ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements:
|
Page
|
|
|
Management’s Statement of Responsibility for Financial Statements
|
43
|
Management’s Report on Internal Control over Financial Reporting
|
43
|
Reports of Independent Registered Public Accounting Firms
|
44-45
|
Consolidated Statements of Income for the years ended August 31, 2016, 2015 and 2014
|
46
|
Consolidated Statements of Comprehensive Income for the years ended August 31, 2016, 2015 and 2014
|
47
|
Consolidated Balance Sheets at August 31, 2016 and 2015
|
48
|
Consolidated Statements of Cash Flows for the years ended August 31, 2016, 2015 and 2014
|
49
|
Consolidated Statements of Changes in Stockholders’ Equity for the years ended August 31, 2016, 2015 and 2014
|
50
|
Notes to the Consolidated Financial Statements
|
51
|
|
|
Financial Statement Schedule:
|
|
|
|
Schedule II – Valuation and Qualifying Accounts
|
84
|
Management’s Statement of Responsibility for Financial Statements
FactSet’s consolidated financial statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s estimates and judgments. All financial information in this Annual Report on Form 10-K has been presented on a basis consistent with the information included in the accompanying financial statements.
FactSet’s policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of the New York Stock Exchange, the NASDAQ Stock Market and the corporate governance requirements of the Sarbanes-Oxley Act of 2002. Management, with oversight by the Company’s Board of Directors, has established and maintains a strong ethical climate so that its affairs are conducted to the highest standards of personal and corporate conduct.
FactSet maintains accounting systems, including internal accounting controls, designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources, and the leadership and commitment of top management. In compliance with the Sarbanes-Oxley Act of 2002, FactSet assessed its internal control over financial reporting as of August 31, 2016
, and issued a report (see below).
The Audit Committee of the Board of Directors, which consists solely of independent non-employee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee periodically meets with management and the independent accountants to review and evaluate their accounting, auditing and financial reporting activities and responsibilities, including management’s assessment of internal control over financial reporting. The independent registered public accounting firm has full and free access to the Audit Committee and has met with the committee, with and without management present.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for FactSet. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management (with the participation of the principal executive officer and principal financial officer) conducted an evaluation of the effectiveness of FactSet’s internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission except for the internal controls of Portware LLC which constituted 2.1% of net assets as of August 31, 2016 and 3.4% of revenues for the year then ended . Based on this evaluation, management concluded that FactSet’s internal control over financial reporting was effective as of August 31, 2016. Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness of FactSet’s internal control over financial reporting and has issued a report on FactSet’s internal control over financial reporting, which is included in their report on page 46
.
|
|
|
|
/s/ F. PHILIP SNOW
|
/s/ MAURIZIO NICOLELLI
|
|
|
F. Philip Snow
|
Maurizio Nicolelli
|
Chief Executive Officer
|
Senior Vice President, Chief Financial Officer
|
October 31, 2016
|
October 31, 2016
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of FactSet Research Systems Inc.
We have audited the accompanying consolidated balance sheets of FactSet Research Systems Inc. as of August 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended August 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FactSet Research Systems Inc. at August 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FactSet Research Systems Inc.'s internal control over financial reporting as of August 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated October 31, 2016 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
October 31, 2016
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of FactSet Research Systems Inc.
We have audited FactSet Research Systems Inc.’s internal control over financial reporting as of August 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). FactSet Research Systems Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Portware, LLC, which is included in the 2016 consolidated financial statements of FactSet Research Systems Inc. and constituted 2.1% of net assets as of August 31, 2016 and 3.4% of revenues for the year then ended. Our audit of internal control over financial reporting of FactSet Research Systems Inc. also did not include an evaluation of the internal control over financial reporting of Portware, LLC.
In our opinion, FactSet Research Systems Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2016, based on the COSO criteria.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
October 31, 2016
FactSet Research Systems Inc.
Consolidated Statements of Income
|
|
Years ended August 31,
|
|
(In thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
$
|
1,127,092
|
|
|
$
|
1,006,768
|
|
|
$
|
920,335
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
487,409
|
|
|
|
405,339
|
|
|
|
353,686
|
|
Selling, general and administrative
|
|
|
290,007
|
|
|
|
269,511
|
|
|
|
264,430
|
|
Total operating expenses
|
|
|
777,416
|
|
|
|
674,850
|
|
|
|
618,116
|
|
Operating income
|
|
|
349,676
|
|
|
|
331,918
|
|
|
|
302,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of business
|
|
|
112,453
|
|
|
|
—
|
|
|
|
—
|
|
Interest (expense), net of interest income
|
|
|
(1,136
|
)
|
|
|
1,836
|
|
|
|
1,245
|
|
Total other income
|
|
|
111,317
|
|
|
|
1,836
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
460,993
|
|
|
|
333,754
|
|
|
|
303,464
|
|
Provision for income taxes
|
|
|
122,178
|
|
|
|
92,703
|
|
|
|
91,921
|
|
Net income
|
|
$
|
338,815
|
|
|
$
|
241,051
|
|
|
$
|
211,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
8.29
|
|
|
$
|
5.80
|
|
|
$
|
4.98
|
|
Diluted earnings per common share
|
|
$
|
8.19
|
|
|
$
|
5.71
|
|
|
$
|
4.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
40,880
|
|
|
|
41,572
|
|
|
|
42,436
|
|
Diluted weighted average common shares
|
|
|
41,365
|
|
|
|
42,235
|
|
|
|
42,970
|
|
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Statements of Comprehensive Income
|
|
Years ended August 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
338,815
|
|
|
$
|
241,051
|
|
|
$
|
211,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on cash flow hedges*
|
|
|
(857
|
)
|
|
|
(868
|
)
|
|
|
5,357
|
|
Foreign currency translation adjustments
|
|
|
(23,644
|
)
|
|
|
(25,263
|
)
|
|
|
7,895
|
|
Other comprehensive (loss) income
|
|
|
(24,501
|
)
|
|
|
(26,131
|
)
|
|
|
13,252
|
|
Comprehensive income
|
|
$
|
314,314
|
|
|
$
|
214,920
|
|
|
$
|
224,795
|
|
* The unrealized (loss) gain on cash flow hedges disclosed above was net of tax benefit (expense) of $498, $512 and ($3,193) for the fiscal years ended August 31, 2016, 2015 and 2014, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Balance Sheets
|
|
August 31,
|
|
(In thousands, except share data)
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
228,407
|
|
|
$
|
158,914
|
|
Investments
|
|
|
24,217
|
|
|
|
23,497
|
|
Accounts receivable, net of reserves of $1,521 and $1,580 at August 31, 2016 and 2015, respectively
|
|
|
97,797
|
|
|
|
95,064
|
|
Prepaid taxes
|
|
|
—
|
|
|
|
4,808
|
|
Deferred taxes
|
|
|
3,158
|
|
|
|
2,105
|
|
Prepaid expenses and other current assets
|
|
|
15,697
|
|
|
|
19,786
|
|
Total current assets
|
|
|
369,276
|
|
|
|
304,174
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, at cost
|
|
|
253,274
|
|
|
|
213,279
|
|
Less accumulated depreciation and amortization
|
|
|
(168,652
|
)
|
|
|
(154,015
|
)
|
Property, equipment and leasehold improvements, net
|
|
|
84,622
|
|
|
|
59,264
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
452,915
|
|
|
|
308,287
|
|
Intangible assets, net
|
|
|
93,161
|
|
|
|
40,052
|
|
Deferred taxes
|
|
|
13,406
|
|
|
|
20,599
|
|
Other assets
|
|
|
5,781
|
|
|
|
4,295
|
|
TOTAL ASSETS
|
|
$
|
1,019,161
|
|
|
$
|
736,671
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
45,836
|
|
|
$
|
33,880
|
|
Accrued compensation
|
|
|
51,036
|
|
|
|
44,916
|
|
Deferred fees
|
|
|
33,247
|
|
|
|
38,488
|
|
Deferred taxes
|
|
|
291
|
|
|
|
562
|
|
Taxes payable
|
|
|
7,781
|
|
|
|
3,755
|
|
Dividends payable
|
|
|
20,019
|
|
|
|
18,179
|
|
Total current liabilities
|
|
|
158,210
|
|
|
|
139,780
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
300,000
|
|
|
|
35,000
|
|
Deferred taxes
|
|
|
1,708
|
|
|
|
1,697
|
|
Taxes payable
|
|
|
8,782
|
|
|
|
6,776
|
|
Deferred rent and other non-current liabilities
|
|
|
33,080
|
|
|
|
21,834
|
|
TOTAL LIABILITIES
|
|
$
|
501,780
|
|
|
$
|
205,087
|
|
Commitments and contingencies (See Note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
|
|
$
|
—
|
|
|
$
|
—
|
|
Common stock, $.01 par value, 150,000,000 shares authorized, 51,150,978 and 50,328,423 shares issued; 40,038,225 and 41,316,902 shares outstanding at August 31, 2016 and 2015, respectively
|
|
|
512
|
|
|
|
503
|
|
Additional paid-in capital
|
|
|
623,195
|
|
|
|
542,355
|
|
Treasury stock, at cost: 11,112,753 and 9,011,521 shares at August 31, 2016 and 2015, respectively
|
|
|
(1,321,700
|
)
|
|
|
(988,873
|
)
|
Retained earnings
|
|
|
1,283,927
|
|
|
|
1,021,651
|
|
Accumulated other comprehensive loss
|
|
|
(68,553
|
)
|
|
|
(44,052
|
)
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
$
|
517,381
|
|
|
$
|
531,584
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
1,019,161
|
|
|
$
|
736,671
|
|
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Statements of Cash Flows
|
|
Years ended August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
338,815
|
|
|
$
|
241,051
|
|
|
$
|
211,543
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
38,052
|
|
|
|
31,349
|
|
|
|
34,435
|
|
Stock-based compensation expense
|
|
|
29,793
|
|
|
|
26,371
|
|
|
|
22,891
|
|
Gain on sale of business
|
|
|
(112,453
|
)
|
|
|
—
|
|
|
|
—
|
|
Deferred income taxes
|
|
|
4,528
|
|
|
|
(969
|
)
|
|
|
(1,028
|
)
|
Loss (gain) on sale of assets
|
|
|
8
|
|
|
|
(34
|
)
|
|
|
(62
|
)
|
Tax benefits from share-based payment arrangements
|
|
|
(18,205
|
)
|
|
|
(28,948
|
)
|
|
|
(11,955
|
)
|
Changes in assets and liabilities, net of effects of acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of reserves
|
|
|
(3,541
|
)
|
|
|
(4,300
|
)
|
|
|
(13,299
|
)
|
Accounts payable and accrued expenses
|
|
|
5,525
|
|
|
|
8,123
|
|
|
|
(2,903
|
)
|
Accrued compensation
|
|
|
3,961
|
|
|
|
3,516
|
|
|
|
1,953
|
|
Deferred fees
|
|
|
700
|
|
|
|
53
|
|
|
|
3,594
|
|
Taxes payable, net of prepaid taxes
|
|
|
30,270
|
|
|
|
30,437
|
|
|
|
23,309
|
|
Prepaid expenses and other assets
|
|
|
7
|
|
|
|
(4,523
|
)
|
|
|
(1,535
|
)
|
Deferred rent and other non-current liabilities
|
|
|
13,674
|
|
|
|
4,322
|
|
|
|
(1,672
|
)
|
Other working capital accounts, net
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
(248
|
)
|
Net cash provided by operating activities
|
|
|
331,140
|
|
|
|
306,442
|
|
|
|
265,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(262,909
|
)
|
|
|
(34,758
|
)
|
|
|
(46,873
|
)
|
Proceeds from sale of business, net
|
|
|
153,137
|
|
|
|
—
|
|
|
|
—
|
|
Purchases of investments
|
|
|
(18,137
|
)
|
|
|
(24,264
|
)
|
|
|
(20,415
|
)
|
Proceeds from sales of investments
|
|
|
17,241
|
|
|
|
19,827
|
|
|
|
14,323
|
|
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions
|
|
|
(47,740
|
)
|
|
|
(25,682
|
)
|
|
|
(17,743
|
)
|
Net cash used in investing activities
|
|
|
(158,408
|
)
|
|
|
(64,877
|
)
|
|
|
(70,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments
|
|
|
(74,218
|
)
|
|
|
(66,551
|
)
|
|
|
(61,007
|
)
|
Repurchase of common stock
|
|
|
(356,828
|
)
|
|
|
(256,217
|
)
|
|
|
(279,829
|
)
|
Proceeds from debt
|
|
|
265,000
|
|
|
|
35,000
|
|
|
|
—
|
|
Debt issuance costs
|
|
|
(12
|
)
|
|
|
(32
|
)
|
|
|
—
|
|
Proceeds from employee stock plans
|
|
|
56,851
|
|
|
|
71,526
|
|
|
|
52,152
|
|
Tax benefits from share-based payment arrangements
|
|
|
18,205
|
|
|
|
28,948
|
|
|
|
11,955
|
|
Net cash used in financing activities
|
|
|
(91,002
|
)
|
|
|
(187,326
|
)
|
|
|
(276,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(12,237
|
)
|
|
|
(11,703
|
)
|
|
|
2,165
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
69,493
|
|
|
|
42,536
|
|
|
|
(80,249
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
158,914
|
|
|
|
116,378
|
|
|
|
196,627
|
|
Cash and cash equivalents at end of period
|
|
$
|
228,407
|
|
|
$
|
158,914
|
|
|
$
|
116,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes, net of refunds
|
|
$
|
87,513
|
|
|
$
|
64,750
|
|
|
$
|
67,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, not paid
|
|
$
|
20,019
|
|
|
$
|
18,179
|
|
|
$
|
16,299
|
|
Stock issued for acquisition of business
|
|
$
|
—
|
|
|
$
|
2,991
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
FactSet Research Systems Inc.
