797 Comprehensive income $ 111,760 $ 107,223 $ 200,699 $ 208,646 * For the three and six months ended February 28, 2022, the net unrealized gain on cash flow hedges were net of a tax expense of $ 468 thousand and a tax expense of $ 469 thousand, respectively. For the three and six months ended February 28, 2021, the net unrealized gain on cash flow hedges were net of a tax expense of $ 441 thousand and a tax expense of $ 400 thousand, respectively. The accompanying notes are an integral part of these Consolidated Financia l Statements. 5 Table of Contents FactSet Research Systems Inc. CONSOLIDATED BALANCE SHEETS – Unaudited (In thousands, except share data) February 28, 2022 August 31, 2021 ASSETS Cash and cash equivalents $ 773,012 $ 681,865 Investments 34,984 35,984 Accounts receivable, net of reserves of $ 4,263 at February 28, 2022 and $ 6,431 at August 31, 2021 188,308 151,187 Prepaid taxes 36,569 13,917 Prepaid expenses and other current assets 57,786 50,625 Total current assets 1,090,659 933,578 Property, equipment and leasehold improvements, net 114,789 131,377 Goodwill 786,172 754,205 Intangible assets, net 135,042 134,986 Deferred taxes 2,169 2,250 Lease right-of-use assets, net 206,237 239,064 Other assets 39,089 29,480 TOTAL ASSETS $ 2,374,157 $ 2,224,940 LIABILITIES Accounts payable and accrued expenses $ 90,262 $ 85,777 Current lease liabilities 31,010 31,576 Accrued compensation 68,749 104,403 Deferred revenues 72,152 63,104 Dividends payable 31,065 30,845 Total current liabilities 293,238 315,705 Long-term debt 574,625 574,535 Deferred taxes 15,018 14,752 Deferred revenues, non-current 7,233 8,394 Taxes payable 31,002 30,279 Long-term lease liabilities 233,275 259,980 Other liabilities 3,785 4,942 TOTAL LIABILITIES $ 1,158,176 $ 1,208,587 Commitments and contingencies (see Note 12) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.01 par value, 10,000,000 shares authorized, none issued $ — $ — Common stock, $ 0.01 par value, 150,000,000 shares authorized, 41,485,261 and 41,163,192 shares issued, 37,883,866 and 37,615,419 shares outstanding at February 28, 2022 and August 31, 2021, respectively 415 412 Additional paid-in capital 1,131,166 1,048,305 Treasury stock, at cost: 3,601,395 and 3,547,773 shares at February 28, 2022 and August 31, 2021, respectively ( 927,814 ) ( 905,917 ) Retained earnings 1,068,062 912,515 Accumulated other comprehensive loss ( 55,848 ) ( 38,962 ) TOTAL STOCKHOLDERS’ EQUITY $ 1,215,981 $ 1,016,353 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,374,157 $ 2,224,940 The accompanying notes are an integral part of these Consolidated Financial Statements. 6 Table of Contents FactSet Research Systems Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS – Unaudited Six Months Ended February 28, (in thousands) 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 217,585 $ 197,849 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 32,827 30,962 Amortization of lease right-of-use assets 22,172 21,517 Stock-based compensation expense 25,937 22,327 Deferred income taxes ( 3,264 ) ( 2,802 ) Impairment charge 13,987 — Changes in assets and liabilities, net of effects of acquisitions Accounts receivable, net of reserves ( 37,704 ) ( 15,421 ) Accounts payable and accrued expenses 10,183 ( 724 ) Accrued compensation ( 34,680 ) ( 20,879 ) Deferred fees 6,201 12,445 Taxes payable, net of prepaid taxes ( 21,824 ) 16,688 Lease liabilities, net ( 23,863 ) ( 20,549 ) Other, net ( 12,605 ) ( 11,477 ) Net cash provided by operating activities 194,952 229,936 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, equipment, leasehold improvements and internal-use software ( 20,546 ) ( 28,758 ) Acquisition of businesses, net of cash and cash equivalents acquired ( 50,018 ) ( 41,916 ) Purchases of investments ( 250 ) ( 1,250 ) Proceeds from maturity or sale of investments — 2,176 Net cash used in investing activities ( 70,814 ) ( 69,748 ) CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of common stock ( 18,639 ) ( 114,640 ) Dividend payments ( 61,448 ) ( 58,186 ) Proceeds from employee stock plans 56,928 28,526 Other financing activities ( 3,258 ) ( 2,359 ) Net cash used by financing activities ( 26,417 ) ( 146,659 ) Effect of exchange rate changes on cash and cash equivalents ( 6,574 ) 3,550 Net increase in cash and cash equivalents 91,147 17,079 Cash and cash equivalents at beginning of period 681,865 585,605 Cash and cash equivalents at end of period $ 773,012 $ 602,684 The accompanying notes are an integral part of these Consolidated Financial Statements. 7 Table of Contents FactSet Research Systems Inc. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY- Unaudited For the Three Months Ended February 28, 2022 (in thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Par Value Shares Amount Balance as of November 30, 2021 41,372,890 $ 414 $ 1,094,467 3,600,720 $ ( 927,505 ) $ 989,189 $ ( 57,670 ) $ 1,098,895 Net income 109,938 109,938 Other comprehensive loss 1,822 1,822 Common stock issued for employee stock plans 111,360 1 21,163 260 ( 128 ) 21,036 Vesting of restricted stock 1,011 — 415 ( 181 ) ( 181 ) Repurchases of common stock — Stock-based compensation 15,536 15,536 Dividends declared ( 31,065 ) ( 31,065 ) Balance as of February 28, 2022 41,485,261 $ 415 $ 1,131,166 3,601,395 $ ( 927,814 ) $ 1,068,062 $ ( 55,848 ) $ 1,215,981 For the Six Months Ended February 28, 2022 (in thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Par Value Shares Amount Balance as of August 31, 2021 41,163,192 $ 412 $ 1,048,305 3,547,773 $ ( 905,917 ) $ 912,515 $ ( 38,962 ) $ 1,016,353 Net income 217,585 217,585 Other comprehensive income ( 16,886 ) ( 16,886 ) Common stock issued for employee stock plans 303,709 3 56,924 260 ( 128 ) 56,799 Vesting of restricted stock 18,360 — 7,162 ( 3,130 ) ( 3,130 ) Repurchases of common stock 46,200 ( 18,639 ) ( 18,639 ) Stock-based compensation 25,937 25,937 Dividends declared ( 62,038 ) ( 62,038 ) Balance as of February 28, 2022 41,485,261 $ 415 $ 1,131,166 3,601,395 $ ( 927,814 ) $ 1,068,062 $ ( 55,848 ) $ 1,215,981 8 Table of Contents For the Three Months Ended February 28, 2021 (in thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Par Value Shares Amount Balance as of November 30, 2020 40,884,113 $ 409 $ 968,375 2,875,984 $ ( 682,224 ) $ 705,089 $ ( 39,076 ) $ 952,573 Net income 96,643 96,643 Other comprehensive income 10,580 10,580 Common stock issued for employee stock plans 58,550 — 10,533 318 ( 104 ) 10,429 Vesting of restricted stock 997 — 401 ( 131 ) ( 131 ) Repurchases of common stock 221,959 ( 71,495 ) ( 71,495 ) Stock-based compensation 11,010 11,010 Dividends declared ( 29,141 ) ( 29,141 ) Balance as of February 28, 2021 40,943,660 $ 409 $ 989,918 3,098,662 $ ( 753,954 ) $ 772,591 $ ( 28,496 ) $ 980,468 For the Six Months Ended February 28, 2021 (in thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Par Value Shares Amount Balance as of August 31, 2020 40,767,708 $ 408 $ 939,067 2,737,456 $ ( 636,956 ) $ 633,149 $ ( 39,293 ) $ 896,375 Net income 197,849 197,849 Other comprehensive loss 10,797 10,797 Common stock issued for employee stock plans 157,009 1 28,524 318 ( 104 ) 28,421 Vesting of restricted stock 18,943 — 7,129 ( 2,254 ) ( 2,254 ) Repurchases of common stock 353,759 ( 114,640 ) ( 114,640 ) Stock-based compensation 22,327 22,327 Dividends declared ( 58,407 ) ( 58,407 ) Balance as of February 28, 2021 40,943,660 $ 409 $ 989,918 3,098,662 $ ( 753,954 ) $ 772,591 $ ( 28,496 ) $ 980,468 The accompanying notes are an integral part of these Consolidated Financial Statements. 9 Table of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FactSet Research Systems Inc. February 28, 2022 (Unaudited) Page Note 1 Description of Business 11 Note 2 Basis of Presentation 11 Note 3 Recent Accounting Pronouncements 12 Note 4 Revenue Recognition 12 Note 5 Fair Value Measures 13 Note 6 Derivative Instruments 15 Note 7 Acquisition 17 Note 8 Goodwill 19 Note 9 Income Taxes 19 Note 10 Leases 20 Note 11 Debt 22 Note 12 Commitments and Contingencies 23 Note 13 Stockholders' Equity 25 Note 14 Earnings Per Share 27 Note 15 Stock-Based Compensation 27 Note 16 Segment Information 29 Note 17 Subsequent Event 30 10 Table of Contents 1. DESCRIPTION OF BUSINESS 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 an open and flexible digital platform which focuses on driving the investment community to see more, think bigger, and do its best work. Our strategy is to build the leading open content and analytics platform that delivers a 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. More than 171,000 investment professionals including asset managers, asset owners, bankers, wealth managers, corporate users, private equity and venture capital professionals, and others use our personalized solutions to identify opportunities, explore ideas, and gain a competitive advantage. Our solutions span 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, industries and people 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 revenues are 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, we put 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 16, Segment Information , for further information. Within each of our segments, we deliver insight and information through our three workflows: Research & Advisory Solutions; Analytics & Trading Solutions; and Content & Technology Solutions ("CTS"). 