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, Indian Rupee, Euro, 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 May 31, 2022. If the U.S. dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by $15.0 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 May 31, 2022, a hypothetical 10% weaker U.S. dollar against all foreign currencies from the quoted foreign currency exchange rates at May 31, 2022, with operating results held constant in local currencies, would result in a decrease in operating income by $39.6 million over the next 12 months. A hypothetical 10% weaker U.S. dollar against all foreign currencies at May 31, 2022 would have increased the fair value of total assets by $65.6 million and equity by $45.9 million. Refer to Note 6, Derivative Instruments 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 May 31, 2022 was $560.5 million. Our cash and cash equivalents consist of demand deposits, money market funds and mutual funds not subject to maturities 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 2022 Credit Agreement On March 1, 2022, we borrowed $1.0 billion under the 2022 Term Facility and $250.0 million of the available $500.0 million under the 2022 Revolving Facility. As of May 31, 2022 we had an outstanding principal balance of $875.0 million under the 2022 Term Facility and $250.0 million under the 2022 Revolving Facility. The outstanding borrowings under the 2022 Credit Facilities bore interest at a rate equal to the applicable Term SOFR rate plus a spread using a debt leverage pricing grid, currently at 1.1% as of May 31, 2022. The variable rate of interest on our 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 with a notional amount of $800.0 million. The 2022 Swap Agreement will hedge a portion of our outstanding floating SOFR rate debt with a fixed interest rate of 1.162%, to maintain an intended fixed to floating interest rate ratio. The notional amount of the 2022 Swap Agreement declines by $100.0 million on a quarterly basis beginning May 31, 2022 and matures on February 28, 2024. As of May 31, 2022, the notional amount was $700.0 million. Thus, our exposure is limited to fluctuations in SOFR on our borrowings from the 2022 Credit Facilities in excess of amounts that are not hedged, or $425.0 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 SOFR provided exposure of $1.1 million to our annual interest expense. 56 Table of Contents Refer to Note 12, Debt for more information on our 2022 Term Facility and 2022 Revolving Facility. Refer to Note 6, Derivative Instruments for more information on 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.