Consolidated Statements of Changes in Stockholders’ Equity
|
|
Years ended August 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
503
|
|
|
$
|
491
|
|
|
$
|
481
|
|
Common stock issued for employee stock plans
|
|
|
9
|
|
|
|
12
|
|
|
|
10
|
|
Balance, end of year
|
|
$
|
512
|
|
|
$
|
503
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
542,355
|
|
|
$
|
413,754
|
|
|
$
|
326,869
|
|
Common stock issued for employee stock plans
|
|
|
57,784
|
|
|
|
72,381
|
|
|
|
52,039
|
|
Stock-based compensation expense
|
|
|
29,793
|
|
|
|
26,371
|
|
|
|
22,891
|
|
Tax benefits from share-based payment arrangements
|
|
|
18,205
|
|
|
|
28,948
|
|
|
|
11,955
|
|
Accelerated share repurchase
|
|
|
(24,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation adjustment associated with disposition
|
|
|
(942
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock issued for acquisition of business
|
|
|
—
|
|
|
|
901
|
|
|
|
—
|
|
Balance, end of year
|
|
$
|
623,195
|
|
|
$
|
542,355
|
|
|
$
|
413,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
(988,873
|
)
|
|
$
|
(734,746
|
)
|
|
$
|
(454,917
|
)
|
Repurchases of common stock
|
|
|
(328,283
|
)
|
|
|
(253,076
|
)
|
|
|
(275,415
|
)
|
Stock issued for acquisition of business
|
|
|
—
|
|
|
|
2,090
|
|
|
|
—
|
|
Purchases of common stock upon restricted stock vesting
|
|
|
(4,544
|
)
|
|
|
(3,141
|
)
|
|
|
(4,414
|
)
|
Balance, end of year
|
|
$
|
(1,321,700
|
)
|
|
$
|
(988,873
|
)
|
|
$
|
(734,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,021,651
|
|
|
$
|
849,504
|
|
|
$
|
700,519
|
|
Net income
|
|
|
338,815
|
|
|
|
241,051
|
|
|
|
211,543
|
|
Dividends
|
|
|
(76,539
|
)
|
|
|
(68,904
|
)
|
|
|
(62,558
|
)
|
Retirement of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance, end of year
|
|
$
|
1,283,927
|
|
|
$
|
1,021,651
|
|
|
$
|
849,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
(44,052
|
)
|
|
$
|
(17,921
|
)
|
|
$
|
(31,173
|
)
|
Foreign currency translation adjustments
|
|
|
(23,644
|
)
|
|
|
(25,263
|
)
|
|
|
7,895
|
|
Net unrealized (loss) gain on cash flow hedges, net of tax
|
|
|
(857
|
)
|
|
|
(868
|
)
|
|
|
5,357
|
|
Balance, end of year
|
|
$
|
(68,553
|
)
|
|
$
|
(44,052
|
)
|
|
$
|
(17,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
531,584
|
|
|
$
|
511,082
|
|
|
$
|
541,779
|
|
Net income
|
|
|
338,815
|
|
|
|
241,051
|
|
|
|
211,543
|
|
Common stock issued for employee stock plans
|
|
|
57,793
|
|
|
|
72,393
|
|
|
|
52,049
|
|
Purchases of common stock upon restricted stock vesting
|
|
|
(4,544
|
)
|
|
|
(3,141
|
)
|
|
|
(4,414
|
)
|
Stock-based compensation expense
|
|
|
29,793
|
|
|
|
26,371
|
|
|
|
22,891
|
|
Tax benefits from share-based payment arrangements
|
|
|
18,205
|
|
|
|
28,948
|
|
|
|
11,955
|
|
Repurchases of common stock
|
|
|
(352,283
|
)
|
|
|
(253,076
|
)
|
|
|
(275,415
|
)
|
Foreign currency translation adjustments
|
|
|
(23,644
|
)
|
|
|
(25,263
|
)
|
|
|
7,895
|
|
Stock-based compensation adjustment associated with disposition
|
|
|
(942
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock issued for acquisition of business
|
|
|
—
|
|
|
|
2,991
|
|
|
|
—
|
|
Net unrealized (loss) gain on cash flow hedges, net of tax
|
|
|
(857
|
)
|
|
|
(868
|
)
|
|
|
5,357
|
|
Dividends
|
|
|
(76,539
|
)
|
|
|
(68,904
|
)
|
|
|
(62,558
|
)
|
Balance, end of year
|
|
$
|
517,381
|
|
|
$
|
531,584
|
|
|
$
|
511,082
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
1. ORGANIZATION AND NATURE OF BUSINESS
FactSet Research Systems Inc. (the “Company” or “FactSet”) is a provider of integrated financial information and analytical applications for the global investment community. FactSet delivers insight and information to investment professionals through its analytics, service, content, and technology. By integrating comprehensive datasets and analytics across asset classes with client data, FactSet supports the workflow of both buy-side and sell-side clients. These professionals include portfolio managers, wealth managers, research and performance analysts, risk managers, sell-side equity research professionals, investment bankers, and fixed income professionals. From streaming real-time data to historical information, including quotes, estimates, news and commentary, FactSet offers unique and third-party content through desktop, wireless and off-platform solutions. The Company’s wide application suite offers tools and resources including company and industry analyses, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization and research management solutions. Recent additions to FactSet’s offering include a complete services solution focused on verifying, cleaning and loading portfolio data across asset classes, and an execution management system through its acquisition of Portware. The Company’s revenues are derived from subscriptions to products and services such as workstations, analytics, enterprise data, research management, and trade execution.
2. BASIS OF PRESENTATION
FactSet conducts business globally and is managed on a geographic basis. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany activity and balances have been eliminated from the consolidated financial statements.
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. 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 amounts of revenues and expenses during the reporting period. Significant estimates have been made in areas that include allocation of purchase price to acquired assets and liabilities, stock-based compensation, income taxes, accrued compensation, valuation of goodwill, and useful lives and valuation of fixed and intangible assets. The Company bases its 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.
The Company has evaluated subsequent events through the date that the financial statements were issued.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company and its subsidiaries are summarized below.
Revenue Recognition
The Company’s revenues are derived from month-to-month subscriptions to services such as workstations (also referred to as users), content and applications. The majority of clients are invoiced monthly to reflect the actual services provided. The remaining clients are invoiced quarterly, annually or biannually in advance. Subscription revenue is earned each month as the service is rendered to clients on a monthly basis. FactSet recognizes revenue when the client subscribes to FactSet services, the service has been rendered and earned during the month, the amount of the subscription is fixed or determinable based on established rates quoted on an annualized basis and collectability is reasonably assured. A provision for billing adjustments and cancellation of services is estimated and accounted for as a reduction to revenue, with a corresponding reduction to accounts receivable.
Accounts Receivable and Deferred Fees
Amounts that have been earned but not yet paid are reflected on the Consolidated Balance Sheets as Accounts receivable, net of reserves. Amounts invoiced in advance of client payments that are in excess of earned subscription revenues are reflected on the Consolidated Balance Sheet as Deferred fees. As of August 31, 2016, the amount of accounts receivable that was unbilled totaled $1.1 million, which was billed in fiscal 2017.
The Company calculates its receivable reserve through analyzing aged client receivables, reviewing the recent history of client receivable write-offs and understanding general market and economic conditions. In accordance with this policy, a receivable reserve of $1.5 million and $1.6 million was recorded as of August 31, 2016 and 2015, respectively, within the Consolidated Balance Sheets as a reduction to accounts receivable.
Cost of Services
Cost of services is comprised of compensation for Company employees within the content collection, consulting, product development, software and systems engineering groups in addition to data costs, computer maintenance and depreciation expenses, amortization of identifiable intangible assets, and client-related communication costs.
Selling, General and Administrative
Selling, general and administrative expenses include compensation for the sales and various other support and administrative departments in addition to travel and entertainment expenses, marketing costs, rent, amortization of leasehold improvements, depreciation of furniture and fixtures, office expenses, professional fees and other miscellaneous expenses.
Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the number of weighted average common shares outstanding during the period. Diluted EPS is computed by dividing net income by the number of weighted average common shares outstanding during the period increased by the dilutive effect of potential common shares outstanding during the period. The number of potential common shares outstanding has been determined in accordance with the treasury stock method to the extent they are dilutive. Common share equivalents consist of common shares issuable upon the exercise of outstanding share-based compensation awards, including employee stock options and restricted stock. Under the treasury stock method, the exercise price paid by the optionee, future stock-based compensation expense that the Company has not yet recognized and the amount of tax benefits that would be recorded in additional paid-in capital (“APIC”) when the award becomes deductible are assumed to be used to repurchase shares.
Comprehensive Income (Loss)
The Company discloses comprehensive income (loss) in accordance with applicable standards for the reporting and display of comprehensive income (loss) in a set of financial statements. Comprehensive income (loss) is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
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. The Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. 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. The Company’s cash equivalents are classified as Level 1 while the Company’s derivative instruments (foreign exchange forward contracts) and certificates of deposit are classified as Level 2. There were no Level 3 assets or liabilities held by FactSet as of August 31, 2016 or 2015.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and corporate money market funds with original maturities of three months or less and are reported at fair value. The Company’s corporate money market funds are traded in an active market and the net asset value of each fund on the last day of the quarter is used to determine its fair value.
Investments
Investments consist of certificates of deposits with original maturities greater than three months, but less than one year and, as such, are classified as Investments (short-term) on the Consolidated Balance Sheets. These certificates of deposit are held for investment and are not debt securities. The Company’s investments are associated with its purchase of certificates of deposits in India with maturities of less than twelve months from the date of purchase. Interest income earned from the certificates of deposit during fiscal 2016, 2015 and 2014 were $1.6 million, $2.0 million and $1.2 million, respectively. The Company’s cash, cash equivalents and investments portfolio did not experience any realized or unrealized losses as a result of counterparty credit risk or ratings change during fiscal 2016 and 2015.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Computers and related equipment are depreciated on a straight-line basis over estimated useful lives of three years. Furniture and fixtures are depreciated on a straight-line basis over their estimated useful lives of seven years. Leasehold improvements are amortized on a straight-line basis over the terms of the related leases or estimated useful lives of the improvements, whichever period is shorter. Repairs and maintenance expenditures, which are not considered leasehold improvements and do not extend the useful life of the property and equipment, are expensed as incurred.
The Company performs a test for impairment whenever events or changes in circumstances indicate that the carrying amount of an individual asset or asset group may not be recoverable. Should projected undiscounted future cash flows be less than the carrying amount of the asset or asset group, an impairment charge reducing the carrying amount to fair value is required. Fair value is determined based on the most appropriate valuation technique, including discounted cash flows.
Goodwill
The Company is required to test goodwill for impairment annually, or more frequently if impairment indicators occur. Goodwill is tested for impairment based on the present value of discounted cash flows, and, if impaired, written down to fair value based on discounted cash flows. FactSet has three reporting units, which are consistent with the operating segments reported as there is no discrete financial information available for the subsidiaries within each operating segment. The reporting units evaluated for potential impairment were the U.S., Europe and Asia Pacific, which reflect the level of internal reporting the Company uses to manage its business and operations. The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2016, consistent with the timing of previous years, at which time it was determined that there were no indications of impairment, with the fair value of each of the Company’s reporting units significantly exceeding carrying value.
Intangible Assets
FactSet’s identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from acquisitions, which have been fully integrated into the Company’s operations. Depending on the nature of the intangible asset, the identifiable intangible assets are amortized on either a straight-line or an accelerated basis using estimated useful lives ranging between two and twenty years. The remaining useful lives of intangible assets subject to amortization are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. These intangible assets have no assigned residual values. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for intangible assets that management expects to hold and use is based on the amount the carrying value exceeds the fair value of the asset. No impairment of intangible assets has been identified during any of the fiscal years presented.
Accrued Liabilities
Accrued liabilities include estimates relating to employee compensation, operating expenses and tax liabilities. Approximately 15% of the Company’s employee incentive compensation programs are discretionary. At the end of each fiscal year, FactSet conducts a final review of both Company and individual performance within each department to determine the amount of discretionary employee compensation. The Company also reviews compensation throughout the year to determine how overall performance tracks against management’s expectations. Management takes these and other factors, including historical performance, into account in reviewing accrued compensation estimates quarterly and adjusting accrual rates as appropriate. The amount of the variable employee compensation recorded within accrued compensation as of August 31, 2016 and 2015, was $38.2 million and $38.6 million, respectively.
Derivative Instruments
FactSet conducts business outside the U.S. in several currencies including the Indian Rupee, Philippine Peso, British Pound Sterling, Euro and Japanese Yen. As such, it is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. The Company utilizes 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. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes. In designing a specific hedging approach, FactSet considers several factors, including offsetting exposures, significance of exposures, forecasting risk and potential effectiveness of the hedge. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. 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. The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements. All derivatives are assessed for effectiveness at each reporting period.
Foreign Currency Translation
Certain wholly owned subsidiaries within the European and Asia Pacific segments operate under a functional currency different from the U.S. dollar, such as the British Pound Sterling, Euro, Japanese Yen, Indian Rupee and Philippine Peso. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenues and expenses of foreign operations are recorded in AOCL as a component of stockholders’ equity. The accumulated foreign currency translation loss totaled $67.3 million and $43.7 million at August 31, 2016 and 2015, respectively.
Income and Deferred Taxes
Income tax expense is based on taxable income determined in accordance with currently enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates. FactSet recognizes the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position as of the reporting date. Otherwise, no benefit or expense can be recognized in the consolidated financial statements. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Additionally, FactSet accrues interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest is classified as income tax expense in the financial statements. As of August 31, 2016, the Company had gross unrecognized tax benefits totaling $8.8 million, including $1.3 million of accrued interest, recorded as
Taxes Payable
(non-current) on the Consolidated Balance Sheet.
Stock-Based Compensation
Accounting guidance requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock options, restricted stock and common shares acquired under employee stock purchases based on estimated fair values of the share awards that are scheduled to vest during the period. FactSet uses the straight-line attribution method for all awards with graded vesting features and service conditions only. Under this method, the amount of compensation expense that is recognized on any date is at least equal to the vested portion of the award on that date. For all stock-based awards with performance conditions, the graded vesting attribution method is used by the Company to determine the monthly stock-based compensation expense over the applicable vesting periods.
As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based primarily on historical experience. Windfall tax benefits, defined as tax deductions that exceed recorded stock-based compensation, are classified as cash inflows from financing activities.
Performance-based stock options require management to make assumptions regarding the likelihood of achieving Company performance targets on a quarterly basis. The number of performance-based options that vest will be predicated on the Company achieving certain performance levels. A change in the financial performance levels the Company achieves could result in changes to FactSet’s current estimate of the vesting percentage and related stock-based compensation.
Treasury Stock
The Company accounts for repurchased common stock under the cost method and includes such treasury stock as a component of its stockholders’ equity. At the time treasury stock retirement is approved by FactSet’s Board of Directors, the Company’s accounting policy is to deduct its par value from common stock, reduce APIC by the amount recorded in APIC when the stock was originally issued and any remaining excess of cost as a deduction from retained earnings.
Operating Leases
The Company conducts all of its operations in leased facilities which have minimum lease obligations under non-cancelable operating leases. Certain of these leases contain rent escalations based on specified percentages. Most of the leases contain renewal options and require payments for taxes, insurance and maintenance. Rent expense is charged to operations as incurred except for escalating rents, which are charged to operations on a straight-line basis over the life of the lease. Lease incentives, relating to allowances provided by landlords, are amortized over the term of the lease as a reduction of rent expense. Costs associated with acquiring a subtenant, including broker commissions and tenant allowances, are amortized over the sublease term as a reduction of sublease income.
Business Combinations
The Company records acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies and contingent consideration are recognized at their fair value on the acquisition date. The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses and restructuring costs are recognized separately from the business combination and are expensed as incurred.
Concentrations of Risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.
New Accounting Standards or Updates Recently Adopted
Except for the new accounting standard updates disclosed below, the new updates issued by the Financial Accounting Standards Board (“FASB”) during the last three fiscal years did not have an impact on the Company’s consolidated financial statements.