2. BASIS OF PRESENTATION We conduct business globally and manage our business on a geographic basis. The accompanying unaudited Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for annual financial statements, as such, the information in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries; all intercompany activity and balances have been eliminated. In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all normal recurring adjustments, transactions or events discretely impacting the interim periods considered necessary to present fairly our results of o perations, financial position, cash flows and equity. We have evaluated subsequent events through the date of issuance of the financial statements included in this Quarterly Report on Form 10-Q, refer to Note 17, Subsequent Events for more information. Use of Estimates The preparation of our Consolidated Financial Statements and related disclosures, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant estimates may have been made in areas that include income taxes, stock-based compensation, the valuation of goodwill and allocation of purchase price to acquired assets and liabilities, useful lives and impairments of 11 Table of Contents long-lived tangible and intangible ass ets and reserves for litigation and other contingencies . We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. 3. RECENT ACCOUNTING PRONOUNCEMENTS As of February 28, 2022, we implemented all applicable new accounting standards and updates issued by the Financial Accounting Standards Board ("FASB") that were in effect. There were no new standards or updates adopted during the six months ended February 28, 2022 that had a material impact on our Consolidated Financial Statements. New Accounting Standards or Updates Recently Adopted Income Tax Simplification In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740); Simplifying the Accounting for Income Taxes , to simplify various aspects related to accounting for income taxes, eliminating certain exceptions to the general principles in accounting for income taxes related to intraperiod tax allocation, simplifying when companies recognize deferred taxes in an interim period, and clarifying certa in aspects of the current guidance to promote consistent application. We have adopted this standard effective September 1, 2021. The adoption of this standard did not have an impact on our Consolidated Financial Statements. Business Combinations In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (“Topic 606”) rather than adjust them to fair value at the acquisition date. We elected to early adopt this accounting standard in the second quarter of fiscal 2022, with retrospective application to business combinations that occurred in the current fiscal year. Results of operations for quarterly periods prior to September 1, 2021 remain unchanged as a result of the adoption of ASU No. 2021-08. The acquisition of Cobalt Software, Inc (“Cobalt”), and all future acquisitions, will be accounted for in accordance with ASU 2021-08. Refer to Note 7. Acquisition for further information. The adoption of this standard did not have a material impact on our Consolidated Financial Statements. Recent Accounting Standards or Updates Not Yet Effective Facilitation of the Effects of Reference Rate Reform on Financial Reporting In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848); Facilitation of the Effects of Reference Rate Reform on Financial Reportin g, to provide optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions affected by the anticipated transition from LIBOR. As a result of the reference rate reform initiative, certain widely used reference rates such as LIBOR are expected to be discontinued. The guidance is designed to simplify how entities account for contracts, such as receivables, debt, leases, derivative instruments and hedging, that are modified to replace LIBOR or other benchmark interest rates with new rates. The guidance is effective upon issuance and may be applied through December 31, 2022. On March 1, 2022, we repaid in full and terminated the 2019 Credit Agreement, which bore interest based on the LIBOR rate. Concurrently, on March 1, 2022, FactSet Research Systems Inc. entered into the 2022 Credit Agreement, which bears interest based on the Secured Overnight Financing Rate ("SOFR") rate. The adoption of this standard will not have an impact on our Consolidated Financial Statements. Refer to Note 11, Debt and Note 17, Subsequent Events for definitions of these terms and more information on the 2019 Credit Agreement and 2022 Credit Agreement. No other new accounting pronouncements issued or effective as of February 28, 2022 have had, or are expected to have, a material impact on our Consolidated Financial Statements. 4. REVENUE RECOGNITION We derive most of our revenues by providing 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, portfolio analytics and market data. We determined that the majority of our 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 12 Table of Contents transfer to the client. We also determined the primary nature of the promise to the client is to provide daily access to one overall data and analytics platform. This platform provides integrated financial information, analytical applications and industry-leading service for the investment community. Based on the nature of the services and products offered by us, we apply an output time-based measure of progress as the client is simultaneously receiving and consuming the benefits of the platform. We record revenues for our contracts using the over-time revenue recognition model as a client is invoiced or performance is satisfied. We do not consider payment terms as a performance obligation for clients with contractual terms that are one year or less and we have elected the practical expedient. Contracts with clients can include certain fulfillment costs, comprised of up-front costs to allow for the delivery of services and products, which are recoverable. In connection with the adoption of the revenue recognition standard, fulfillment costs are recognized as an asset, with the current portion recorded in the Prepaid expenses and other current assets and the non-current portion recorded in Other assets, based on the term of the license period. The fulfillment costs are amortized consistent with the associated revenues for providing the services. There are no significant judgments that would impact the timing of revenue recognition. The majority of client contracts have a duration of one year or less, or the amount we are entitled to receive corresponds directly with the value of performance obligations completed to date, and therefore, we do not disclose the value of the remaining unsatisfied performance obligations. Disaggregated Revenues We disaggregate revenues from contracts with clients by our reportable segments ("segments") which consist of the Americas, EMEA and Asia Pacific. We believe these segments are reflective of how we manage our business and the markets in which we serve and best depict the nature, amount, timing and uncertainty of revenues and cash flows related to contracts with clients. Refer to Note 16, Segment Information , for further information. The following table presents this disaggregation by segment: Three Months Ended Six Months Ended February 28, February 28, (in thousands) 2022 2021 2022 2021 Americas $ 273,659 $ 247,991 $ 540,572 $ 492,327 EMEA 114,591 105,493 229,594 211,270 Asia Pacific 42,869 38,304 85,678 76,396 Total Revenues $ 431,119 $ 391,788 $ 855,844 $ 779,993 5. FAIR VALUE MEASURES Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. We consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. Fair Value Hierarchy The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. We have categorized our cash equivalents, investments and derivatives within the fair value hierarchy as follows: Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets and liabilities include our corporate money market funds that are classified as cash equivalents. Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which 13 Table of Contents significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Our mutual funds and derivative instruments are classified as Level 2. Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities as of February 28, 2022 or August 31, 2021. (a) Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables show, by level within the fair value hierarchy, our assets and liabilities that are measured at fair value on a recurring basis at February 28, 2022 and August 31, 2021. We did not have any transfers between levels of fair value measurements during the periods presented. Fair Value Measurements at February 28, 2022 (in thousands) Level 1 Level 2 Total Assets Corporate money market funds (1) $ 167,562 $ — $ 167,562 Mutual funds (2) — 34,984 34,984 Derivative instruments (3) — 4,592 4,592 Total assets measured at fair value $ 167,562 $ 39,576 $ 207,138 Liabilities Derivative instruments (3) $ — $ 2,110 $ 2,110 Total liabilities measured at fair value $ — $ 2,110 $ 2,110 Fair Value Measurements at August 31, 2021 (in thousands) Level 1 Level 2 Total Assets Corporate money market funds (1) $ 232,519 $ — $ 232,519 Mutual funds (2) — 35,984 35,984 Derivative instruments (3) — 1,384 1,384 Total assets measured at fair value $ 232,519 $ 37,368 $ 269,887 Liabilities Derivative instruments (3) $ — $ 4,181 $ 4,181 Total liabilities measured at fair value $ — $ 4,181 $ 4,181 1. Our corporate money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value. Our corporate money market funds are classified as Level 1 assets and are included in Cash and cash equivalents within the Consolidated Balance Sheets. 