FACTSET RESEARCH SYSTEMS INC 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we are exposed to foreign currency exchange risk and interest rate risk that could impact our financial position and results of operations. Foreign Currency Exchange Risk We are exposed to foreign currency exchange risk as we conduct business outside the U.S. in several currencies including British Pound Sterling, Euro, Indian Rupee, and Philippine Peso. Changes in the exchange rates for such currencies into U.S. dollars can affect our revenues, earnings, and the carrying values of our assets and liabilities in our consolidated balance sheet, either positively or negatively. To manage the exposures related to the effects of foreign exchange rate fluctuations, we utilize derivative instruments (foreign currency forward contracts). The changes in fair value for these foreign currency forward contracts are initially reported as a component of Accumulated other comprehensive loss ("AOCL") and subsequently reclassified into operating expenses when the hedged exposure affects earnings. A sensitivity analysis was performed based on the estimated fair value of all foreign currency forward contracts outstanding at February 28, 2022. If the U.S. dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by $9.7 million. Such a change in fair value of our financial instruments would be substantially offset by changes in our expense base. If we had no hedges in place as of February 28, 2022, a hypothetical 10% weaker U.S. dollar against all foreign currencies from the quoted foreign currency exchange rates at February 28, 2022, with operating results held constant in local currencies, would result in a decrease in operating income by $41.5 million over the next 12 months. A hypothetical 10% weaker U.S. dollar against all foreign currencies at February 28, 2022 would have increased the fair value of total assets by $67.9 million and equity by $47.1 million. Refer to Note 6, Derivative Instruments in the Notes to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our foreign currency exposures and our foreign currency forward contracts. Interest Rate Risk Cash and Cash Equivalents and Investments The fair market value of our Cash and cash equivalents and Investments at February 28, 2022 was $808.0 million. Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. We are exposed to interest rate risk through fluctuations of interest rates on our investments. As we have a restrictive investment policy, our financial exposure to fluctuations in interest rates is expected to remain low. Debt 2019 Credit Agreement As of February 28, 2022, we had long-term debt outstanding under the 2019 Revolving Credit Facility with a principal balance of $575.0 million. The debt bears interest on the outstanding principle at a rate equal to LIBOR plus a spread, using a debt leverage pricing grid. The variable rate of interest on our long-term debt created exposure to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on March 5, 2020, we entered into the 2020 Swap Agreement (as defined in Note 6, Derivative Instruments ) with a notional amount of $287.5 million to hedge the variable interest rate obligation, effectively converting the floating interest rate to fixed for the hedged portion. Thus, our exposure was limited to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged, or $287.5 million of our outstanding principal balance. Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR provided exposure of $0.7 million to our annual interest expense. Refer to Note 11, Debt, in the Notes to our Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our outstanding debt obligations. 51 Table of Contents 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. borrowed $1.0 billion under the 2022 Term Facility and $250.0 million under the 2022 Revolving Facility. The debt will bear interest on the outstanding principle at an applicable Secured Overnight Financing Rate ("SOFR") rate plus a spread, using a debt leverage pricing grid. The variable rate of interest on our long-term debt creates exposure to interest rate volatility due to changes in SOFR. To mitigate this exposure, on March 1, 2022, we entered into the 2022 Swap Agreement. Refer to Note 17, Subsequent Events , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these defined terms, our 2022 Term Facility, 2022 Revolving Facility and our 2022 Swap Agreement. Current market events have not required us to modify materially or change our financial risk management strategies with respect to our exposures to foreign currency exchange risk and interest rate risk.