Reporting Discontinued Operations
In April 2014, the FASB issued an accounting standard update that changes the criteria for reporting discontinued operations. Under the accounting standard update, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity's operations and financial results when either it qualifies as held for sale, disposed of by sale, or disposed of other than by sale. This accounting standard update was effective for FactSet beginning in the first quarter of fiscal 2016 and did not have a material impact on its consolidated financial statements.
Recent Accounting Standards or Updates Not Yet Effective
Revenue Recognition
In May 2014 and July 2015, the FASB issued accounting standard updates which provide clarified principles for recognizing revenue arising from contracts with clients and supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These accounting standard updates will be effective for FactSet beginning in the first quarter of fiscal 2019, with early adoption in fiscal 2018 permitted and allow for either full retrospective or modified retrospective adoption. The Company is currently evaluating the impact of these accounting standard updates on its consolidated financial statements and the method of adoption.
Going Concern
In August 2014, the FASB issued an accounting standard update that requires management to evaluate and disclose whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after financial statements are issued. The evaluation and disclosure will be required to be made for both annual and interim reporting periods, if applicable, along with an evaluation as to whether management’s plans alleviate that doubt. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2017. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
Income Statement Presentation – Extraordinary and Unusual Items
In January 2015, the FASB issued an accounting standard update that eliminates from GAAP the concept of extraordinary items. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2017. The standard primarily involves presentation and disclosure and, therefore, is not expected to have a material impact on the Company’s financial condition, results of operations or its cash flows.
Simplification Guidance on Debt Issuance Costs
In April 2015, the FASB issued an accounting standard update which changes the presentation of debt issuance costs in the applicable financial statements. Under the accounting standard update, an entity should present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2017. This new accounting standard update will not have a material impact on the Company’s consolidated financial statements.
In August 2015, the FASB issued an accounting standard update to amend the previous guidance issued in April 2015 and address debt issuance costs related to line-of-credit arrangements. The accounting standard update allows an entity to present debt issuance costs related to a line-of-credit as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the arrangement. This accounting standard update did not impact the effective date of the previously issued guidance and it will not have a material impact on the Company’s consolidated financial statements.
Customers’ Accounting for Cloud Computing Costs
In April 2015, the FASB issued an accounting standard update to provide guidance on a customer’s accounting for cloud computing costs. Under the accounting standard update, a customer must determine whether a cloud computing arrangement contains a software license. If so, the customer would account for the fees related to the software license element in a manner consistent with internal-use software guidance. This new guidance will be effective for FactSet beginning in the first quarter of fiscal 2017. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
Simplification of the Accounting for Measurement-Period Adjustments
In September 2015, the FASB issued an accounting standard update to simplify the accounting for measurement-period adjustments related to a business combination. Under the accounting standard update, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The accounting standard update also requires acquirers to present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance will be effective for FactSet beginning in the first quarter of fiscal 2017. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
Balance Sheet Classification of Deferred Taxes
In November 2015, the FASB issued an accounting standard update to simplify the presentation of deferred taxes on the balance sheet. The accounting standard update will require an entity to present all deferred tax assets and deferred tax liabilities as non-current on the balance sheet. Under the current guidance, entities are required to separately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction will still be required under the new guidance. This guidance will be effective for FactSet beginning in the first quarter of fiscal 2018, with early adoption in fiscal 2017 permitted. The accounting standard update is a change in balance sheet presentation only and, as such, the Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued an accounting standard update to amend its current guidance on the classification and measurement of certain financial instruments. The accounting standard update significantly revises an entity’s accounting related to the presentation of certain fair value changes for financial liabilities measured at fair value. This guidance also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance will be effective for FactSet beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Leases
In February 2016, the FASB issued an accounting standard update related to accounting for leases. The guidance introduces a lessee model that requires most leases to be reported on the balance sheet. The accounting standard update aligns many of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. The guidance also eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2020, with early adoption in fiscal 2019 permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Share-Based Payments
In March 2016, the FASB issued an accounting standard update which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flow. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2018. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
Cash Flow Simplification
In August 2016, the FASB issued an accounting standard update which simplifies how certain transactions are classified in the statement of cash flows. This includes revised guidance on the cash flow classification of debt prepayments and debt extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investments. The guidance is intended to reduce diversity in practice across all industries. This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
No other new accounting pronouncements issued or effective as of August 31, 2016
, have had or are expected to have an impact on the Company’s consolidated financial statements.
4. 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. The Company considers the principal or most advantageous market in which it would transact and considers 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. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. FactSet has categorized its 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 FactSet’s 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 significant inputs are observable or can be derived principally from, or corroborated by, observable market data. The Company’s certificates of deposit 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. There were no Level 3 assets or liabilities held by FactSet as of August 31, 2016 or 2015.
(a) Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables shows by level within the fair value hierarchy the Company’s assets and liabilities that are measured at fair value on a recurring basis at August 31, 2016 and 2015:
|
|
Fair Value Measurements at August 31, 2016
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate money market funds
(1)
|
|
$
|
92,765
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
92,765
|
|
Certificates of deposit
(2)
|
|
|
—
|
|
|
|
24,217
|
|
|
|
—
|
|
|
|
24,217
|
|
Derivative instruments
(3)
|
|
|
—
|
|
|
|
869
|
|
|
|
—
|
|
|
|
869
|
|
Total assets measured at fair value
|
|
$
|
92,765
|
|
|
$
|
25,086
|
|
|
$
|
—
|
|
|
$
|
117,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
(3)
|
|
$
|
—
|
|
|
$
|
2,791
|
|
|
$
|
—
|
|
|
$
|
2,791
|
|
Total liabilities measured at fair value
|
|
$
|
—
|
|
|
$
|
2,791
|
|
|
$
|
—
|
|
|
$
|
2,791
|
|
|
|
Fair Value Measurements at August 31, 2015
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate money market funds
(1)
|
|
$
|
89,443
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
89,443
|
|
Certificates of deposit
(2)
|
|
|
—
|
|
|
|
23,497
|
|
|
|
—
|
|
|
|
23,497
|
|
Derivative instruments
(3)
|
|
|
—
|
|
|
|
1,035
|
|
|
|
—
|
|
|
|
1,035
|
|
Total assets measured at fair value
|
|
$
|
89,443
|
|
|
$
|
24,532
|
|
|
$
|
—
|
|
|
$
|
113,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
(3)
|
|
$
|
—
|
|
|
$
|
1,602
|
|
|
$
|
—
|
|
|
$
|
1,602
|
|
Total liabilities measured at fair value
|
|
$
|
—
|
|
|
$
|
1,602
|
|
|
$
|
—
|
|
|
$
|
1,602
|
|
|
(1)
|
The Company’s corporate money market funds are traded in an active market and the net asset value of each fund on the last day of the quarter is used to determine its fair value. As such, the Company’s corporate money market funds are classified as Level 1 and included in Cash and cash equivalents within the Consolidated Balance Sheets.
|
|
(2)
|
The Company’s c
ertificates of deposit held for investment are not debt securities
and are classified as Level 2
. These certificates of deposit have original maturities greater than three months, but less than one year and, as such, are classified as Investments (short-term) within the Consolidated Balance Sheets.
|
|
(3)
|
The Company utilizes the income approach to measure fair value for its derivative instruments (
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 therefore are classified as Level 2.
|
The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.
(b) Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain assets, including goodwill and intangible assets, and liabilities, are measured at fair value on a non-recurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances such as when they are deemed to be other-than-temporarily impaired. 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 comparables, and discounted cash flow projections. An impairment charge is recorded when the cost exceeds its fair value, based upon the results of such valuations. During fiscal 2016 and 2015, no fair value adjustments or material fair value measurements were required for the Company’s non-financial assets or liabilities.
(c) Assets and Liabilities Measured at Fair Value for Disclosure Purposes only
As of August 31, 2016 and 2015, the fair value of the Company’s long-term debt was $300.0 million and $35.0 million, respectively, which approximated its carrying amount given its floating interest rate basis. The fair value of the Company’s long-term debt was determined based on quoted market prices for debt with a similar maturity, and thus categorized as Level 2 in the fair value hierarchy.
5. DERIVATIVE INSTRUMENTS
Cash Flow Hedges
FactSet conducts business outside the U.S. in several currencies including the British Pound Sterling, Euro, Indian Rupee, Japanese Yen and Philippine Peso. As such, it is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. The Company utilizes 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. The Company does not enter into foreign currency forward contracts for trading or speculative purposes. In designing a specific hedging approach, FactSet 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 AOCL and subsequently reclassified into operating expenses when the hedged exposure affects earnings. There was no discontinuance of cash flow hedges during fiscal 2016 or 2015, and as such, no corresponding gains or losses related to changes in the value of the Company’s contracts were reclassified into earnings prior to settlement.
As of August 31, 2016, FactSet maintained the following foreign currency forward contracts to hedge its British Pound Sterling and Indian Rupee exposures:
|
●
|
British Pound Sterling
- foreign currency forward contracts to hedge approximately 50% of its British Pound Sterling exposure through the fourth quarter of fiscal 2017.
|
|
●
|
Indian Rupee
- foreign currency forward contracts to hedge approximately 75% of its Indian Rupee exposure through the first quarter of fiscal 2019.
|
The following is a summary of all hedging positions and corresponding fair values:
|
|
Gross Notional Value
|
|
|
Fair Value (Liability) Asset
|
|
Currency Hedged
(in thousands, in U.S. dollars)
|
|
August 31, 2016
|
|
|
August 31, 2015
|
|
|
August 31, 2016
|
|
|
August 31, 2015
|
|
British Pound Sterling
|
|
$
|
33,280
|
|
|
$
|
15,831
|
|
|
$
|
(2,791
|
)
|
|
$
|
280
|
|
Euro
|
|
|
—
|
|
|
|
20,263
|
|
|
|
—
|
|
|
|
143
|
|
Indian Rupee
|
|
|
58,410
|
|
|
|
56,320
|
|
|
|
869
|
|
|
|
(990
|
)
|
Total
|
|
$
|
91,690
|
|
|
$
|
92,414
|
|
|
$
|
(1,922
|
)
|
|
$
|
(567
|
)
|
As of August 31, 2016, the gross notional value of foreign currency forward contracts to purchase British Pound Sterling with U.S. dollars was £23.1 million. The gross notional value of foreign currency forward contracts to purchase Indian Rupees with U.S. dollars was Rs. 4.2 billion.
Counterparty Credit Risk
As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk. FactSet has incorporated counterparty risk into the fair value of its derivative assets and its own credit risk into the value of the Company’s derivative liabilities. FactSet calculates credit risk from observable data related to credit default swaps (“CDS”) as quoted by publicly available information. Counterparty risk is represented by CDS spreads related to the senior secured debt of the respective bank with whom FactSet has executed these derivative transactions. Because CDS spread information is not available for FactSet, the Company’s credit risk is determined based on using a simple average of CDS spreads for peer companies. To mitigate counterparty credit risk, FactSet enters into contracts with large financial institutions. The Company regularly reviews its credit exposure balances as well as the creditworthiness of the counterparties. The Company does not expect any losses as a result of default of its counterparties.
Fair Value of Derivative Instruments
The following tables provide a summary of the fair value amounts of derivative instruments and gains and losses on derivative instruments:
Designation of Derivatives
(in thousands)
|
Balance Sheet Location
|
|
August
31, 2016
|
|
|
August
31, 2015
|
|
Derivatives designated as hedging instruments
|
Assets: Foreign Currency Forward Contracts
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
163
|
|
|
$
|
1,035
|
|
|
Other assets
|
|
$
|
706
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: Foreign Currency Forward Contracts
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,791
|
|
|
$
|
—
|
|
|
Deferred rent and other non-current liabilities
|
|
$
|
—
|
|
|
$
|
1,602
|
|
All derivatives were designated as hedging instruments as of August 31, 2016 and 2015, respectively.
Derivatives in Cash Flow Hedging Relationships
The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the each of the three fiscal years ended August 31,
(in thousands):
|
|
(Loss) Gain Recognized
in AOCL on Derivatives
(Effective Portion)
|
|
Location of Loss
|
|
Loss Reclassified
from AOCL into Income
(Effective Portion)
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Reclassified from
AOCL into Income
(Effective Portion)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Foreign currency forward contracts
|
|
$
|
(1,806
|
)
|
|
$
|
(1,939
|
)
|
|
$
|
8,294
|
|
SG&A
|
|
$
|
(451
|
)
|
|
$
|
(559
|
)
|
|
$
|
(260
|
)
|
No amount of ineffectiveness was recorded in the Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or loss was included in the assessment of hedge effectiveness. As of August 31, 2016, FactSet estimates that $2.6 million of net derivative losses related to its cash flow hedges included in AOCL will be reclassified into earnings within the next 12 months.
Offsetting of Derivative Instruments
FactSet’s master netting and other similar arrangements with its respective counterparties allow for net settlement under certain conditions. As of August 31, 2016 and 2015, respectively, information related to these offsetting arrangements was as follows:
(in thousands)
|
|
Derivatives Offset in Consolidated Balance Sheets
|
|
August 31, 2016
|
|
Gross Derivative
Amounts
|
|
|
Gross Derivative
Amounts Offset in
Balance Sheet
|
|
|
Net
Amounts
|
|
Fair value of assets
|
|
$
|
869
|
|
|
$
|
—
|
|
|
$
|
869
|
|
Fair value of liabilities
|
|
|
(2,791
|
)
|
|
|
—
|
|
|
|
(2,791
|
)
|
Total
|
|
$
|
(1,922
|
)
|
|
$
|
—
|
|
|
$
|
(1,922
|
)
|
|
|
Derivatives Offset in Consolidated Balance Sheets
|
|
August 31, 2015
|
|
Gross Derivative
Amounts
|
|
|
Gross Derivative
Amounts Offset in
Balance Sheet
|
|
|
Net
Amounts
|
|
Fair value of assets
|
|
$
|
1,040
|
|
|
$
|
(5
|
)
|
|
$
|
1,035
|
|
Fair value of liabilities
|
|
|
(1,607
|
)
|
|
|
5
|
|
|
|
(1,602
|
)
|
Total
|
|
$
|
(567
|
)
|
|
$
|
—
|
|
|
$
|
(567
|
)
|
6. OTHER COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of other comprehensive (loss) income during the fiscal years ended August 31, 2016, 2015 and 2014 are as follows:
|
|
August 31,
2016
|
|
|
August 31,
2015
|
|
|
August 31,
2014
|
|
(in thousands)
|
|
Pre-tax
|
|
|
Net of tax
|
|
|
Pre-tax
|
|
|
Net of tax
|
|
|
Pre-tax
|
|
|
Net of tax
|
|
Foreign currency translation adjustments
|
|
$
|
(23,644
|
)
|
|
$
|
(23,644
|
)
|
|
$
|
(25,263
|
)
|
|
$
|
(25,263
|
)
|
|
$
|
7,895
|
|
|
$
|
7,895
|
|
Realized loss on cash flow hedges reclassified to earnings
(1)
|
|
|
451
|
|
|
|
284
|
|
|
|
559
|
|
|
|
352
|
|
|
|
260
|
|
|
|
164
|
|
Unrealized (loss) gain on cash flow hedges recognized in AOCL
|
|
|
(1,806
|
)
|
|
|
(1,141
|
)
|
|
|
(1,939
|
)
|
|
|
(1,220
|
)
|
|
|
8,294
|
|
|
|
5,193
|
|
Other comprehensive (loss) income
|
|
$
|
(24,999
|
)
|
|
$
|
(24,501
|
)
|
|
$
|
(26,643
|
)
|
|
$
|
(26,131
|
)
|
|
$
|
16,449
|
|
|
$
|
13,252
|
|
|
(1)
|
Reclassified to Selling, General and Administrative Expenses
|
The components of AOCL are as follows:
(in thousands)
|
|
August 31,
2016
|
|
|
August 31,
2015
|
|
Accumulated unrealized losses on cash flow hedges, net of tax
|
|
$
|
(1,215
|
)
|
|
$
|
(358
|
)
|
Accumulated foreign currency translation adjustments
|
|
|
(67,338
|
)
|
|
|
(43,694
|
)
|
Total accumulated other comprehensive loss
|
|
$
|
(68,553
|
)
|
|
$
|
(44,052
|
)
|
7. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Financial information at the operating segment level is reviewed jointly by the Chief Executive Officer (“CEO”) and senior management. Senior management consists of executives who directly report to the CEO, comprising the Chief Financial Officer
, Chief Operating Officer, Global Head of Sales, General Counsel, Chief Human Resources Officer and three senior directors in charge of product strategy. Senior management, along with the CEO, constitute FactSet’s chief operating decision making group (“CODMG”) and is responsible for making decisions about resources allocated amongst the operating segments based on actual results.