2. Our mutual funds have a fair value based on the fair value of the underlying investments held by the mutual funds, allocated to each share of the mutual fund using a net asset value approach. The fair value of the underlying investments is based on observable inputs. Our mutual funds are classified as Level 2 and are included in Investments (short-term) within the Consolidated Balance Sheets. 3. Our derivative instruments include our foreign exchange forward contracts and interest rate swap agreements. We utilize the income approach to measure fair value for our foreign exchange forward contracts. The income approach uses pricing models that rely on market observable inputs such as spot, forward and interest rates, as well as credit default swap spreads, and are classified as Level 2 assets. To estimate fair value for the interest rate swap agreement, we utilize a present value of future cash flows, leveraging a model-derived valuation that uses Level 2 observable inputs such as interest rate yield curves. Refer to Note 6 , Derivative Instruments, for more information on our derivative instruments designed as cash flow hedges and their classification within the Consolidated Balance Sheets. 14 Table of Contents (b) Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Assets and liabilities that are measured at fair value on a non-recurring basis relate primarily to our tangible fixed assets, lease right-of-use ("ROU") assets, goodwill and intangible assets. The fair values of these non-financial assets and liabilities are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparable information, and discounted cash flow projections. These non-financial assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill. During the three and six months ended February 28, 2022, we incurred an impairment charge of $ 9.7 million and $ 13.4 million, respectively, related to our lease ROU assets and Property, equipment and leasehold improvements associated with vacating certain leased office space. For those locations we anticipate subleasing, we estimated the fair value of the lease ROU assets as of the cease use date, using a market approach, based on expected future cash flows from sublease income. To complete this assessment we relied on certain assumptions, which included estimates of the rental rate, period of vacancy, incentives and annual rent increases. We fully impaired both the lease ROU assets for locations we will not sublease and the Property, equipment and leasehold improvements balances associated with the related vacated leased office space as there are no expected cash flows related to these items. As a result of the subjective nature of unobservable inputs used, these assets are classified within Level 3 of the fair value hierarchy. (c) Assets and Liabilities Measured at Fair Value for Disclosure Purposes O nly As of February 28, 2022 and August 31, 2021, the fair value of our 2019 Revolving Credit Facility (as defined below in Note 11, Debt), included in Long-term debt within the Consolidated Balance Sheets, was $ 575.0 million, which approximated its carrying amount given the application of a floating interest rate equal to LIBOR plus a spread using a debt leverage pricing grid. As the interest rate is a variable rate, adjusted based on market conditions, it approximates the current market-rate for similar instruments available to companies with comparable credit quality and maturity, and therefore, the long-term debt is categorized as Level 2 in the fair value hierarchy. On March 1, 2022, we repaid in full and terminated the 2019 Credit Agreement and concurrently, FactSet Research Systems Inc. entered into the 2022 Credit Agreement. Refer to Note 17, Subsequent Events for definition of these terms and more information on the 2022 Credit Agreement. 6. DERIVATIVE INSTRUMENTS Cash Flow Hedges Foreign Currency Forward Contracts We conduct business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, and Philippine Peso. As such, we are exposed to movements in foreign currency exchange rates. We utilize derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk, the volatility of the market, the duration of the hedge, the degree to which the underlying exposure is committed to, and the availability, effectiveness, and cost of derivative instruments. Derivative instruments are only utilized for risk management purposes and are not used for speculative or trading purposes. We limit counterparties to credit-worthy financial institutions. Refer to Note 12, Commitments and Contingencies – Concentrations of Credit Ris k, for further discussion on counterparty credit risk. In designing a specific hedging approach, we considered several factors, including offsetting exposures, the significance of exposures, the forecasting of risk and the potential effectiveness of the hedge. The gains and losses on foreign currency forward contracts offset the variability in operating expenses associated with currency movements. The changes in fair value for these foreign currency forward contracts are initially reported as a component of Accumulated other comprehensive loss ("AOCL") and subsequently reclassified into Operating expenses when the hedge is settled. There was no discontinuance of cash flow hedges during the six months ended February 28, 2022 or February 28, 2021, and as such, no corresponding gains or losses related to changes in the value of our contracts were reclassified into earnings prior to settlement. As of February 28, 2022, 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 15 Table of Contents exposure ranging from 25 % to 50 % over their respective hedged periods. The current foreign currency forward contracts are set to mature at various points between the third quarter of fiscal 2022 through the first quarter of fiscal 2023. As of February 28, 2022, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was ₱ 0.9 billion and Rs 1.7 billion, respectively. The gross notional value of foreign currency forward contracts to purchase Euros and British Pound Sterling with U.S. dollars was € 23.0 million and £ 24.3 million, respectively. 2020 Swap Agreement On March 5, 2020, we entered into an interest rate swap agreement (the "2020 Swap Agreement") with a notional amount of $ 287.5 million to hedge the variable interest rate obligation on a portion of our outstanding debt under our 2019 Revolving Credit Facility (as defined below in Note 11, Debt). As of February 28, 2022, we have borrowed $ 575.0 million of the available $ 750.0 million under the 2019 Revolving Credit Facility, which bears interest on the outstanding principal amount at a rate equal to contractual one-month LIBOR plus a spread using a debt leverage pricing grid, which was 0.875 % as of February 28, 2022. Refer to Note 11, Debt , for further discussion on the 2019 Revolving Credit Facility. Under the terms of the 2020 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 2020 Swap Agreement matures on March 29, 2024. Refer to Interest Rate Risk in Part I, Item 3 of this Quarterly Report on Form 10-Q for further discussion on our exposure to interest rate risk on our long-term debt outstanding. As the terms for the 2020 Swap Agreement align with the 2019 Revolving Credit Facility, we do not expect any hedge ineffectiveness. We have designated and accounted for this instrument as a cash flow hedge with the unrealized gains or losses on the interest rate swap agreement recorded in AOCL in the Consolidated Balance Sheets. Realized gains or losses are subsequently reclassified into Interest expense, net in the Consolidated Statement of Income when settled. The following is a summary of the gross notional values of the derivative instruments: (in thousands) Gross Notional Value February 28, 2022 August 31, 2021 Foreign currency forward contracts $ 99,609 $ 154,728 Interest rate swap agreement 287,500 287,500 Total cash flow hedges $ 387,109 $ 442,228 Fair Value of Derivative Instruments The following is a summary of the fair values of the derivative instruments: Fair Value of Derivative Instruments (in thousands) Derivative Assets Derivative Liabilities Derivatives designated as hedging instruments Balance Sheet Classification February 28, 2022 August 31, 2021 Balance Sheet Classification February 28, 2022 August 31, 2021 Foreign currency forward contracts Prepaid expenses and other current assets $ 180 $ 1,384 Accounts payable and accrued expenses $ 2,110 $ 1,201 Interest rate swap agreement Prepaid expenses and other current assets 820 — Accounts payable and accrued expenses — 1,934 Other assets 3,592 — Other liabilities — 1,045 Total cash flow hedges $ 4,592 $ 1,384 $ 2,110 $ 4,181 All derivatives were designated as hedging instruments as of February 28, 2022 and August 31, 2021. 