FactSet’s operating segments are aligned with how the Company, including its CODMG, manages the business and the demographic markets in which FactSet serves. The Company’s internal financial reporting structure is based on three segments; the U.S., Europe and Asia Pacific. FactSet believes this alignment helps it better manage the business and view the markets the Company serves, which are centered on providing integrated global financial and economic information. Sales, consulting, data collection, product development and software engineering are the primary functional groups within the U.S., Europe and Asia Pacific segments that provide global financial and economic information to investment managers, investment banks and other financial services professionals. The U.S. segment services finance professionals including financial institutions throughout the Americas, while the European and Asia Pacific segments service investment professionals located throughout Europe and the Asia Pacific region, respectively. The accounting policies of the segments are the same as those described in the Note 3,
Summary of Significant Accounting Policies
.
The European segment is headquartered in London, England and maintains office locations in France, Germany, Ireland, Italy, Latvia, Luxembourg, the Netherlands, Spain, South Africa, Sweden and Dubai. The Asia Pacific segment is headquartered in Tokyo, Japan with office locations in Australia, Hong Kong, Singapore and India. Segment revenues reflect direct sales to clients based in their respective geographic locations. There are no intersegment or intercompany sales of FactSet services. Each segment records compensation expense, including stock-based compensation, amortization of intangible assets, depreciation of furniture and fixtures, amortization of leasehold improvements, communication costs, professional fees, rent expense, travel, marketing, office and other direct expenses. Expenditures associated with the Company’s data centers, third party data costs and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the other segments. The content collection centers located in India and the Philippines benefit all of the Company’s operating segments and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenues. Of the total $452.9 million of goodwill reported by the Company at August 31, 2016, 81% was recorded in the U.S. segment, 18% in the European segment and the remaining 1% in the Asia Pacific segment.
The following reflects the results of operations of the segments consistent with the Company’s management system. These results are used, in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments
.
(in thousands)
Year Ended August 31, 2016
|
|
U.S.
|
|
|
Europe
|
|
|
Asia Pacific
|
|
|
Total
|
|
Revenues from clients
|
|
$
|
755,492
|
|
|
$
|
277,682
|
|
|
$
|
93,918
|
|
|
$
|
1,127,092
|
|
Segment operating profit
|
|
|
165,251
|
|
|
|
131,410
|
|
|
|
53,015
|
|
|
|
349,676
|
|
Total assets
|
|
|
654,796
|
|
|
|
279,864
|
|
|
|
84,501
|
|
|
|
1,019,161
|
|
Depreciation and amortization
|
|
|
31,529
|
|
|
|
4,220
|
|
|
|
2,303
|
|
|
|
38,052
|
|
Stock-based compensation
|
|
|
25,776
|
|
|
|
3,459
|
|
|
|
558
|
|
|
|
29,793
|
|
Capital expenditures
|
|
|
38,631
|
|
|
|
4,092
|
|
|
|
5,017
|
|
|
|
47,740
|
|
Year Ended August 31, 2015
|
|
U.S.
|
|
|
Europe
|
|
|
Asia Pacific
|
|
|
Total
|
|
Revenues from clients
|
|
$
|
678,774
|
|
|
$
|
251,522
|
|
|
$
|
76,472
|
|
|
$
|
1,006,768
|
|
Segment operating profit
|
|
|
172,980
|
|
|
|
116,310
|
|
|
|
42,628
|
|
|
|
331,918
|
|
Total assets
|
|
|
427,990
|
|
|
|
239,689
|
|
|
|
68,992
|
|
|
|
736,671
|
|
Depreciation and amortization
|
|
|
23,645
|
|
|
|
5,135
|
|
|
|
2,569
|
|
|
|
31,349
|
|
Stock-based compensation
|
|
|
23,006
|
|
|
|
2,991
|
|
|
|
374
|
|
|
|
26,371
|
|
Capital expenditures
|
|
|
22,459
|
|
|
|
460
|
|
|
|
2,763
|
|
|
|
25,682
|
|
Year Ended August 31, 2014
|
|
U.S.
|
|
|
Europe
|
|
|
Asia Pacific
|
|
|
Total
|
|
Revenues from clients
|
|
$
|
624,642
|
|
|
$
|
227,395
|
|
|
$
|
68,298
|
|
|
$
|
920,335
|
|
Segment operating profit
|
|
|
165,004
|
|
|
|
100,937
|
|
|
|
36,278
|
|
|
|
302,219
|
|
Total assets
|
|
|
362,255
|
|
|
|
239,654
|
|
|
|
61,303
|
|
|
|
663,212
|
|
Depreciation and amortization
|
|
|
25,574
|
|
|
|
5,656
|
|
|
|
3,205
|
|
|
|
34,435
|
|
Stock-based compensation
|
|
|
20,288
|
|
|
|
2,231
|
|
|
|
372
|
|
|
|
22,891
|
|
Capital expenditures
|
|
|
16,047
|
|
|
|
647
|
|
|
|
1,049
|
|
|
|
17,743
|
|
GEOGRAPHIC INFORMATION
- The following table sets forth information for those countries that are 10% or more of revenues:
|
|
Years ended August 31,
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
755,492
|
|
|
$
|
678,774
|
|
|
$
|
624,642
|
|
United Kingdom
|
|
|
154,902
|
|
|
|
144,769
|
|
|
|
131,848
|
|
All other European countries
|
|
|
122,780
|
|
|
|
106,753
|
|
|
|
95,547
|
|
Asia Pacific
|
|
|
93,918
|
|
|
|
76,472
|
|
|
|
68,298
|
|
Total revenues
|
|
$
|
1,127,092
|
|
|
$
|
1,006,768
|
|
|
$
|
920,335
|
|
|
(1)
|
Revenues are attributed to countries based on the location of the client.
|
The following table sets forth long-lived assets by geographic area:
|
|
At August 31,
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Long-lived Assets
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
70,646
|
|
|
$
|
49,923
|
|
|
$
|
46,294
|
|
United Kingdom
|
|
|
5,772
|
|
|
|
3,655
|
|
|
|
4,669
|
|
All other European countries
|
|
|
1,018
|
|
|
|
1,322
|
|
|
|
2,267
|
|
Asia Pacific
|
|
|
7,186
|
|
|
|
4,364
|
|
|
|
4,411
|
|
Total long-lived assets
|
|
$
|
84,622
|
|
|
$
|
59,264
|
|
|
$
|
57,641
|
|
|
(1)
|
Long-lived assets consist of property, equipment and leasehold improvements, net of accumulated depreciation and amortization and exclude goodwill, intangible assets, deferred taxes and other assets.
|
8. BUSINESS COMBINATIONS
Portware LLC
On October 16, 2015, FactSet acquired Portware LLC (“Portware”) for a total purchase price of $263.6 million. At the time of acquisition, Portware employed 166 individuals in its New York, London, Hong Kong, and Hyderabad, India offices. Portware is a global provider of multi-asset trade automation solutions for mega and large asset managers. With the acquisition of Portware, FactSet now offers a platform that it expects will increase value to global asset managers by expanding its capabilities to include multi-asset trade automation. This factor contributed to a purchase price in excess of fair value of Portware’s net tangible and intangible assets, leading to the recognition of goodwill. Total transaction costs related to the acquisition were $0.7 million for the year ended August 31, 2016. These transaction expenses were recorded within Selling, General and Administrative (“SG&A”) expenses in the Consolidated Statements of Income.
Allocation of the purchase price to the assets acquired and liabilities assumed was finalized during the fourth quarter of fiscal 2016. There were no significant adjustments between the preliminary and final allocation. The total purchase price was allocated to Portware’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition.
Based upon the purchase price and the valuation, the allocation is as follows:
(i
n thousands)
|
|
Tangible assets acquired
|
|
$
|
9,656
|
|
Amortizable intangible assets
|
|
|
|
|
Software technology
|
|
|
43,000
|
|
Client relationships
|
|
|
27,000
|
|
Non-compete agreements
|
|
|
3,500
|
|
Trade name
|
|
|
2,000
|
|
Goodwill
|
|
|
187,378
|
|
Total assets acquired
|
|
$
|
272,534
|
|
Liabilities assumed
|
|
|
(8,951
|
)
|
Net assets acquired
|
|
$
|
263,583
|
|
Intangible assets of $75.5 million have been allocated to amortizable intangible assets consisting of client relationships, amortized over 16 years using an accelerated amortization method; software technology, amortized over eight years using a straight-line amortization method; non-compete agreements, amortized over seven years using a straight-line amortization method; and a trade name, amortized over five years using a straight-line amortization method.
Goodwill totaling $187.4 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is included in the U.S. segment. Approximately 77% of the total goodwill generated from the Portware acquisition is deductible for income tax purposes. The results of operations of Portware have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on October 16, 2015. Pro forma information has not been presented because the effect of the Portware acquisition is not material to the Company’s consolidated financial results.
Code Red, Inc.
On February 6, 2015, FactSet acquired Code Red, Inc. (“Code Red”) for $36.0 million. At the time of acquisition, Code Red employed 32 individuals in its Boston, New York and London offices. Code Red provides research management technologies to the investment community, including endowments and foundations, institutional asset managers, sovereign wealth funds, pensions, and hedge funds. With the addition of Code Red to FactSet's existing Research Management Solutions (“RMS”), FactSet now offers an RMS for all its clients' workflows, which is consistent with the Company’s strategy of offering software and tools to make client workflows more efficient. This factor contributed to a purchase price in excess of fair value of Code Red’s net tangible and intangible assets, leading to the recognition of goodwill.
The total purchase price of Code Red is as follows:
(in thousands)
|
|
|
|
|
Cash consideration
|
|
$
|
32,962
|
|
Fair value of FactSet stock issued
|
|
|
2,991
|
|
Total purchase price
|
|
$
|
35,953
|
|
Allocation of the purchase price to the assets acquired and liabilities assumed was finalized during the second quarter of fiscal 2016. There were no significant adjustments between the preliminary and final allocation. The total purchase price was allocated to Code Red’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition.
Based upon the purchase price and the valuation, the allocation is as follows:
(in thousands)
|
|
Tangible assets acquired
|
|
$
|
3,090
|
|
Amortizable intangible assets
|
|
|
|
|
Software technology
|
|
|
4,359
|
|
Client relationships
|
|
|
3,546
|
|
Non-compete agreements
|
|
|
201
|
|
Trade name
|
|
|
155
|
|
Goodwill
|
|
|
29,602
|
|
Total assets acquired
|
|
$
|
40,953
|
|
Liabilities assumed
|
|
|
(5,000
|
)
|
Net assets acquired
|
|
$
|
35,953
|
|
Intangible assets of $8.3 million have been allocated to amortizable intangible assets consisting of software technology, amortized over six years using a straight-line amortization method; client relationships, amortized over eight years using an accelerated amortization method; non-compete agreements, amortized over four years using a straight-line amortization method; and a trade name, amortized over three years using a straight-line amortization method.
Goodwill totaling $29.6 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the Code Red acquisition is included in the U.S. segment and is not deductible for income tax purposes. The results of operations of Code Red have been included in the Company’s Consolidated Statements of Income since the completion of the acquisition on February 6, 2015 and the results did not have a material impact on fiscal 2016. Pro forma information has not been presented because the effect of the Code Red acquisition was not material to the Company’s consolidated financial results.
9. DISPOSITIONS
During the third quarter of fiscal 2016, the Company entered into a definitive stock purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell its market research business, consisting of Market Metrics LLC and Matrix-Data Limited (collectively “Market Metrics” or the “disposal group”) and associated assets (the “Transaction”). On July 1, 2016, FactSet completed the Transaction and received $165.0 million in cash
, less estimated working capital and certain adjustments set forth in the Purchase Agreement, including a $9.7 million bonus adjustment amount. The Company recognized a gain on sale of $81.7 million, net of tax of $30.8 million, which is recorded within
other income (expense)
in the Consolidated Statements of Income.
The Company assessed the Transaction and the disposal group and determined that the sale does not represent a strategic shift in its business that has a major effect on its consolidated results of operations, financial position or cash flows. Accordingly, the disposal group is not presented in the consolidated financial statements as a discontinued operation. The results of the disposal group through the date the Transaction closed are reported within the U.S. segment (for Market Metrics LLC) and the European segment (for Matrix-Data Limited).
10. GOODWILL
Changes in the carrying amount of goodwill by segment for fiscal years ended August 31, 2016 and 2015 are as follows:
(in thousands)
|
|
U.S.
|
|
|
Europe
|
|
|
Asia Pacific
|
|
|
Total
|
|
Balance at August 31, 2014
|
|
$
|
179,434
|
|
|
$
|
103,032
|
|
|
$
|
3,142
|
|
|
$
|
285,608
|
|
Acquisitions and other adjustments
|
|
|
32,435
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,435
|
|
Foreign currency translations
|
|
|
—
|
|
|
|
(9,307
|
)
|
|
|
(449
|
)
|
|
|
(9,756
|
)
|
Balance at August 31, 2015
|
|
$
|
211,869
|
|
|
$
|
93,725
|
|
|
$
|
2,693
|
|
|
$
|
308,287
|
|
Acquisitions and other adjustments
|
|
|
187,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
187,352
|
|
Disposition
|
|
|
(31,741
|
)
|
|
|
(665
|
)
|
|
|
—
|
|
|
|
(32,406
|
)
|
Foreign currency translations
|
|
|
—
|
|
|
|
(10,780
|
)
|
|
|
462
|
|
|
|
(10,318
|
)
|
Balance at August 31, 2016
|
|
$
|
367,480
|
|
|
$
|
82,280
|
|
|
$
|
3,155
|
|
|
$
|
452,915
|
|
Goodwill is not amortized as it is estimated to have an indefinite life. At least annually, the Company is required to test goodwill at the reporting unit level for potential impairment, and, if impaired, write down to fair value based on the present value of discounted cash flows. The Company’s reporting units evaluated for potential impairment were the U.S., Europe and Asia Pacific, which reflect the level of internal reporting the Company uses to manage its business and operations. The three reporting units are consistent with the operating segments reported as there is no discrete financial information available for the subsidiaries within each operating segment. The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2016, consistent with the timing of previous years, at which time it was determined that there was no impairment, with the fair value of each of the Company’s reporting units significantly exceeding carrying value. During fiscal 2016 the Company acquired goodwill of $187.4 million representing the excess of the purchase price over the fair value of the net tangible and intangible assets from the Portware acquisition completed in October 2015.
11. INTANGIBLE ASSETS
FactSet’s identifiable intangible assets consist of acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from previous acquisitions, which have been fully integrated into the Company’s operations. The weighted average useful life of the Company’s acquired intangible assets at August 31, 2016 was 11.3 years. The Company amortizes intangible assets over their estimated useful lives, which are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. There were no changes to the estimate of the remaining useful lives during fiscal years 2016, 2015 and 2014. Amortizable intangible assets are tested for impairment
, if indicators are present, based on undiscounted cash flows, and, if impaired, written down to fair value based on discounted cash flows. No impairment of intangible assets has been identified during any of the periods presented. The intangible assets have no assigned residual values.
During fiscal 2016, $75.5 million of intangible assets were acquired with a weighted average useful life of 10.7 years. The details of the intangible assets acquired in the Portware acquisition during fiscal 2016 are outlined as follows:
Portware Intangible Assets Allocation
(in thousands)
|
|
Amortization Period (years)
|
|
|
Acquisition Cost
|
|
Software technology
|
|
|
8.0
|
|
|
$
|
43,000
|
|
Client relationships
|
|
|
16.0
|
|
|
|
27,000
|
|
Non-compete agreements
|
|
|
7.0
|
|
|
|
3,500
|
|
Trade name
|
|
|
5.0
|
|
|
|
2,000
|
|
Total
|
|
|
10.7
|
|
|
$
|
75,500
|
|
The gross carrying amounts and accumulated amortization totals related to the Company’s identifiable intangible assets are as follows:
At August 31, 2016
(in thousands)
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Data content
|
|
$
|
34,167
|
|
|
$
|
16,758
|
|
|
$
|
17,409
|
|
Client relationships
|
|
|
45,185
|
|
|
|
16,480
|
|
|
|
28,705
|
|
Software technology
|
|
|
62,560
|
|
|
|
20,545
|
|
|
|
42,015
|
|
Non-compete agreements
|
|
|
4,344
|
|
|
|
1,118
|
|
|
|
3,226
|
|
Trade names
|
|
|
2,728
|
|
|
|
922
|
|
|
|
1,806
|
|
Total
|
|
$
|
148,984
|
|
|
$
|
55,823
|
|
|
$
|
93,161
|
|
At August 31, 2015
(in thousands)
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Data content
|
|
$
|
39,911
|
|
|
$
|
16,667
|
|
|
$
|
23,244
|
|
Client relationships
|
|
|
27,873
|
|
|
|
18,241
|
|
|
|
9,632
|
|
Software technology
|
|
|
21,203
|
|
|
|
15,042
|
|
|
|
6,161
|
|
Non-compete agreements
|
|
|
1,058
|
|
|
|
637
|
|
|
|
421
|
|
Trade names
|
|
|
1,614
|
|
|
|
1,020
|
|
|
|
594
|
|
Total
|
|
$
|
91,659
|
|
|
$
|
51,607
|
|
|
$
|
40,052
|
|
Amortization expense recorded for intangible assets during fiscal years 2016, 2015 and 2014 was $14.8 million, $8.2 million and $8.5 million, respectively. As of August 31, 2016, estimated intangible asset amortization expense for each of the next five years and thereafter are as follows:
Fiscal Year
(in thousands)
|
|
Estimated Amortization Expense
|
|
2017
|
|
$
|
13,997
|
|
2018
|
|
|
13,156
|
|
2019
|
|
|
12,196
|
|
2020
|
|
|
11,745
|
|
2021
|
|
|
10,456
|
|
Thereafter
|
|
|
31,611
|
|
Total
|
|
$
|
93,161
|
|
12. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following:
|
|
August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Leasehold improvements
|
|
$
|
103,238
|
|
|
$
|
92,427
|
|
Computers and related equipment
|
|
|
110,661
|
|
|
|
87,732
|
|
Furniture and fixtures
|
|
|
39,375
|
|
|
|
33,120
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
253,274
|
|
|
$
|
213,279
|
|
Less accumulated depreciation and amortization
|
|
|
(168,652
|
)
|
|
|
(154,015
|
)
|
Property, equipment and leasehold improvements, net
|
|
$
|
84,622
|
|
|
$
|
59,264
|
|
Depreciation expense was $23.3 million, $23.1 million and $25.9 million for fiscal years 2016, 2015 and 2014, respectively.
13. COMMON STOCK AND EARNINGS PER SHARE
On May 6, 2016, FactSet’s Board of Directors approved a 13.6% increase in the regular quarterly dividend from $0.44 to $0.50 per share, or $2.00 per share per annum.
Shares of common stock outstanding were as follows:
|
|
Years ended August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, beginning of year (September 1)
|
|
|
41,317
|
|
|
|
41,793
|
|
|
|
43,324
|
|
Common stock issued for employee stock plans
|
|
|
823
|
|
|
|
1,213
|
|
|
|
959
|
|
Repurchases of common stock
|
|
|
(2,102
|
)
|
|
|
(1,689
|
)
|
|
|
(2,490
|
)
|
Balance, end of year (August 31)
|
|
|
40,038
|
|
|
|
41,317
|
|
|
|
41,793
|
|
A reconciliation of the weighted average shares outstanding used in the basic and diluted EPS computations is as follows:
(in thousands, except per share data)
|
|
Net Income
(Numerator)
|
|
|
Weighted
Average
Common Shares (Denominator)
|
|
|
Per Share
Amount
|
|
For the year ended August 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
338,815
|
|
|
|
40,880
|
|
|
$
|
8.29
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
485
|
|
|
|
|
|
Income available to common stockholders plus assumed conversions
|
|
$
|
338,815
|
|
|
|
41,365
|
|
|
$
|
8.19
|
|
For the year ended August 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
241,051
|
|
|
|
41,572
|
|
|
$
|
5.80
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
663
|
|
|
|
|
|
Income available to common stockholders plus assumed conversions
|
|
$
|
241,051
|
|
|
|
42,235
|
|
|
$
|
5.71
|
|
For the year ended August 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
211,543
|
|
|
|
42,436
|
|
|
$
|
4.98
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
534
|
|
|
|
|
|
Income available to common stockholders plus assumed conversions
|
|
$
|
211,543
|
|
|
|
42,970
|
|
|
$
|
4.92
|
|
Dilutive potential common shares consist of stock options and unvested restricted stock. There were 507,658 and 88,090 stock options excluded from the fiscal 2016 and 2015 calculations of diluted EPS, respectively, because their inclusion would have been anti-dilutive. There were no stock options excluded from the fiscal 2014 calculation of diluted EPS.
As of August 31, 2016, 2015 and 2014, 782,843, 478,945 and 380,653, respectively, performance-based stock options were excluded from the calculation of diluted EPS. Performance-based stock options are omitted from the calculation of diluted EPS until the performance criteria is considered probable of being met
.
14. STOCKHOLDERS’ EQUITY
Preferred Stock
At August 31, 2016 and 2015, there were 10,000,000 shares of preferred stock ($.01 par value per share) authorized, of which no shares were issued and outstanding. FactSet’s Board of Directors may from time to time authorize the issuance of one or more series of preferred stock and, in connection with the creation of such series, determine the characteristics of each such series including, without limitation, the preference and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions of the series.
Common Stock
At August 31, 2016 and 2015, there were 150,000,000 shares of common stock ($.01 par value per share) authorized, of which 51,150,978 and 50,328,423 shares were issued, respectively. The authorized shares of common stock are issuable for any proper corporate purpose, including future stock splits, stock dividends, acquisitions, raising equity capital or to adopt additional employee benefit plans.
Treasury Stock
At August 31, 2016 and 2015, there were 11,112,753 and 9,011,521 shares of treasury stock (at cost) outstanding, respectively. As a result, 40,038,225 and 41,316,902 shares of FactSet common stock were outstanding at August 31, 2016 and 2015, respectively.
Share Repurchase Program
Repurchases will be made from time to time in the open market and privately negotiated transactions, subject to market conditions. During fiscal 2016, the Company repurchased 1,478,000 shares for $232.3 million. During fiscal 2015, the Company repurchased 1,689,337 shares for $252.8 million. Additionally, in July 2016, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase $120.0 million of FactSet’s common stock. The Company received 595,607 shares of common stock on July 5, 2016 which was approximately 80% of the total number of shares of common stock expected to be repurchased under the ASR Agreement. The final settlement of the ASR Agreement occurred in the first quarter of fiscal 2017 with FactSet receiving an additional 102,916 shares of its common stock. In conjunction with the ASR Agreement, in May 2016, the Company’s Board of Directors approved a $165.0 million expansion of the existing share repurchase program.
At August 31, 2016, $197.0 million remained authorized for future share repurchases. No minimum number of shares to be repurchased has been fixed. There is no timeframe to complete the share repurchase program and it is expected that share repurchases will be paid for using existing and future cash generated by operations.
Restricted Stock
Restricted stock awards entitle the holder to shares of common stock as the awards vest over time. During fiscal 2016, 69,244 shares of previously granted restricted stock awards vested and were included in common stock outstanding as of August 31, 2016 (less 27,625 shares repurchased from employees at a cost of $4.5 million to cover their cost of taxes upon vesting of the restricted stock). During fiscal 2015, 94,870 shares of previously granted restricted stock awards vested and were included in common stock outstanding as of August 31, 2015 (less 23,192 shares repurchased from employees at a cost of $3.1 million to cover their cost of taxes upon vesting of the restricted stock).
Dividends
The Company’s Board of Directors declared the following dividends during the periods presented:
Declaration Date
|
|
Dividends Per
Share of
Common Stock
|
|
Type
|
Record Date
|
|
Total $ Amount
(in thousands)
|
|
Payment Date
|
August 5, 2016
|
|
$
|
0.50
|
|
Regular (cash)
|
August 31, 2016
|
|
$
|
20,019
|
|
September 20, 2016
|
May 6, 2016
|
|
$
|
0.50
|
|
Regular (cash)
|
May 31, 2016
|
|
$
|
20,171
|
|
June 21, 2016
|
February 5, 2016
|
|
$
|
0.44
|
|
Regular (cash)
|
February 29, 2016
|
|
$
|
18,044
|
|
March 15, 2016
|
November 6, 2015
|
|
$
|
0.44
|
|
Regular (cash)
|
November 30, 2015
|
|
$
|
18,208
|
|
December 15, 2015
|
August 10, 2015
|
|
$
|
0.44
|
|
Regular (cash)
|
August 31, 2015
|
|
$
|
18,179
|
|
September 15, 2015
|
May 12, 2015
|
|
$
|
0.44
|
|
Regular (cash)
|
May 29, 2015
|
|
$
|
18,274
|
|
June 16, 2015
|
February 11, 2015
|
|
$
|
0.39
|
|
Regular (cash)
|
February 27, 2015
|
|
$
|
16,236
|
|
March 17, 2015
|
November 12, 2014
|
|
$
|
0.39
|
|
Regular (cash)
|
November 28, 2014
|
|
$
|
16,216
|
|
December 16, 2014
|
August 14, 2014
|
|
$
|
0.39
|
|
Regular (cash)
|
August 29, 2014
|
|
$
|
16,299
|
|
September 16, 2014
|
May 5, 2014
|
|
$
|
0.39
|
|
Regular (cash)
|
May 30, 2014
|
|
$
|
16,386
|
|
June 17, 2014
|
February 11, 2014
|
|
$
|
0.35
|
|
Regular (cash)
|
February 28, 2014
|
|
$
|
14,827
|
|
March 18, 2014
|
November 14, 2013
|
|
$
|
0.35
|
|
Regular (cash)
|
November 29, 2013
|
|
$
|
15,046
|
|
December 17, 2013
|
All of the above cash dividends were paid from existing cash resources. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Company and is subject to final determination by the Company’s Board of Directors.
15. STOCK OPTION AND RETIREMENT PLANS
Stock Options
The FactSet Research Systems Inc. 2004 Stock Option and Award Plan, as Amended and Restated (the “Option Plan”) provides for the grant of share-based awards, including stock options and restricted stock awards to employees of FactSet. The expiration date of the Option Plan is December 14, 2020. Stock options granted under the Option Plan expire either seven or ten years from the date of grant and the majority vest ratably over a period of five years. Options become vested and exercisable provided the employee continues employment with the Company through the applicable vesting date and remain exercisable until expiration or cancellation. Options are not transferable or assignable other than by will or the laws of descent and distribution. During the grantee’s lifetime, the options may be exercised only by the grantee.
Stock Option Activity
In fiscal years 2016, 2015 and 2014, stock options to purchase 1,195,649, 828,652 and 391,478 shares of common stock, respectively, were granted to existing employees and non-employee directors of the Company. These options have a weighted average grant date exercise price of $168.14, $141.79 and $106.73 for fiscal years 2016, 2015 and 2014, respectively.