16 Table of Contents Derivatives in Cash Flow Hedging Relationships The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the three months ended February 28, 2022 and February 28, 2021, respectively: Gain (Loss) Reclassified in AOCL on Derivatives Location of Gain (Loss) Reclassified from AOCL into Income Gain (Loss) Reclassified from AOCL into Income (in thousands) February 28, February 28, Derivatives in Cash Flow Hedging Relationships 2022 2021 2022 2021 Foreign currency forward contracts $ ( 34 ) $ 1,879 SG&A $ ( 1,014 ) $ 2,069 Interest rate swap agreement 3,795 1,462 Interest expense, net ( 498 ) ( 472 ) Total cash flow hedges $ 3,761 $ 3,341 $ ( 1,512 ) $ 1,597 The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the six months ended February 28, 2022 and February 28, 2021, respectively: Gain (Loss) Recognized in AOCL on Derivatives Location of Gain (Loss) Reclassified from AOCL into Income Gain (Loss) Reclassified from AOCL into Income (in thousands) February 28, February 28, Derivatives in Cash Flow Hedging Relationships 2022 2021 2022 2021 Foreign currency forward contracts $ ( 3,576 ) $ 2,127 SG&A $ ( 1,463 ) $ 2,886 Interest rate swap agreement 6,378 1,406 Interest expense, net ( 1,014 ) ( 942 ) Total cash flow hedges $ 2,802 $ 3,533 $ ( 2,477 ) $ 1,944 As of February 28, 2022, our cash flow hedges were effective, with no amount of ineffectiveness recorded in the Consolidated Statements of Income for these designated cash flow hedges, and all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. As of February 28, 2022, we estimate that net pre-tax derivat ive losses of $ 1.9 m illion related to the foreign currency forward contracts included in AOCL will be reclassified into earnings within the next 12 months. As of March 1, 2022, we terminated the 2020 Swap Agreement. Refer to Note 17, Subsequent Events for more information on the termination and the expected impact reclassified into earnings. Offsetting of Derivative Instruments We enter into master netting arrangements designed to permit net settlement of derivative transactions among the respective counterparties, settled on the same date and in the same currency. As of February 28, 2022 and August 31, 2021, there were no material amounts recorded net on the Consolidated Balance Sheets. 2022 Swap Agreement As we desire to maintain a fixed to floating interest rate ratio of 80 % on our outstanding debt portfolio, we entered into the 2022 Swap Agreement with a notional amount $ 800.0 million on March 1, 2022. The 2022 Swap Agreement will hedge our floating Term SOFR rate outstanding debt with a fixed rate of 1.162 %. Refer to Note 17, Subsequent Events for the definition and more information on the 2022 Swap Agreement. 7. ACQUISITIONS During fiscal 2022 and 2021, we completed acquisitions of several businesses, with the most significant cash flows related to the acquisitions of Cobalt Software, Inc. ("Cobalt") and Truvalue Labs, Inc. ("TVL"). 17 Table of Contents On March 1, 2022, we completed the acquisition of CUSIP Global Services (“CGS"), previously operated by S&P Global Inc., on behalf of the American Bankers Association, for $ 1.925 billion in cash, subject to a working capital adjustment. Refer to Note 17 , Subsequent Events for more information on our acquisition of CGS. Cobalt Software, Inc. On October 12, 2021, we acquired all of the outstanding shares of Cobalt for a purchase price of $ 50.0 million, net of cash acquired. Cobalt is a leading portfolio monitoring solutions provider for the private capital industry. This acquisition advances our strategy to scale our data and workflow solutions through targeted investments as part of our multi-year investment plan and expands our private markets offering. The Cobalt purchase price was in excess of the fair value of net assets acquired, resulting in the recognition of goodwill. We expect to finalize the allocation of the purchase price for Cobalt as soon as possible, but in any event, no later than one year from the acquisition date. The acquisition date fair values of major classes of assets acquired and liabilities assumed are as follows: Acquisition Date Fair Value Acquisition Date Useful Life Amortization Method (in thousands) (in years) Current assets $ 540 Amortizable intangible assets Software technology 7,750 5 years Straight-line Client relationships 4,800 11 years Straight-line Goodwill 43,554 Other assets 34 Current liabilities ( 6,653 ) Other liabilities ( 7 ) Total purchase price $ 50,018 Goodwill totaling $ 43.6 million represents the excess of the Cobalt purchase price over the fair value of net assets acquired and is included in the Americas and EMEA segments. Goodwill generated from the Cobalt acquisition is not deductible for income tax purposes. The results of Cobalt's operations have been included in our Consolidated Financial Statements, within the Americas and EMEA segments, beginning with its acquisition on October 12, 2021. Pro forma information has not been presented because the effect of the Cobalt acquisition is not material to our Consolidated Financial Statements. Truvalue Labs, Inc. On November 2, 2020, we acquired all of the outstanding shares of TVL for a purchase price of $ 41.9 million, net of cash acquired. TVL is a leading provider of environmental, social, and governance ("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. The TVL purchase price was in excess of the fair value of net assets acquired, resulting in the recognition of goodwill. We finalized the purchase accounting for the TVL acquisition during the third quarter of fiscal 2021. 18 Table of Contents The acquisition date fair values of major classes of assets acquired and liabilities assumed are as follows: Acquisition Date Fair Value Acquisition Date Useful Life Amortization Method (in thousands) (in years) Current assets $ 812 Amortizable intangible assets Software technology 8,100 7 years Straight-line Client relationships 900 12 years Straight-line Trade names 2,800 15 years Straight-line Goodwill 30,058 Other assets 5,299 Current liabilities ( 3,069 ) Other liabilities ( 2,984 ) Total purchase price $ 41,916 Goodwill totaling $ 30.1 million represents the excess of the TVL purchase price over the fair value of net assets acquired and is included in the Americas segment. Goodwill generated from the TVL acquisition is not deductible for income tax purposes. The results of TVL's operations have been included in our Consolidated Financial Statements, within the Americas segment, beginning with its acquisition on November 2, 2020. Pro forma information has not been presented because the effect of the TVL acquisition is not material to our Consolidated Financial Statements. 8. GOODWILL Changes in the carrying amount of goodwill by segment for the six months ended February 28, 2022 are as follows: (in thousands) Americas EMEA Asia Pacific Total Balance at August 31, 2021 $ 430,088 $ 321,150 $ 2,967 $ 754,205 Acquisitions 43,769 428 — 44,197 Foreign currency translations — ( 12,101 ) ( 129 ) ( 12,230 ) Balance at February 28, 2022 $ 473,857 $ 309,477 $ 2,838 $ 786,172 Goodwill is not amortized as it is estimated to have an indefinite life. At least annually, we are required to test goodwill at the reporting unit level, which is consistent with our segments, for potential impairment, and, if impaired, we write down our goodwill to fair value based on the present value of discounted cash flows. We performed our annual goodwill impairment test during the fourth quarter of fiscal 2021 utilizing a qualitative analysis, consistent with the timing of previous years. We concluded it was more likely than not that the fair value of each of our segments was greater than its respective carrying value and no impairment charge was required. 9. INCOME TAXES Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and the tax bases of assets and liabilities using currently enacted tax rates. 19 Table of Contents Provision for Income Taxes The provision for income taxes is as follows: Three Months Ended Six Months Ended February 28, February 28, (in thousands) 2022 2021 2022 2021 Income before income taxes $ 121,956 $ 114,666 $ 241,886 $ 234,898 Provision for income taxes $ 12,018 $ 18,023 $ 24,301 $ 37,049 Effective tax rate 9.9 % 15.7 % 10.0 % 15.8 % Our effective tax rate is based on recurring factors and non-recurring events, including the taxation of foreign income. Our effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discrete and other non-recurring events that may not be predictable. Our effective tax rate is lower than the applicable U.S. corporate income tax rate for the three and six months ended February 28, 2022, driven mainly by research and development ("R&D") tax credits and a foreign derived intangible income ("FDII") deduction. The effective tax rate for the three and six months ended February 28, 2022 is further reduced by windfall tax benefits associated with the employee exercise of stock options. For the three months ended February 28, 2022, the provision for income taxes was $ 12.0 million, compared with $ 18.0 million for the same period a year ago. The provision decreased mainly due to lower projected levels of income before income taxes, a lower effective tax rate compared to the prior year period and a $ 4.2 million reduction from higher windfall tax benefits, partially offset by higher income before income taxes during the three months ended February 28, 2022, compared with the prior year period. For the six months ended February 28, 2022, the provision for income taxes was $ 24.3 million, compared with $ 37.0 million for the same period a year ago. The provision decreased mainly due to lower projected levels of income before income taxes, a lower effective tax rate compared to the prior year period and a $ 11.2 million in higher windfall tax benefits, partially offset by higher income before income taxes during the six months ended February 28, 2022, compared with the prior year period. 