A summary of stock option activity is as follows:
(in thousands, except per share data)
|
|
Number
Outstanding
|
|
|
Weighted Average
Exercise Price Per Share
|
|
Balance at August 31, 2013
|
|
|
4,729
|
|
|
$
|
75.95
|
|
Granted – non performance-based
|
|
|
174
|
|
|
$
|
103.36
|
|
Granted – performance-based
|
|
|
203
|
|
|
$
|
109.56
|
|
Granted – non-employee Directors grant
|
|
|
14
|
|
|
$
|
107.65
|
|
Exercised
|
|
|
(789
|
)
|
|
$
|
57.56
|
|
Forfeited
(1)
|
|
|
(849
|
)
|
|
$
|
91.98
|
|
Balance at August 31, 2014
|
|
|
3,482
|
|
|
$
|
79.67
|
|
Granted – non performance-based
|
|
|
677
|
|
|
$
|
140.49
|
|
Granted – performance-based
|
|
|
138
|
|
|
$
|
148.52
|
|
Granted – non-employee Directors grant
|
|
|
14
|
|
|
$
|
138.48
|
|
Exercised
|
|
|
(1,060
|
)
|
|
$
|
63.03
|
|
Forfeited
|
|
|
(134
|
)
|
|
$
|
106.01
|
|
Balance at August 31, 2015
|
|
|
3,117
|
|
|
$
|
100.71
|
|
Granted – non performance-based
|
|
|
622
|
|
|
$
|
171.18
|
|
Granted – performance-based
|
|
|
551
|
|
|
$
|
165.59
|
|
Granted – non-employee Directors grant
|
|
|
23
|
|
|
$
|
146.82
|
|
Exercised
|
|
|
(681
|
)
|
|
$
|
71.52
|
|
Forfeited
|
|
|
(268
|
)
|
|
$
|
113.70
|
|
Balance at August 31, 2016
|
|
|
3,364
|
|
|
$
|
129.54
|
|
|
(1)
|
In November 2012, FactSet granted 1,011,510 performance-based employee stock options. Based upon the actual growth in both organic ASV and diluted EPS during the two fiscal years ended August 31, 2014, 20% of the shares became eligible to vest on August 31, 2014 and the remaining were recorded as forfeitures in August 2014.
|
Stock Options Outstanding and Exercisable
The following table summarizes ranges of outstanding and exercisable options as of August 31, 2016 (in thousands, except per share data and the weighted average remaining years of contractual life):
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Range of Exercise
Prices Per Share
|
|
|
Number
Outstanding
|
|
|
Weighted Average Remaining Years of Contractual Life
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
|
Aggregat
e
Intrinsic Value
|
|
|
Number
Exercisable
|
|
|
Weighted Average
Exercise Price Per
Share
|
|
|
Aggregate
Intrinsic
Value
|
|
$58.78
|
–
|
$91.06
|
|
|
|
463
|
|
|
|
3.0
|
|
|
$
|
81.54
|
|
|
$
|
44,676
|
|
|
|
335
|
|
|
$
|
78.00
|
|
|
$
|
33,511
|
|
$92.22
|
–
|
$92.22
|
|
|
|
534
|
|
|
|
6.2
|
|
|
$
|
92.22
|
|
|
$
|
45,823
|
|
|
|
369
|
|
|
$
|
92.22
|
|
|
$
|
31,664
|
|
$94.84
|
–
|
$110.31
|
|
|
|
419
|
|
|
|
5.8
|
|
|
$
|
98.76
|
|
|
$
|
33,213
|
|
|
|
251
|
|
|
$
|
96.14
|
|
|
$
|
20,555
|
|
$131.31
|
–
|
$152.10
|
|
|
|
717
|
|
|
|
8.4
|
|
|
$
|
138.39
|
|
|
$
|
28,421
|
|
|
|
2
|
|
|
$
|
138.48
|
|
|
$
|
79
|
|
$152.15
|
–
|
$165.37
|
|
|
|
702
|
|
|
|
9.0
|
|
|
$
|
164.78
|
|
|
$
|
9,301
|
|
|
|
13
|
|
|
$
|
164.90
|
|
|
$
|
171
|
|
$166.74
|
–
|
$175.20
|
|
|
|
529
|
|
|
|
9.2
|
|
|
$
|
174.91
|
|
|
$
|
1,649
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2016
|
|
|
|
3,364
|
|
|
|
7.2
|
|
|
$
|
129.54
|
|
|
$
|
163,083
|
|
|
|
970
|
|
|
$
|
89.42
|
|
|
$
|
85,980
|
|
Prior Year Amounts
|
|
August 31, 2015
|
|
|
August 31, 2014
|
|
|
|
Number of
Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price Per Share
|
|
Outstanding at fiscal year end
|
|
|
3,117
|
|
|
$
|
100.71
|
|
|
|
3,482
|
|
|
$
|
79.67
|
|
Exercisable at fiscal year end
|
|
|
1,352
|
|
|
$
|
78.70
|
|
|
|
1,899
|
|
|
$
|
68.78
|
|
The aggregate intrinsic value of in-the-money stock options exercisable at August 31, 2016 and 2015 was $86.0 million and $107.1 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price of $178.03 at August 31, 2016 and the exercise price multiplied by the number of options exercisable as of that date. The weighted average remaining contractual life of stock options exercisable at August 31, 2016 and 2015 was 4.5 years and 3.9 years, respectively. The total pre-tax intrinsic value of stock options exercised during fiscal 2016, 2015 and 2014 was $60.8 million, $92.7 million and $44.0 million, respectively.
Performance-based Stock Options
Performance-based stock options require management to make assumptions regarding the likelihood of achieving Company performance targets. The number of performance-based options that vest will be predicated on the Company achieving performance levels during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet, a percentage of the performance-based stock options will vest to the grantees of those stock options. However, there is no current guarantee that such options will vest in whole or in part.
July 2012 Performance-based Option Grant Review
In July 2012, FactSet granted 241,546 performance-based employee stock options, which are eligible to vest in 20% tranches depending upon future StreetAccount user growth through August 31, 2017. Through the fourth quarter of fiscal 2016, four of the growth targets as outlined within the terms of the grant were achieved. As such, 80%, or 193,256, of the options granted have vested. As of August 31, 2016, the fifth tranche is expected to vest on August 31, 2017, resulting in unamortized stock-based compensation expense of $0.3 million to be recognized over the remaining vesting period of 1.0 year. A change in the actual financial performance levels achieved by StreetAccount in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
Vesting Percentage
(in thousands)
|
|
Cumulative
Catch-up Adjustment*
|
|
|
Remaining Expense
to be Recognized
|
|
Fifth 20% (current expectation)
|
|
$
|
(1,290
|
)
|
|
$
|
310
|
|
* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2016.
February 2015 Performance-based Option Grant Review
In connection with the acquisition of Code Red during the second quarter of fiscal 2015, FactSet granted 137,522 performance-based stock options. These performance-based options are eligible to vest four years from date of grant if certain Code Red ASV and operating margin targets are achieved over the measurement period. The option holders must also remain employed by FactSet for the options to be eligible to vest.
Of the total grant, 68,761 performance-based options are eligible for vesting based on achieving the growth targets over a two year measurement period ending February 28, 2017. As of August 31, 2016, total unamortized stock-based compensation of $1.3 million will be recognized as expense over the remaining vesting period of 2.4 years. A change, up or down, in the actual financial performance levels achieved by Code Red in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
Vesting Percentage
(in thousands)
|
|
|
Cumulative
Catch-up Adjustment*
|
|
|
Remaining Expense
to be Recognized
|
|
0%
|
|
|
$
|
(820
|
)
|
|
$
|
—
|
|
10%
|
|
|
$
|
(704
|
)
|
|
$
|
183
|
|
40%
|
|
|
$
|
(352
|
)
|
|
$
|
732
|
|
70% (current expectation)
|
|
|
$
|
—
|
|
|
$
|
1,281
|
|
100%
|
|
|
$
|
352
|
|
|
$
|
1,828
|
|
* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2016.
The remaining 68,761 options are eligible to cliff vest based on a four year measurement period ending February 28, 2019. As of August 31, 2016, total unamortized stock-based compensation of $0.7 million will be recognized as expense over the remaining vesting period of 2.4 years. A change, up or down, in the actual financial performance levels achieved by Code Red in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
Vesting Percentage
(in thousands)
|
|
|
Cumulative
Catch-up Adjustment*
|
|
|
Remaining Expense
to be Recognized
|
|
0%
|
|
|
$
|
(469
|
)
|
|
$
|
—
|
|
10%
|
|
|
$
|
(352
|
)
|
|
$
|
183
|
|
40% (current expectation)
|
|
|
$
|
—
|
|
|
$
|
732
|
|
70%
|
|
|
$
|
352
|
|
|
$
|
1,281
|
|
100%
|
|
|
$
|
704
|
|
|
$
|
1,828
|
|
* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2016.
October 2015 and August 2016 Performance-based Option Grant Review
In connection with the acquisition of Portware during the first quarter of fiscal 2016, FactSet granted 530,418 performance-based stock options. These performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain Portware revenue and operating income targets are achieved by October 16, 2017. The option holders must also remain employed by FactSet for the options to be eligible to vest. As of August 31, 2016, FactSet does not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by Portware in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
Vesting Percentage
(in thousands)
|
|
|
Cumulative
Catch-up Adjustment*
|
|
|
Remaining Expense
to be Recognized
|
|
0% (current expectation)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
50%
|
|
|
$
|
2,144
|
|
|
$
|
10,106
|
|
70%
|
|
|
$
|
3,002
|
|
|
$
|
14,148
|
|
100%
|
|
|
$
|
4,288
|
|
|
$
|
20,212
|
|
* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2016.
FactSet granted 20,911 additional performance-based stock options to Portware employees in the fourth quarter of fiscal 2016. Similar to the October 2015 grant, these performance-based options will vest 40% on the second anniversary date of the grant and 20% on each subsequent anniversary date if certain Portware revenue and operating income targets are achieved by October 16, 2017. The option holders must also remain employed by FactSet for the options to be eligible to vest. As of August 31, 2016, FactSet does not believe these growth targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be recognized in connection with these performance-based options. A change in the actual financial performance levels achieved by Portware in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense:
Vesting Percentage
(in thousands)
|
|
|
Cumulative
Catch-up Adjustment*
|
|
|
Remaining Expense
to be Recognized
|
|
0% (current expectation)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
50%
|
|
|
$
|
8
|
|
|
$
|
492
|
|
70%
|
|
|
$
|
12
|
|
|
$
|
688
|
|
100%
|
|
|
$
|
17
|
|
|
$
|
984
|
|
* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2016.
Restricted Stock and Stock Unit Awards
The Company’s Option Plan plans permit the issuance of restricted stock and restricted stock units. Restricted stock awards are subject to continued employment over a specified period.
Restricted Stock and Stock Unit Awards Activity
In fiscal years 2016, 2015 and 2014, FactSet granted 97,319, 54,862 and 204,124 restricted stock awards to employees of the Company, respectively. These awards have a weighted average grant date fair value of $159.64, $138.23 and $101.95 for fiscal years 2016, 2015 and 2014, respectively.
As of August 31, 2016, a total of 262,220 shares of restricted stock and restricted stock units were unvested and outstanding, which results in unamortized stock-based compensation of $20.9 million to be recognized as stock-based compensation expense over the remaining vesting period of 3.3 years.
A summary of restricted stock award activity is as follows:
(in thousands, except per award data)
|
|
Number
Outstanding
|
|
|
Weighted Average Grant
Date Fair Value Per Award
|
|
Balance at August 31, 2013
|
|
|
358
|
|
|
$
|
80.43
|
|
Granted (restricted stock and stock units)
|
|
|
204
|
|
|
$
|
101.95
|
|
Vested
(1)
|
|
|
(135
|
)
|
|
$
|
84.48
|
|
Canceled/forfeited
|
|
|
(59
|
)
|
|
$
|
86.39
|
|
Balance at August 31, 2014
|
|
|
368
|
|
|
$
|
89.77
|
|
Granted (restricted stock and stock units)
|
|
|
55
|
|
|
$
|
138.23
|
|
Vested
(2)
|
|
|
(95
|
)
|
|
$
|
70.94
|
|
Canceled/forfeited
|
|
|
(15
|
)
|
|
$
|
101.04
|
|
Balance at August 31, 2015
|
|
|
313
|
|
|
$
|
103.34
|
|
Granted (restricted stock and stock units)
|
|
|
97
|
|
|
$
|
159.64
|
|
Vested
(3)
|
|
|
(69
|
)
|
|
$
|
85.04
|
|
Canceled/forfeited
|
|
|
(79
|
)
|
|
$
|
112.51
|
|
Balance at August 31, 2016
|
|
|
262
|
|
|
$
|
126.27
|
|
|
(1)
|
The 135,205 restricted stock awards that vested during fiscal 2014 were comprised of: 62,544 of awards granted on November 8, 2010, which cliff vested 60% after three years (on November 8, 2013) with the remaining 40% cliff vesting after five years (on November 8, 2015); 29,087 of awards granted on April 14, 2011, which vested 100% after three years on April 14, 2014; 26,344 restricted stock awards that were granted on April 8, 2013, which cliff vest 20% annually upon the anniversary date of the grant; and 17,230 awards relating to restricted stock granted on February 9, 2010 which cliff vested 50% after four years (on February 9, 2014).
|
|
(2)
|
The 94,870 restricted stock awards that vested during fiscal 2015 were comprised of: 53,495 of awards granted on October 23, 2009, which cliff vested 60% after three years (on October 23, 2012) and 40% after five years (on October 23, 2014); 14,683 restricted stock awards that were granted on April 8, 2013, which cliff vest 20% annually upon the anniversary date of the grant; 17,228 awards relating to restricted stock granted on February 9, 2010; and 9,464 restricted stock awards that were previously granted between November 2013 and November 2014.
|
|
(3)
|
The 69,244 restricted stock awards that vested during fiscal 2016 were comprised of: 37,079 of awards relating to restricted stock granted on November 8, 2010 (remaining 40%) and 14,683 restricted stock awards that were granted on April 8, 2013, which cliff vest 20% annually upon the anniversary date of the grant. Additionally, 17,482 awards vested related to
other grants
.
|
Share-based Awards Available for Grant
A summary of share-based awards available for grant is as follows:
(in thousands)
|
|
Share-based Awards
Available for Grant under the
Employee Stock Option Plan
|
|
|
Share-based Awards
Available for Grant under the
Non-Employee Stock Option Plan
|
|
Balance at August 31, 2013
|
|
|
3,116
|
|
|
|
107
|
|
Granted – non performance-based options
|
|
|
(174
|
)
|
|
|
—
|
|
Granted – performance-based options
|
|
|
(203
|
)
|
|
|
—
|
|
Granted – non-employee Directors grant
|
|
|
—
|
|
|
|
(14
|
)
|
Restricted stock awards granted
(1)
|
|
|
(510
|
)
|
|
|
—
|
|
Share-based awards canceled/forfeited
(2)
|
|
|
993
|
|
|
|
9
|
|
Balance at August 31, 2014
|
|
|
3,222
|
|
|
|
102
|
|
Granted – non performance-based options
|
|
|
(677
|
)
|
|
|
—
|
|
Granted – performance-based options
|
|
|
(138
|
)
|
|
|
—
|
|
Granted – non-employee Directors grant
|
|
|
—
|
|
|
|
(14
|
)
|
Restricted stock awards granted
(1)
|
|
|
(137
|
)
|
|
|
—
|
|
Share-based awards canceled/forfeited
(2)
|
|
|
171
|
|
|
|
—
|
|
Balance at August 31, 2015
|
|
|
2,441
|
|
|
|
88
|
|
Granted – non performance-based options
|
|
|
(622
|
)
|
|
|
—
|
|
Granted – performance-based options
|
|
|
(551
|
)
|
|
|
—
|
|
Granted – non-employee Directors grant
|
|
|
—
|
|
|
|
(22
|
)
|
Restricted stock awards granted
(1)
|
|
|
(243
|
)
|
|
|
—
|
|
Share-based awards canceled/forfeited
(2)
|
|
|
466
|
|
|
|
—
|
|
Balance at August 31, 2016
|
|
|
1,491
|
|
|
|
66
|
|
|
(1)
|
Each restricted stock award granted is equivalent to 2.5 shares granted under the Company’s Option Plan.
|
|
(2)
|
Under the Company’s Option Plan, for each restricted stock award canceled/forfeited, an equivalent of 2.5 shares is added back to the available share-based awards balance.
|
Employee Stock Purchase Plan
Shares of FactSet common stock may be purchased by eligible employees under the Amended and Restated FactSet Research Systems Inc. 2008 Employee Stock Purchase Plan (the “Purchase Plan”) in three-month intervals at a purchase price equal to at least 85% of the lesser of the fair market value of the Company’s common stock on either the first day or the last day of each three-month offering period. Employee purchases may not exceed 10% of their gross compensation during an offering period.
During fiscal 2016, employees purchased 73,072 shares as compared to 63,265 shares in fiscal 2015 and 74,889 shares in fiscal 2014. At August 31, 2016, 408,544 shares were reserved for future issuance under the Purchase Plan.
401(k) Plan
The Company established its 401(k) Plan in fiscal 1993. The 401(k) Plan is a defined contribution plan covering all full-time, U.S. employees of the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 (“IRC”). Each year, participants may contribute up to 60% of their eligible annual compensation, subject to annual limitations established by the IRC. The Company matches up to 4% of employees’ earnings, capped at the Internal Revenue Service annual maximum. Company matching contributions are subject to a five year graduated vesting schedule. All full-time, U.S. employees are eligible for the matching contribution by the Company. The Company contributed $9.7 million, $8.6 million, and $7.7 million in matching contributions to employee 401(k) accounts during fiscal 2016, 2015 and 2014, respectively.
16. STOCK-BASED COMPENSATION
The Company recognized total stock-based compensation expense of $29.8 million, $26.4 million and $22.9 million in fiscal 2016, 2015 and 2014, respectively. As of August 31, 2016, $70.8 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.4 years. There was no stock-based compensation capitalized as of August 31, 2016 and 2015, respectively.
Employee Stock Option Fair Value Determinations
The Company utilizes the lattice-binomial option-pricing model (“binomial model”) to estimate the fair value of new employee stock option grants. The Company’s determination of fair value of stock option awards on the date of grant using the binomial model is affected by the Company’s stock price as well as assumptions regarding a number of variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors.
Q1 2016
|
513,785 non performance-based employee stock options and 530,418 performance-based employee stock options were granted at a weighted average exercise price of $170.21 and a weighted average estimated fair value of $46.62 per share.
|
Q2 2016
|
4,073 non performance-based employee stock options were granted at an exercise price of $150.81 and an estimated fair value of $40.51 per share.
|
Q3 2016
|
103,903 non performance-based employee stock options were granted at an exercise price of $152.10 and an estimated fair value of $40.57 per share.
|
Q4 2016
|
20,911 performance-based employee stock options were granted at an exercise price of $171.22 and an estimated fair value of $47.82 per share.
|
Q1 2015
|
462,913 non performance-based employee stock options were granted at a weighted average exercise price of $131.31 and a weighted average estimated fair value of $37.67 per share.
|
Q2 2015
|
25,075 non performance-based employee stock options and 137,522 performance-based employee stock options were granted at a weighted average exercise price of $147.05 and a weighted average estimated fair value of $43.05 per share.
|
Q3 2015
|
61,210 non performance-based employee stock options were granted at a weighted average exercise price of $159.14 and a weighted average estimated fair value of $44.95 per share.
|
Q4 2015
|
128,090 non performance-based employee stock options were granted at a weighted average exercise price of $165.02 and a weighted average estimated fair value of $54.10 per share.
|
Q1 2014
|
35,508 non performance-based employee stock options and 36,695 performance-based employee stock options were granted at a weighted average exercise price of $109.49 and a weighted average estimated fair value of $31.78 per share.
|
Q2 2014
|
138,902 non performance-based employee stock options and 165,949 performance-based employee stock options were granted at a weighted average exercise price of $106.03 and a weighted average estimated fair value of $29.14 per share.
|
Q3 2014
|
There were no employee stock options granted during the third quarter of fiscal 2014.
|
Q4 2014
|
There were no employee stock options granted during the fourth quarter of fiscal 2014.
|
The weighted average estimated fair value of employee stock options granted during fiscal 2016, 2015 and 2014 was determined using the binomial model with the following weighted average assumptions:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Term structure of risk-free interest rate
|
|
|
0.07%
|
-
|
2.1
|
%
|
|
|
0.01%
|
-
|
2.3
|
%
|
|
|
0.01%
|
-
|
2.6
|
%
|
Expected life (years)
|
|
|
7.3
|
–
|
8.1
|
|
|
|
5.8
|
–
|
9.4
|
|
|
|
7.6
|
–
|
7.8
|
|
Term structure of volatility
|
|
|
21%
|
-
|
30
|
%
|
|
|
20%
|
-
|
31
|
%
|
|
|
23%
|
-
|
33
|
%
|
Dividend yield
|
|
|
|
|
1.09
|
%
|
|
|
|
|
1.32
|
%
|
|
|
|
|
1.35
|
%
|
Weighted average estimated fair value
|
|
$
|
|
|
46.08
|
|
|
$
|
|
|
41.87
|
|
|
$
|
|
|
29.64
|
|
Weighted average exercise price
|
|
$
|
|
|
168.55
|
|
|
$
|
|
|
141.84
|
|
|
$
|
|
|
106.69
|
|
Fair value as a percentage of exercise price
|
|
|
|
|
27.3
|
%
|
|
|
|
|
29.5
|
%
|
|
|
|
|
27.8
|
%
|
The risk-free interest rate assumption for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a combination of historical volatility of the Company’s stock and implied volatilities of publicly traded options to buy FactSet common stock with contractual terms closest to the expected life of options granted to employees. The approach to utilize a mix of historical and implied volatility was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that a combination of implied volatility and historical volatility is best representative of future stock price trends. The Company uses historical data to estimate option exercises and employee termination within the valuation model. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The expected life of employee stock options represents the weighted average period the stock options are expected to remain outstanding and is a derived output of the binomial model. The binomial model estimates employees exercise behavior based on the option’s remaining vested life and the extent to which the option is in-the-money. The binomial model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations of all past option grants made by the Company.
Non-Employee Director Stock Option Fair Value Determinations
The 2008 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”) provides for the grant of share-based awards, including stock options, to non-employee directors of FactSet. A total of 250,000 shares of FactSet common stock have been reserved for issuance under the Directors’ Plan. The expiration date of the Directors’ Plan is December 1, 2018.
The Company utilizes the Black-Scholes model to estimate the fair value of new non-employee Director stock option grants. The Company’s determination of fair value of share-based payment awards on the date of grant is affected by the Company’s stock price as well as assumptions regarding a number of variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors.
Fiscal 2016
On January 15, 2016, FactSet granted 22,559 stock options to the Company’s non-employee Directors, including a one-time new Director grant of 2,417 for Laurie Siegel, who was elected to FactSet’s Board of Directors on December 15, 2015. All of the options granted on January 15, 2016
, have a weighted average estimated fair value of $31.03 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
|
1.62
|
%
|
Expected life (years)
|
|
|
5.4
|
|
Expected volatility
|
|
|
23.0
|
%
|
Dividend yield
|
|
|
1.05
|
%
|
Fiscal 2015
On January 15, 2015, FactSet granted 13,842 stock options to the Company’s non-employee Directors at a weighted average estimated fair value of $28.18 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
|
1.45
|
%
|
Expected life (years)
|
|
|
5.4
|
|
Expected volatility
|
|
|
23
|
%
|
Dividend yield
|
|
|
1.30
|
%
|
Fiscal 2014
On January 15, 2014, FactSet granted 14,424 stock options to the Company’s non-employee Directors at a weighted average estimated fair value of $27.04 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
Risk-free interest rate
|
|
|
1.66
|
%
|
Expected life (years)
|
|
|
5.4
|
|
Expected volatility
|
|
|
29
|
%
|
Dividend yield
|
|
|
1.35
|
%
|
The risk-free interest rate assumption for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercises and non-employee director terminations within the valuation model. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.
Restricted Stock Fair Value Determinations
Restricted stock granted to employees entitle the holder to shares of common stock as the award vests over time, but not to dividends declared on the underlying shares while the restricted stock is unvested. The grant date fair value of restricted stock awards are measured by reducing the grant date price of FactSet’s share 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. Restricted stock awards are amortized to expense over the vesting period.
Fiscal 2016
|
●
|
90,180 shares of restricted stock with a fair value of $159.13 were granted on October 16, 2015.
|
|
●
|
2,309 shares of restricted stock with a fair value of $169.71 were granted on November 2, 2015.
|
|
●
|
631 shares of restricted stock with a fair value of $168.96 were granted on November 2, 2015.
|
|
●
|
255 shares of restricted stock with a fair value of $146.20 were granted on May 2, 2016.
|
|
●
|
3,944 shares of restricted stock with a fair value of $164.77 were granted on August 1, 2016.
|
Fiscal 2015
|
●
|
9,384 restricted stock units with a fair value of $127.88 were granted on November 3, 2014.
|
|
●
|
841 shares of restricted stock with a fair value of $124.18 were granted on November 3, 2014.
|
|
●
|
15,070 shares of restricted stock with a fair value of $132.71 were granted on December 17, 2014.
|
|
●
|
1,724 restricted stock units with a fair value of $145.01 were granted on February 9, 2015.
|
|
●
|
21,294 shares of restricted stock with a fair value of $140.88 were granted on February 9, 2015.
|
|
●
|
397 shares of restricted stock with a fair value of $151.50 were granted on May 1, 2015.
|
|
●
|
448 shares of restricted stock with a fair value of $153.89 were granted on May 1, 2015.
|
|
●
|
5,704 shares of restricted stock with a fair value of $157.84 were granted on July 31, 2015.
|
Fiscal 2014
|
●
|
7,744 restricted stock units with a fair value of $103.30 were granted on September 17, 2013.
|
|
●
|
153,972 shares of restricted stock with a fair value of $102.22 were granted on November 1, 2013.
|
|
●
|
30,144 shares of restricted stock with a fair value of $102.84 were granted on December 23, 2013.
|
|
●
|
12,264 restricted stock units with a fair value of $95.45 were granted on February 3, 2014.
|
Employee Stock Purchase Plan Fair Value Determinations
During fiscal 2016, employees purchased 73,072 shares at a weighted average price of $131.14 compared to 63,265 shares at a weighted average price of $122.76 in fiscal 2015 and 74,889 shares at a weighted average price of $89.28 in fiscal 2014. Stock-based compensation expense recorded during fiscal 2016, 2015 and 2014 relating to the employee stock purchase plan was $1.9 million, $1.5 million and $1.3 million, respectively.
The Company uses the Black-Scholes model to calculate the estimated fair value for the employee stock purchase plan. The weighted average estimated fair value of employee stock purchase plan grants during fiscal years 2016, 2015 and 2014
, were $26.87, $24.05 and $17.76 per share, respectively, with the following weighted average assumptions:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Risk-free interest rate
|
|
|
0.22
|
%
|
|
|
0.03
|
%
|
|
|
0.04
|
%
|
Expected life (months)
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Expected volatility
|
|
|
10.7
|
%
|
|
|
16.3
|
%
|
|
|
9.8
|
%
|
Dividend yield
|
|
|
1.18
|
%
|
|
|
1.15
|
%
|
|
|
1.38
|
%
|
Accuracy of Fair Value Estimates
The Company is responsible for determining the assumptions used in estimating the fair value of its share-based payment awards. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeiture rates and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable.
17. 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 tax bases of assets and liabilities using currently enacted tax rates.
Provision for Income Taxes
The provision for income taxes is as follows:
|
|
Years ended August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. operations
|
|
$
|
353,434
|
|
|
$
|
263,411
|
|
|
$
|
242,839
|
|
Non-U.S. operations
|
|
|
107,559
|
|
|
|
70,343
|
|
|
|
60,625
|
|
Income before income taxes
|
|
$
|
460,993
|
|
|
$
|
333,754
|
|
|
$
|
303,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
106,671
|
|
|
$
|
88,147
|
|
|
$
|
81,998
|
|
Non-U.S. operations
|
|
|
15,507
|
|
|
|
4,556
|
|
|
|
9,923
|
|
Total provision for income taxes
|
|
$
|
122,178
|
|
|
$
|
92,703
|
|
|
$
|
91,921
|
|
Effective tax rate
|
|
|
26.5
|
%
|
|
|
27.8
|
%
|
|
|
30.3
|
%
|
The components of the provision for income taxes consist of the following:
|
|
Years ended August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
97,703
|
|
|
$
|
82,885
|
|
|
$
|
77,368
|
|
U.S. state and local
|
|
|
4,917
|
|
|
|
4,419
|
|
|
|
3,972
|
|
Non-U.S.
|
|
|
15,030
|
|
|
|
6,368
|
|
|
|
10,350
|
|
Total current taxes
|
|
$
|
117,650
|
|
|
|
93,672
|
|
|
$
|
91,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
3,915
|
|
|
$
|
720
|
|
|
$
|
547
|
|
U.S. state and local
|
|
|
136
|
|
|
|
123
|
|
|
|
111
|
|
Non-U.S.
|
|
|
477
|
|
|
|
(1,812
|
)
|
|
|
(427
|
)
|
Total deferred taxes
|
|
$
|
4,528
|
|
|
$
|
(969
|
)
|
|
$
|
231
|
|
Total provision for income taxes
|
|
$
|
122,178
|
|
|
$
|
92,703
|
|
|
$
|
91,921
|
|
The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to income before income taxes as a result of the following factors:
|
|
Years ended August 31,
|
|
(expressed as a percentage of income before income taxes)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Tax at U.S. Federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local taxes, net of U.S. federal income tax benefit
|
|
|
1.5
|
|
|
|
1.6
|
|
|
|
1.8
|
|
Foreign income at other than U.S. rates
|
|
|
(5.0
|
)
|
(1)
|
|
(3.0
|
)
|
|
|
(2.9
|
)
|
Domestic production activities deduction
|
|
|
(1.5
|
)
|
|
|
(2.2
|
)
|
|
|
(2.1
|
)
|
Income tax benefits from R&D tax credits
|
|
|
(3.6
|
)
|
|
|
(2.7
|
)
|
|
|
(1.1
|
)
|
Income tax benefits from foreign tax credits
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
Other, net
|
|
|
0.3
|
|
|
|
(0.6
|
)
|
|
|
—
|
|
Effective tax rate
|
|
|
26.5
|
%
|
(2)
|
|
27.8
|
%
|
(3)
|
|
30.3
|
%
|
|
(1)
|
Includes a portion of the gain from the sale of the Market Metrics business that was not taxable in the UK
|
|
(2)
|
The fiscal 2016 effective tax rate of 26.5% includes income tax benefits of $10.5 million primarily from the permanent reenactment of the U.S. Federal R&D Tax Credit (the “R&D tax credit”) in December 2015, finalizing prior year tax returns and other discrete items.