10. LEASES On September 1, 2019, we adopted ASC 842, Leases ("ASC 842"). As part of this adoption, w e elected not to record operating lease ROU assets or operating lease liabilities for leases with an initial term of 12 months or less. We elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component, which we recognize over the expected term on a straight-line expense basis in occupancy costs (a component of SG&A expense). We review new arrangements at inception to evaluate whether we obtain substantially all the economic benefits of and have the right to control the use of an asset. Our lease portfolio is primarily related to our office space, under various operating lease agreements. Our lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments at lease commencement (which includes fixed lease payments and certain qualifying index-based variable payments) over the reasonably certain lease term, leveraging an estimated incremental borrowing rate ("IBR"). Certain adjustments to our lease ROU assets may be required for items such as the payment of initial direct costs or incentives received. As of February 28, 2022, we recognized $ 206.2 million of Lease right-of-use assets, net and $ 264.3 million of combined Current lease liabilities and Long-term lease liabilities in the Consolidated Balance Sheets. Such leases have a remaining lease term ranging from less than one year to just under 14 years and did not include any renewal or termination options that were not yet reasonably certain to be exercised. 20 Table of Contents The following table reconciles our future undiscounted cash flows related to our operating leases and the reconciliation to the combined Current lease liabilities and Long-term lease liabilities in the Consolidated Balance Sheets as of February 28, 2022 : (in thousands) Minimum Lease Payments Fiscal Years Ended August 31, 2022 (remaining six months) $ 21,408 2023 39,965 2024 37,412 2025 35,671 2026 34,075 Thereafter 150,583 Total $ 319,114 Less: Imputed interest 54,829 Present value $ 264,285 The components of lease cost related to our operating leases were as follows: Three Months Ended Six Months Ended February 28, February 28, (in millions) 2022 2021 2022 2021 Operating lease cost 1 $ 10.2 $ 10.8 $ 20.7 $ 21.5 Variable lease cost 2 $ 2.9 $ 4.3 $ 5.8 $ 7.7 1. Operating lease costs include costs associated with fixed lease payments and index-based variable payments that qualified for lease accounting under ASC 842, Leases and complied with the practical expedients and exceptions elected by us. 2. Variable lease costs were not included in the measurement of lease liabilities. These costs primarily include variable non-lease costs and leases that qualified for the short-term lease exception. Our variable non-lease costs include costs that were not fixed at the lease commencement date and are not dependent on an index or rate. These costs relate to utilities, real estate taxes, insurance and maintenance. The following table summarizes our lease term and discount rate assumptions related to the operating leases recorded on the Consolidated Balance Sheets: February 28, 2022 August 31, 2021 Weighted average remaining lease term (in years) 8.9 9.4 Weighted average discount rate (IBR) 4.3 % 4.3 % The following table summarizes supplemental cash flow information related to our operating leases: Six Months Ended February 28, (in millions) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities $ 22.2 $ 20.0 Lease ROU assets obtained in exchange for lease liabilities $ 2.7 $ 5.8 Reductions to ROU assets resulting from reductions to lease liabilities 1 $ ( 8.9 ) $ — 1. Primarily related to lease term reassessments based on contractual options to early terminate, resulting in a reduction to the lease liability and the corresponding Lease ROU asset. During the three and six months ended February 28, 2022, we incurred an impairment charge of $ 5.8 million and $ 7.2 million, respectively, related to our lease ROU assets associated with vacating certain leased office space. Refer to Note 5, Fair Value Measures for more information on the lease ROU assets impairment methodology. 21 Table of Contents 11. DEBT Our debt obligations at February 28, 2022 and August 31, 2021 consisted of the following: (in thousands) February 28, 2022 August 31, 2021 2019 Revolving Credit Facility $ 575,000 $ 575,000 2019 Revolving Credit Facility debt issuance costs ( 375 ) ( 465 ) Long-term debt $ 574,625 $ 574,535 2019 Credit Agreement On March 29, 2019, we entered into a credit agreement, as the borrower, with PNC Bank, National Association ("PNC"), as the administrative agent and lender (the "2019 Credit Agreement"), which provides for a $ 750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). The 2019 Revolving Credit Facility allows for borrowings until its maturity date of March 29, 2024. The 2019 Credit Agreement also allows for, subject to certain requirements, 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 February 28, 2022, 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 currently at 0.10 % based on the daily amount by which the available balance in the 2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheets at February 28, 2022. The principal balance is payable in full on the maturity date. Borrowings under the 2019 Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to the daily LIBOR plus a spread using a debt leverage pricing grid, currently at 0.875 %. For the three months ended February 28, 2022 and February 28, 2021, 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 $ 1.9 million in each respective period. For the six months ended February 28, 2022 and February 28, 2021, 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 $ 3.8 million and $ 4.0 million, respectively. Including the effects of the interest rate swap agreement, the year-to-date weighted average interest rate on amounts outstanding under our 2019 Revolving Credit Facility was 1.36 % and 1.38 % as of February 28, 2022 and August 31, 2021, respectively. Refer to Note 6, Derivative Instruments for further discussion on the interest rate swap agreement. Interest on the loan outstanding under the 2019 Revolving Credit Facility is payable quarterly, in arrears, and on the maturity date. During fiscal 2019, we incurred approximately $ 0.9 million in debt issuance costs related to the 2019 Credit Agreement. These costs were capitalized as debt issuance costs and are amortized into interest expense ratably over the term of the 2019 Credit Agreement. The 2019 Credit Agreement contains covenants and requirements restricting certain 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 covenants and requirements within the 2019 Credit Agreement as of February 28, 2022. As of March 1, 2022 , we repaid in full and terminated our 2019 Credit Agreement . Refer to Note 17, Subsequent Events for more information on the termination. 2022 Credit Agreement On March 1, 2022, FactSet Research Systems Inc. entered into the 2022 Credit Agreement and concurrently repaid in full and terminated the 2019 Credit Agreement. On March 1, 2022, per the 2022 Credit Agreement, we borrowed $ 1.0 billion under the 2022 Term Facility and $ 250.0 million under the 2022 Revolving Facility. Refer to Note 17, Subsequent Events for definition of these terms and more information on the 2022 Credit Agreement. 22 Table of Contents Senior Notes On March 1, 2022, FactSet Research Systems Inc. completed a public offering of $ 500.0 million aggregate principal amount of 2.900 % Senior Notes due 2027 and $ 500.0 million aggregate principal amount of 3.450 % Senior Notes due 2032. Refer to Note 17, Subsequent Events for more information on these senior notes. 12. COMMITMENTS AND CONTINGENCIES Commitments represent obligations, such as those for future purchases of goods or services, that are not yet recorded on the balance sheet as liabilities. We record liabilities for commitments when incurred ( i.e. , when the goods or services are received). Purchase Commitments with Suppliers and Vendors Purchase obligations represent payments due in future periods in respect of commitments to our various data vendors as well as commitments to purchase 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, we had total purchase commitments with suppliers of $ 191.9 million. During the second quarter of fiscal 2022, we entered into a software subscription agreement with total purchase commitments of approximately $ 10 million with a contract term of three years . We also have contractual obligations related to our lease liabilities and outstanding debt. Refer to Note 10, Leases, Note 11, Debt and Note 17, Subsequent Events for information regarding lease commitments; outstanding debt obligations; and newly issued senior notes and debt obligations, respectively. Letters of Credit From time to time, we are required to obtain letters of credit in the ordinary course of business. As of February 28, 2022, we had approximately $ 0.6 million of standby letters of credit outstanding. These standby letters of credit utilize the same covenants included in the 2019 Credit Agreement. Refer to Note 11, Debt for more information on these covenants. Contingencies Income Taxes Uncertain income tax positions are accounted for in accordance with applicable accounting guidance, refer to Note 9, Income Taxes, for further details. We are currently under audit by tax authorities and have reserved for potential adjustments to our provision for income taxes that may result from examinations by, or any negotiated settlements with, these tax authorities. We believe that the final outcome of these examinations or settlements will not have a material effect on our results of operations or our cash flows. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of tax benefits in the period we determine the liabilities are no longer necessary. If our estimates of the federal, state and foreign income tax liabilities are less than the ultimate assessment, additional expense would result. Legal Matters We accrue non-income tax liabilities for contingencies when management believes that a loss is probable, and the amounts can be reasonably estimated. Contingent gains are recognized only when realized. We are engaged in various legal proceedings, claims and litigation that have arisen in the ordinary course of business, including employment matters, commercial and intellectual property litigation. The outcome of all the matters against us are subject to future resolution, including the uncertainties of litigation. Based on information available as of February 28, 2022, our management believes that the ultimate outcome of these unresolved matters against us, individually or in the aggregate, will not have a material adverse effect on our consolidated financial position, our results of operations or our cash flows. Sales Tax Matters On August 8, 2019, we received a Notice of Intent to Assess (the "First Notice") additional sales taxes, interest and underpayment penalties from the Commonwealth of Massachusetts Department of Revenue (the "Commonwealth") relating to the tax periods from January 1, 2006 through December 31, 2013. On July 20, 2021, we received a Notice of Intent to Assess (the "Second Notice", cumulatively with the First Notice, the "Notices") additional sales taxes, interest and underpayment penalties from the Commonwealth relating to the tax periods from January 1, 2014 through December 31, 2018. Based upon the Notices, it is the Commonwealth's intention to assess sales tax, interest and underpayment penalties on previously recorded sales transactions. We have filed an appeal to the Notices and intend to contest any such assessment, if assessed. We continue to cooperate with the Commonwealth's inquiry with respect to the Notices. 23 Table of Contents On August 10, 2021, we received a letter (the "Letter") from the Commonwealth relating to the tax periods from January 1, 2019 through June 30, 2021, requesting additional sales information to determine if a notice of intent to assess should be issued to FactSet with respect to these tax periods. Based upon a preliminary review of the Letter, we believe the Commonwealth might seek to assess sales tax, interest and underpayment penalties on previously recorded sales transactions. We are cooperating with the Commonwealth's inquiry with respect to the Letter. Due to the uncertainty surrounding the assessment process for both the Notices and Letter, we are unable to reasonably estimate the ultimate outcome of these matters and, as such, have not recorded a liability for any of these matters as of February 28, 2022. We believe that we will ultimately prevail if we are presented with a formal assessment for any of these matters; however, if we do not prevail, the amount of any assessment could have a material impact on our consolidated financial position, results of operations and cash flows. Indemnifications As permitted or required under Delaware law and to the maximum extent allowable under that law, we have certain obligations to indemnify our current and former officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of FactSet, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have a director and officer insurance policy that we believe mitigates our exposure and may enable us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification obligations is immaterial. Concentrations of Credit Risk Cash equivalents Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents. We are exposed to credit risk for cash and cash equivalents held in financial institutions in the event of a default, to the extent that such amounts are in excess of applicable insurance limits. We have not experienced any losses from maintaining cash accounts in excess of such limits. We do not believe our concentration of cash and cash equivalents present a significant credit risk as the counterparties to the instruments consist of multiple high-quality, credit-worthy financial institutions. Accounts Receivable Our accounts receivable are subject to collection risk as they are unsecured and derived from revenues earned from clients located around the globe. We do not require collateral from our clients. We maintain reserves for potential write-offs and evaluate the adequacy of the reserves on a quarterly basis. These losses have historically been within expectations. No single client represented more than 3 % of our total revenues in any period presented. As of February 28, 2022, the receivable reserve was $ 4.3 million compared with $ 6.4 million as of August 31, 2021. Derivative Instruments Our use of derivative instruments exposes us to credit risk to the extent counterparties may be unable to meet the terms of their agreements. To mitigate credit risk, we limit counterparties to credit-worthy financial institutions and distribute contracts among these institutions to reduce the concentration of credit risk. We do not expect any losses as a result of default by our counterparties. Concentrations of Other Risk Data Content Providers We integrate data from various third-party sources into our hosted propriety data and analytics platform, which our clients access to perform their analyses. As certain data sources have a limited number of suppliers, we make every effort to assure that, where reasonable, alternative sources are available. We are not dependent on any individual third-party data supplier in order to meet the needs of our clients, with only two data suppliers each representing more than 10 % of our total data costs for the six months ended February 28, 2022. 24 Table of Contents 13. STOCKHOLDERS’ EQUITY Shares of common stock outstanding were as follows: Six Months Ended February 28, (in thousands) 2022 2021 Balance, beginning of period 37,615 38,030 Common stock issued for employee stock plans 322 176 Repurchase of common stock from employees (1) ( 7 ) ( 7 ) Repurchase of common stock under the share repurchase program (2) ( 46 ) ( 354 ) Balance, end of period 37,884 37,845 (1) For the six months ended February 28, 2022 and February 28, 2021, we repurchased 7,422 and 7,447 shares from employees, or $ 3.3 million and $ 2.4 million of common stock, respectively, primarily to satisfy withholding tax obligations due upon the vesting of stock-based awards. (2) Refer to Share Repurchase Program below for more information on the year over year change. 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. Beginning in the second quarter of fiscal 2022, we suspended our share repurchase program through at least the second half of fiscal 2023, with the exception of potential minor repurchases to offset dilution from grants of equity awards or repurchases to satisfy withholding tax obligations du e upon the vesting of stock-based awards. The suspension of our share repurchase program allows us to prioritize the repayment of debt under the 2022 Credit Agreement. Refer to Note 17, Subsequent Events for the definition of and more information on the 2022 Credit Agreement. As such, for the three months ended February 28, 2022, we did no t make any repurchases under our existing share repurchase program, compared to 221,959 shares repurchased for $ 71.5 million for the three months ended February 28, 2021. During the six months ended February 28, 2022, we repurchased 46,200 shares for $ 18.6 million under our existing share repurchase program compared with 353,759 shares for $ 114.6 million in the same period a year ago. As of February 28, 2022, a total of $ 181.3 million remained authorized for future share repurchases under this program. There is no defined number of shares to be repurchased over a specified timeframe through the life of the share repurchase program. Restricted Stock Restricted stock awards entitle the holders to receive shares of common stock as the awards vest over time. Fo r the six months ended February 28, 2022, 18,360 shares of previously granted restricted stock vested and were included in common stock outstanding as of February 28, 2022 (recorded net of 7,162 shares repurchased from employees at a cost of $ 3.1 million to cover their cost of taxes upon vesting of the restricted stock). During the six months ended February 28, 2021, 18,943 shares of previously granted restricted stock vested and were included in common stock outstanding as of February 28, 2021 (recorded net of 7,129 shares repurchased from employees at a cost of $ 2.3 million to cover their cost of taxes upon vesting of the restricted stock). 25 Table of Contents Dividends Our Board of Directors declared dividends in the six months ended February 28, 2022 and February 28, 2021 as follows: Year Ended Dividends per Share of Common Stock Record Date Total $ Amount (in thousands) Payment Date Fiscal 2022 First Quarter $ 0.82 November 30, 2021 $ 30,973 December 16, 2021 Second Quarter $ 0.82 February 28, 2022 $ 31,065 March 17, 2022 Fiscal 2021 First Quarter $ 0.77 November 30, 2020 $ 29,266 December 17, 2020 Second Quarter $ 0.77 February 26, 2021 $ 29,141 March 18, 2021 Future cash dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and are subject to final determination by our Board of Directors. Accumulated Other Comprehensive Loss The components of AOCL are as follows: (in thousands) February 28, 2022 August 31, 2021 Accumulated unrealized gains (losses) on cash flow hedges $ 2,715 $ ( 2,095 ) Accumulated foreign currency translation adjustment losses ( 58,563 ) ( 36,867 ) Total AOCL $ ( 55,848 ) $ ( 38,962 ) 26 Table of Contents 14. EARNINGS PER SHARE A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share ("EPS") computations is as follows: Three Months Ended Six Months Ended February 28, February 28, (in thousands, except per share data) 2022 2021 2022 2021 Numerator Net income used for calculating basic and diluted income per share $ 109,938 $ 96,643 $ 217,585 $ 197,849 Denominator Weighted average common shares used in the calculation of basic income per share 37,837 37,916 37,685 37,961 Common stock equivalents associated with stock-based compensation plan 924 704 943 697 Shares used in the calculation of diluted income per share 38,761 38,620 38,628 38,658 Basic income per share $ 2.91 $ 2.55 $ 5.77 $ 5.21 Diluted income per share $ 2.84 $ 2.50 $ 5.63 $ 5.12 Dilutive potential common shares consist of stock options and unvested performance-based awards. There were no stock options excluded from the calculation of diluted EPS for the three and six months ended February 28, 2022. For each of the three and six months ended February 28, 2021, the number of stock options excluded from the calculation of diluted EPS was 1,750 . Performance-based awards are omitted from the calculation of diluted EPS until it is determined that the performance criteria has been met at the end of the reporting period. For the three and six months ended February 28, 2022, there were 95,865 performance-based awards excluded from the calculation of diluted EPS. For each of the three and six months ended February 28, 2021, there were 71,275 performance-based awards excluded from the calculation of diluted EPS. 15. STOCK-BASED COMPENSATION We recognized total stock-based compensation expense of $ 15.5 million and $ 11.0 million during the three months ended February 28, 2022 and February 28, 2021, respectively. During the six months ended February 28, 2022 and February 28, 2021, we recognized total stock-based compensation expense of $ 25.9 million and $ 22.3 million, respectively. As of February 28, 2022, $ 129.3 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.2 years. There was no stock-based compensation capitalized as of February 28, 2022 and February 28, 2021. Employee Stock Option Awards During the six months ended February 28, 2022, we granted 302,493 stock options under the FactSet Research Systems Inc. Stock Option and Award Plan, as Amended and Restated (the "LTIP") with a weighted average exercise price of $ 434.70 to existing employees of FactSet, using the lattice-binomial option-pricing model. The majority of the stock options granted during the six months ended February 28, 2022 are related to the annual employee grant on November 1, 2021 under the LTIP. The stock option awards granted on November 1, 2021 vest 20 % annually on the anniversary date of the grant and are fully vested after five years , expiring ten years from the date of grant. As of February 28, 2022, we had 4.7 million share-based awards available for grant under the LTIP. 27 Table of Contents Employee Stock Option Fair Value Determinations We utilize the lattice-binomial option-pricing model ("binomial model") to estimate the fair value of new employee stock option grants. The binomial model is affected by our stock price, as well as assumptions regarding several variables, which include, but are not limited to, our expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors, to determine the grant date stock option award fair value. The weighted average estimated fair value of employee stock options granted on November 1, 2021 was determined using the binomial model with the following weighted average assumptions: November 1, 2021 Grant Details Risk-free interest rate 0.07 % - 1.56 % Expected life (years) 6.91 Expected volatility 24.4 % Dividend yield 0.85 % Estimated fair value $ 102.40 Exercise price $ 434.82 Fair value as a percentage of exercise price 23.5 % Non-Employee Director Stock Option Grant The FactSet Research Systems Inc. Non-Employee Directors’ Stock Option and Award Plan as Amended and Restated (the "Director Plan") provides for the grant of share-based awards, including stock options, to non-employee directors of FactSet. The expiration date of the Director Plan is December 19, 2027. The non-qualified stock options granted to directors vest 100 % after three years on the anniversary date of the grant and expire seven years from the date the options were granted. As of February 28, 2022, we had 227,348 shares available for future grant under the Director Plan. On January 18, 2022, we granted 6,329 stock options under the Director Plan to our non-employee directors, using the Black-Scholes option-pricing model with the following assumptions: January 18, 2022 Grant Details Risk-free interest rate 1.53 % Expected life (years) 5.7 Expected volatility 26.3 % Dividend yield 0.72 % Estimated fair value $ 109.11 Exercise price $ 428.71 Fair value as a percentage of exercise price 25.5 % Employee Restricted Stock Units During the six months ended February 28, 2022, we granted 59,738 non-performance based restricted stock units ("RSUs") and 30,704 performance-based restricted stock units ("PSUs"; RSUs and PSUs, collectively, "Restricted Stock Awards") under the LTIP. The Restricted Stock Awards granted under the LTIP during the six months ended February 28, 2022 had a weighted average grant date fair value of $ 422.34 . Restricted Stock Awards are subject to continued employment over a specified period and entitle the holders to shares of common stock as the Restricted Stock Awards vest over time. Vesting of the shares underlying the PSUs are also subject to achieving certain specified performance levels during the measurement period subsequent to the date of grant. The Restricted Stock Award holder is not entitled to dividends declared on the underlying shares while the stock subject to the Restricted Stock Award is unvested. The grant date fair value of Restricted Stock Awards is measured by reducing the grant date price of the common stock by the present value of the dividends expected to be paid on the underlying stock during the requisite service period, discounted at the appropriate risk-free interest rate. The expense associated with Restricted Stock Awards is amortized over the vesting period. 28 Table of Contents The Restricted Stock Awards granted during the six months ended February 28, 2022 were primarily related to the annual employee grant on November 1, 2021. With respect to the November 1, 2021 grant, RSUs granted vest 20 % annually on the anniversary date of grant and are fully vested after five years and PSUs granted cliff vest on the third anniversary of the grant date, subject to the achievement of certain performance metrics. Non-Employee Director Restricted Stock Units The Director Plan provides for the grant of share-based awards, including RSUs, to non-employee directors of FactSet. On January 18, 2022, we granted 1,629 RSUs to our directors that vest 100 % on the first anniversary of the grant date. The RSUs granted under the Director Plan during the six months ended February 28, 2022 had a weighted average grant date fair value of $ 425.49 . Employee Stock Purchase Plan Shares of FactSet common stock may be purchased by eligible employees under the FactSet Research Systems Inc. Employee Stock Purchase Plan, as Amended and Restated (the "ESPP") in three-month intervals. The purchase price is equal to 85 % of the lesser of the fair market value of our common stock on the first day or the last day of each three-month offering period. Employee purchases may not exceed 10 % of their gross compensation and there is a $ 25,000 contribution limit per employee during an offering period. Dividends paid on shares held in the ESPP are used to purchase additional ESPP shares at the market price on the dividend payment date. During the three months ended February 28, 2022, employees purchased 8,232 shares at a weighted average price of $ 351.06 compared with 9,528 shares at a weighted average price of $ 263.18 for the three months ended February 28, 2021. During the six months ended February 28, 2022, employees purchased 17,417 shares at a weighted average price of $ 340.41 compared with 18,797 shares at a weighted average price of $ 274.72 for the six months ended February 28, 2021. Stock-based compensation expense related to the ESPP was $ 0.5 million during both the three months ended February 28, 2022 and February 28, 2021. Stock-based compensation expense related to the ESPP was $ 1.1 million for the six months ended February 28, 2022 and $ 1.0 million for the six months ended February 28, 2021. As of February 28, 2022 the ESPP had 121,539 shares reserved for future issuance. 16. SEGMENT INFORMATION Operating segments are defined as components of an enterprise that have the following characteristics: (i) they engage in business activities from which they may earn revenues and incur expenses, (ii) their operating results are regularly reviewed by the chief operating decision maker ("CODM") for resource allocation decisions and performance assessment, and (iii) their discrete financial information is available. At FactSet, our Chief Executive Officer functions as our CODM. Our operating segments are consistent with our reportable segments and are how we, including our CODM, manage our business and the geographic markets in which we serve. Our internal financial reporting structure is based on three segments: the Americas; EMEA; and Asia Pacific. The Americas segment serves our clients throughout North, Central, and South America. The EMEA segment serves our clients in Europe, the Middle East, and Africa. The Asia Pacific segment serves our clients in Asia and Australia. Segment revenues reflect sales to clients based in these respective geographic locations. Each segment records expenses related to its individual operations with the exception of expenditures associated with our data centers, third-party data costs and corporate headquarters charges, which 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 segments, and the expenses incurred at these locations are allocated to each segment based on a percentage of revenues. 29 Table of Contents The following tables reflect the results of operations of our segments as of February 28, 2022 and February 28, 2021: (in thousands) Americas EMEA Asia Pacific Total For the three months ended February 28, 2022 Revenues $ 273,659 $ 114,591 $ 42,869 $ 431,119 Operating income $ 48,903 $ 45,944 $ 28,501 $ 123,348 Capital expenditures $ 10,346 $ 252 $ 1,365 $ 11,963 (in thousands) For the three months ended February 28, 2021 Revenues $ 247,991 $ 105,493 $ 38,304 $ 391,788 Operating income $ 53,614 $ 40,290 $ 22,229 $ 116,133 Capital expenditures $ 8,219 $ 314 $ 1,892 $ 10,425 (in thousands) For the six months ended February 28, 2022 Americas EMEA Asia Pacific Total Revenue $ 540,572 $ 229,594 $ 85,678 $ 855,844 Operating income $ 104,401 $ 86,598 $ 55,010 $ 246,009 Capital expenditures $ 17,549 $ 362 $ 2,635 $ 20,546 (in thousands) For the six months ended February 28, 2021 Americas EMEA Asia Pacific Total Revenue $ 492,327 $ 211,270 $ 76,396 $ 779,993 Operating income $ 109,989 $ 80,924 $ 46,250 $ 237,163 Capital expenditures $ 17,779 $ 633 $ 10,346 $ 28,758 The following table reflects the total assets for our segments: Segment Assets (in thousands) February 28, 2022 August 31, 2021 Americas $ 1,468,121 $ 1,144,693 EMEA 659,961 842,652 Asia Pacific 246,075 237,595 Total assets $ 2,374,157 $ 2,224,940 17. SUBSEQUENT EVENTS CUSIP Global Services Acquisition On December 24, 2021, we entered into a definitive agreement to acquire CUSIP Global Services (“CGS"), previously operated by S&P Global Inc., on behalf of the American Bankers Association, for $ 1.925 billion in cash, subject to a working capital adjustment. The acquisition was completed on March 1, 2022. CGS manages a database of 60 different data elements uniquely identifying more than 50 million global financial instruments. It is the foundation for security master files relied on by critical front, middle and back-office functions. CGS is the exclusive provider of Committee on Uniform Security Identification Procedures ("CUSIP") and CUSIP International Number System ("CINS") identifiers globally and also acts as the official numbering agency for International Securities Identification Number ("ISIN") identifiers in the United States and as a substitute number agency for more than 35 other countries. We anticipate that the CGS acquisition will significantly expand our critical role in the global capital markets. The purchase price for the CGS acquisition was financed from the net proceeds of the issuance of the Notes (defined below) and borrowings under the 2022 Credit Agreement (defined below). 30 Table of Contents Revenue from CGS will be recognized based on geographic business activities in accordance with how our operating segments are currently aligned. CGS will function as part of CTS. We have not completed a preliminary allocation of the purchase price to the assets and liabilities acquired, although we expect that the majority of the purchase price will be allocated to acquired intangible assets and goodwill. Issuance of Senior Notes On March 1, 2022, FactSet Research Systems Inc. completed a public offering of $ 500.0 million aggregate principal amount of 2.900 % Senior Notes due 2027 (the “2027 Notes”) and $ 500.0 million aggregate principal amount of 3.450 % Senior Notes due 2032 (the “2032 Notes” and, together with the 2027 Notes, the “Notes”). The Notes were issued pursuant to an indenture, dated as of March 1, 2022, by and between FactSet and U.S. Bank Trust Company, National Association, as trustee, as supplemented by the supplemental indenture, dated as of March 1, 2022, between us and the Trustee (the "Supplemental Indenture"). We received net proceeds of $ 990.925 million from the issuance of the Notes and used such proceeds, together with cash on hand and borrowings under the 2022 Credit Agreement, to finance the consideration for the CGS acquisition, to repay borrowings under the 2019 Credit Agreement and to pay related transaction fees, costs and expenses. The 2027 Notes and the 2032 Notes will mature on March 1, 2027 and March 1, 2032, respectively. Interest on the Notes is payable semiannually in arrears on March 1 and September 1 of each year, beginning September 1, 2022. The Notes are unsecured unsubordinated obligations and will be effectively subordinated to any of our existing and future secured obligations to the extent of the value of the assets securing such obligations. We may redeem the Notes, in whole or in part, at any time at specified redemption prices, plus accrued and unpaid interest, if any. Upon the occurrence of a change of control triggering event (as defined in the Supplemental Indenture), we must offer to repurchase the Notes at 101 % of their principal amount, plus accrued and unpaid interest, if any. Establishment of 2022 Credit Agreement On March 1, 2022, FactSet Research Systems Inc. entered into a credit agreement (the “2022 Credit Agreement”), which provides for a senior unsecured term loan credit facility in an aggregate principal amount of $ 1.0 billion (the “2022 Term Facility”) and a senior unsecured revolving credit facility in an aggregate principal amount of $ 500.0 million (the “2022 Revolving Facility” and, together with the 2022 Term Facility, the “2022 Credit Facilities”). The 2022 Term Facility matures on March 1, 2025, and the 2022 Revolving Facility matures on March 1, 2027. The 2022 Revolving Facility allows for the availability of up to $ 100.0 million in the form of letters of credit and up to $ 50.0 million in the form of swingline loans. We may seek additional commitments under the 2022 Revolving Facility from lenders or other financial institutions up to an aggregate principal amount of $ 750.0 million. On March 1, 2022, we borrowed $ 1.0 billion under the 2022 Term Facility and $ 250.0 million under the 2022 Revolving Facility. The 2022 Credit Agreement provides that (i) loans denominated in U.S. dollars, at our option, will bear interest at either one-month Term Secured Overnight Financing Rate ("SOFR") (with a 10 basis points credit spread adjustment and subject to a “ zero ” floor), Daily Simple SOFR (with a 10 basis points credit spread adjustment and subject to a “ zero ” floor) or an alternate base rate, (ii) loans denominated in Pounds Sterling will bear interest at Daily Simple Sterling Overnight Index Average ("SONIA") (subject to a “ zero ” floor) and (iii) loans denominated in Euros will bear interest at the E uro Interbank Offered Rate ("EURIBOR") (subject to a “ zero ” floor), in each case, plus an applicable interest rate margin. The interest rate margin will be based upon our senior unsecured non-credit enhanced long-term debt rating and our total leverage ratio. We will also pay a commitment fee under the 2022 Revolving Facility that will fluctuate between 0.10 % per annum and 0.25 % per annum on the daily unused amount of the 2022 Revolving Facility. Loans under the 2022 Term Facility are subject to scheduled amortization payments in an aggregate annual amount equal to 5.0 % of the original principal amount thereof. The 2022 Credit Facilities are not otherwise subject to any mandatory prepayments. We may voluntarily prepay loans under the 2022 Credit Facilities at any time without premium or penalty. The 2022 Credit Agreement contains usual and customary affirmative and negative covenants for facilities of this type, including limitations on indebtedness of non-guarantor subsidiaries, liens, sale and leaseback transactions, mergers and certain other fundamental changes and change in nature of business. The 2022 Credit Agreement contains a financial covenant requiring maintenance of a total leverage ratio which is no greater than 4.00 to 1.00 for the fiscal quarter ending on May 31, 2022. 31 Table of Contents The 2022 Credit Agreement contains usual and customary event of default provisions for facilities of this type, which are subject to usual and customary grace periods and materiality thresholds. If an event of default occurs under the 2022 Credit Agreement, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings immediately due and payable. 2022 Swap Agreement As we desire to maintain a fixed to floating interest rate ratio of 80 % on our outstanding debt portfolio, we entered into an interest rate swap agreement ("2022 Swap Agreement") with a notional amount $ 800.0 million on March 1, 2022. The 2022 Swap Agreement will hedge our floating SOFR rate outstanding debt with a fixed rate of 1.162 %. The notional amount of the 2022 Swap Agreement will decline in parity with any repayments of our Term SOFR rate debt to maintain the targeted hedging ratio of 80 %. The 2022 Swap Agreement matures on February 28, 2024. We have designated this instrument as a cash flow hedge and any unrealized gains or losses on the 2022 Swap Agreement will be recorded in AOCL in the Consolidated Balance Sheets. Termination of 2019 Credit Agreement and 2020 Swap Agreement On March 1, 2022, in connection with the entry into the 2022 Credit Agreement, we repaid in full and terminated the 2019 Credit Agreement and amortized the remaining $ 0.4 million of capitalized debt issuance costs related to the 2019 Credit Agreement. The 2020 Swap Agreement was also terminated on March 1, 2022, which will result in a one-time benefit of $ 3.5 million to be recognized during the third quarter of fiscal 2022, based on the fair market value of the 2020 Swap Agreement as of the termination date. 32 Table of Contents