The reenactment of the R&D tax credit was retroactive to January 1, 2015
,
and eliminates the yearly uncertainty surrounding the extension of the credit.
|
|
(3)
|
The fiscal 2015 effective tax rate of 27.8% includes income tax benefits of $8.8 million primarily from the reenactment of the R&D tax credit in December 2014, finalizing prior year tax returns and other discrete items.
|
Deferred Tax Assets and Liabilities
The significant components of deferred tax assets that are recorded within the Consolidated Balance Sheets were as follows:
|
|
At August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Current
|
|
|
|
|
|
|
|
|
Receivable reserve
|
|
$
|
531
|
|
|
$
|
541
|
|
Deferred rent
|
|
|
1,022
|
|
|
|
794
|
|
Other
|
|
|
1,605
|
|
|
|
770
|
|
Net current deferred tax assets
|
|
$
|
3,158
|
|
|
$
|
2,105
|
|
Non-current
|
|
|
|
|
|
|
|
|
Depreciation on property, equipment and leasehold improvements
|
|
$
|
5,194
|
|
|
$
|
10,880
|
|
Deferred rent
|
|
|
9,626
|
|
|
|
5,108
|
|
Stock-based compensation
|
|
|
19,927
|
|
|
|
17,562
|
|
Purchased intangible assets, including acquired technology
|
|
|
(24,645
|
)
|
|
|
(17,533
|
)
|
Other
|
|
|
3,304
|
|
|
|
4,582
|
|
Net non-current deferred tax assets
|
|
$
|
13,406
|
|
|
$
|
20,599
|
|
Total deferred tax assets
|
|
$
|
16,564
|
|
|
$
|
22,704
|
|
The significant components of deferred tax liabilities that are recorded within the Consolidated Balance Sheets were as follows:
|
|
At August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Current
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
291
|
|
|
$
|
562
|
|
Net current deferred tax liabilities
|
|
$
|
291
|
|
|
$
|
562
|
|
Non-current
|
|
|
|
|
|
|
|
|
Purchased intangible assets, including acquired technology
|
|
$
|
1,666
|
|
|
$
|
1,886
|
|
Other
|
|
|
42
|
|
|
|
(189
|
)
|
Net non-current deferred tax liabilities
|
|
$
|
1,708
|
|
|
$
|
1,697
|
|
Total deferred tax liabilities
|
|
$
|
1,999
|
|
|
$
|
2,259
|
|
A provision has not been made for additional U.S. Federal taxes as all undistributed earnings of foreign subsidiaries are considered to be invested indefinitely or will be repatriated free of additional tax. The amount of such undistributed earnings of these foreign subsidiaries included in consolidated retained earnings was immaterial at August 31, 2016 and 2015. As such, the unrecognized deferred tax liability on those undistributed earnings was immaterial. These earnings could become subject to additional tax if they are remitted as dividends, loaned to FactSet, or upon sale of the subsidiary’s stock.
Unrecognized Tax Positions
Applicable accounting guidance prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions that a company has taken or expects to take on a tax return. A company can recognize the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will prevail upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit or expense can be recognized in the consolidated financial statements. The tax benefits recognized are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Additionally, companies are required to accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.
As of August 31, 2016, the Company had gross unrecognized tax benefits totaling $8.8 million, including $1.3 million of accrued interest, recorded as Taxes Payable (non-current) on the Consolidated Balance Sheet. As of August 31, 2015, the Company had gross unrecognized tax benefits totaling $6.8 million, including $1.3 million of accrued interest, recorded as Taxes Payable (non-current) on the Consolidated Balance Sheet. The Company recognizes interest and penalty charges related to unrecognized tax benefits as income tax expense, which is consistent with the recognition in prior reporting periods. The Company recognized interest charges of less than $0.2 million in each of the fiscal years ended August 31, 2016, 2015 and 2014, respectively.
Unrecognized tax benefits represent tax positions taken on tax returns but not yet recognized in the consolidated financial statements. When applicable, the Company adjusts the previously recorded tax expense to reflect examination results when the position is ultimately settled. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. However, FactSet has no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on the Company’s results of operations or financial position, beyond current estimates. Any changes in accounting estimates resulting from new developments with respect to uncertain tax positions will be recorded as appropriate. The Company does not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.
The following table summarizes the changes in the balance of gross unrecognized tax benefits:
(in thousands)
|
|
|
|
|
Unrecognized income tax benefits at August 31, 2013
|
|
$
|
5,435
|
|
Additions based on tax positions related to the current year
|
|
|
921
|
|
Additions for tax positions of prior years
|
|
|
628
|
|
Statute of limitations lapse
|
|
|
(717
|
)
|
Reductions from settlements with taxing authorities
|
|
|
(766
|
)
|
Unrecognized income tax benefits at August 31, 2014
|
|
$
|
5,501
|
|
Additions based on tax positions related to the current year
|
|
|
962
|
|
Additions for tax positions of prior years
|
|
|
1,122
|
|
Statute of limitations lapse
|
|
|
(809
|
)
|
Unrecognized income tax benefits at August 31, 2015
|
|
$
|
6,776
|
|
Additions based on tax positions related to the current year
|
|
|
1,779
|
|
Additions for tax positions of prior years
|
|
|
1,436
|
|
Statute of limitations lapse
|
|
|
(1,209
|
)
|
Unrecognized income tax benefits at August 31, 2016
|
|
$
|
8,782
|
|
In the normal course of business, the Company’s tax filings are subject to audit by federal, state and foreign tax authorities. At August 31, 2016, the Company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:
Major Tax Jurisdictions
|
|
Open Tax Years
|
U.S.
|
|
|
Federal
|
|
2013 through 2016
|
State (various)
|
|
2010 through 2016
|
|
|
|
Europe
|
|
|
United Kingdom
|
|
2013 through 2016
|
France
|
|
2012 through 2016
|
18. DEBT
FactSet’s debt obligations consisted of the following:
|
|
At August 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
2015 Revolving Credit Facility
(maturity date of September 21, 2018)
|
|
$
|
300,000
|
|
|
$
|
35,000
|
|
Total Outstanding Debt
|
|
$
|
300,000
|
|
|
$
|
35,000
|
|
On February 6, 2015, the Company entered into a Credit Agreement (the “Credit Agreement”) between FactSet, as the borrower, and Bank of America, N.A., as the lender (the “Lender”). At that date, the Credit Agreement provided for a $35.0 million revolving credit facility (the “Revolving Credit Facility”), under which the Company could request borrowings. The Credit Agreement also allowed FactSet to arrange for additional borrowings for an aggregate amount of up to $265.0 million
, provided that any such request for additional borrowings was in a minimum amount of $25.0 million. For purposes of funding its acquisition of Code Red on February 6, 2015, FactSet borrowed $35.0 million in the form of a Eurodollar rate loan (the “Loan”) under the Revolving Credit Facility. The proceeds of the Loan made under the Credit Agreement could be used for permitted acquisitions and general corporate purposes. The Loan bears interest on the outstanding principal amount at a rate equal to the Eurodollar rate plus 0.50%. The Eurodollar rate is defined in the Credit Agreement as the rate per annum equal to one-month LIBOR.
On September 21, 2015, the Company amended the Credit Agreement to borrow an additional $265.0 million (the “Second Amendment”) in order to fund FactSet’s acquisition of Portware which closed on October 16, 2015. The maturity date on all outstanding loan amounts (which totaled $300.0 million as of August 31, 2016) is September 21, 2018. There are no prepayment penalties if the Company elects to prepay the outstanding loan amounts prior to the scheduled maturity date. The Second Amendment also allows FactSet, subject to certain requirements, to arrange for additional borrowings with the Lender for an aggregate amount of up to $400.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. The Second Amendment adjusted the interest rate on the total outstanding principal debt to a rate equal to the Eurodollar rate plus 0.75%. On October 26, 2016, the Company amended the Credit Agreement to borrow an additional $65.0 million (the “Third Amendment”) for general corporate purposes. The interest rate for the borrowing under the Third Amendment was equal to the Eurodollar rate plus 0.75%.
All outstanding loan amounts are reported as
Long-term debt
within the Consolidated Balance Sheet at August 31, 2016. Interest on the Loan is payable quarterly in arrears and on the maturity date. During fiscal years ended August 31, 2016 and 2015, the Company paid approximately $3.1 million and $0.1 million in interest on its outstanding Loan amount, respectively. The principal balance is payable in full on the maturity date.
As of August 31, 2016, no commitment fee was owed by FactSet since it borrowed the full amount under the Credit Agreement. Other fees incurred by the Company, such as legal costs to draft and review the Credit Agreement, totaled less than $0.1 million and were capitalized as loan origination fees. These loan origination fees are being amortized into interest expense over the term of the Loan (three years) using the effective interest method.
The Credit Agreement contains covenants restricting certain FactSet activities, which are usual and customary for this type of loan.
In addition, the Credit Agreement requires that FactSet must maintain a consolidated leverage ratio, as measured by total funded debt/EBITDA below a specified level as of the end of each fiscal quarter. The Company was in compliance with all of the covenants of the Credit Agreement as of August 31, 2016.
19. 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. FactSet records liabilities for commitments when incurred (i.e., when the goods or services are received).
Lease Commitments
At August 31, 2016, FactSet leased approximately 1,072,000 square feet of office space under various non-cancelable operating leases which expire on various dates through 2031. Total minimum rental payments associated with the leases are recorded as rent expense (a component of
Selling, General & Administrative
expense) on a straight-line basis over the periods of the respective non-cancelable lease terms. Future minimum commitments for the Company’s operating leases in place as of August 31, 2016 are as follows:
Years ended August 31,
(in thousands)
|
|
Minimum Lease
Payments
|
|
2017
|
|
$
|
30,445
|
|
2018
|
|
|
32,453
|
|
2019
|
|
|
30,422
|
|
2020
|
|
|
24,751
|
|
2021
|
|
|
19,306
|
|
Thereafter
|
|
|
148,766
|
|
Total
|
|
$
|
286,143
|
|
During fiscal 2016, 2015 and 2014, rent expense (including operating costs) for all operating leases amounted to $43.2 million, $38.6 million and $37.7 million, respectively. At August 31, 2016 and 2015, deferred rent reported within the Consolidated Balance Sheets totaled $34.4 million and $20.9 million, of which $31.2 million and $18.4 million, respectively, was reported as a non-current liability within the line item Deferred Rent and Other Non-Current Liabilities.
Approximately $1.0 million of standby letters of credit have been issued during the ordinary course of business in connection with the Company’s current leased office space as of August 31, 2016. These standby letters of credit contain covenants that, among other things, require FactSet to maintain minimum levels of consolidated net worth and certain leverage and fixed charge ratios. As of August 31, 2016 and 2015, FactSet was in compliance with all covenants contained in the standby letters of credit.
Purchase Commitments with Suppliers
Purchase obligations represent payments due in future periods in respect of commitments to the Company’s various data vendors as well as commitments to purchase goods and services such as telecommunication and computer maintenance services. These purchase commitments are agreements that are enforceable and legally binding on FactSet and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of August 31, 2016 and 2015, the Company had total purchase commitments with suppliers of $67.5 million and $65.2 million, respectively.
Contingencies
Legal Matters
FactSet accrues non income-tax liabilities for contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business, including intellectual property litigation. Based on information available at August 31, 2016, FactSet’s management does not believe that the ultimate outcome of these unresolved matters against the Company, individually or in the aggregate, is likely to have a material adverse effect on the Company's consolidated financial position, its results of operations or its cash flows.
Income Taxes
Uncertain income tax positions are accounted for in accordance with applicable accounting guidance (see Note 17). FactSet is currently under audit by tax authorities and has reserved for potential adjustments to its provision for income taxes that may result from examinations by, or any negotiated settlements with, these tax authorities. The Company believes that the final outcome of these examinations or settlements will not have a material effect on its results of operations. 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 FactSet determines the liabilities are no longer necessary. If the Company’s estimates of the federal, state, and foreign income tax liabilities are less than the ultimate assessment, a further charge to expense would result.
Indemnifications
As permitted or required under Delaware law and to the maximum extent allowable under that law, FactSet has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at FactSet’s 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 the Company, 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 FactSet could be required to make under these indemnification obligations is unlimited; however, FactSet has a director and officer insurance policy that it believes mitigates FactSet's exposure and may enable FactSet to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification obligations is immaterial.
20. RISKS AND CONCENTRATIONS OF CREDIT RISK
Financial Risk Management
Foreign Currency Exchange Risk
The Company is exposed to changes in foreign currency exchange rates, which could affect its operating results, financial position and cash flows. The Company’s primary foreign currency market exposures include the British Pound Sterling, Euro, Japanese Yen, Indian Rupee and Philippine Peso. To the extent that FactSet’s international activities recorded in local currencies increase in the future, its exposure to fluctuations in currency exchange rates will correspondingly increase. FactSet manages its exposure to foreign currency exchange risk through its regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge currency exposures as well as to reduce earnings volatility resulting from shifts in market rates. FactSet only enters into foreign currency forward contracts to manage foreign currency exposures. The fair market values of all the Company’s derivative contracts change with fluctuations in currency rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. See Note 5,
Derivative Instruments
, for additional analysis of the Company’s foreign currency exchange rate risk.
Interest Rate Risk
Cash and Cash Equivalents
- The fair market value of FactSet’s cash and investments at August 31, 2016 was $252.6 million. The Company’s 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. The Company’s investments consist of certificates of deposits with original maturities greater than three months, but less than one year and, as such, are classified as Investments within the Consolidated Balance Sheet. It is anticipated that the fair market value of its cash and investments will continue to be immaterially affected by fluctuations in interest rates. Preservation of principal is the primary goal of FactSet’s cash and investment policy. Pursuant to established investment guidelines, the Company tries to achieve high levels of credit quality, liquidity and diversification. Its investment guidelines do not permit FactSet to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. Because the Company has a restrictive investment policy, its financial exposure to fluctuations in interest rates is expected to remain low. The Company does not believe that the value or liquidity of its cash and investments have been significantly impacted by current market events.
Debt
- As of August 31, 2016, the fair value of FactSet’s long-term debt was $300.0 million, which approximated its carrying amount and was determined based on quoted market prices for debt with a similar maturity. It is anticipated that the fair market value of FactSet’s debt will continue to be immaterially affected by fluctuations in interest rates and it does not believe that the value of its debt has been significantly impacted by current market events. The debt bears interest on the outstanding principal amount at a rate equal to 0.75% plus the Eurodollar rate, which is equal to one-month LIBOR. During the years ended August 31, 2016 and 2015, we recorded interest expense of $3.1 million and $0.1 million, respectively, on the outstanding Loan amount. Assuming all terms of the Company’s outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR rate would result in a $0.8 million change in its annual interest expense.
Current market events have not required the Company to modify materially or change its financial risk management strategies with respect to its exposures to foreign currency exchange risk and interest rate risk.
Concentrations of Credit Risk
Cash equivalents
Cash and cash equivalents are primarily maintained with two financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.
Accounts Receivable
Accounts receivable are unsecured and are derived from revenues earned from clients located around the globe. FactSet performs ongoing credit evaluations of its clients and does not require collateral from its clients. The Company maintains reserves for potential write-offs and these losses have historically been within expectations. No single client represented 10% or more of FactSet's total revenues in any fiscal year presented. At August 31, 2016, the Company’s largest individual client accounted for 2% of total subscriptions and annual subscriptions from the ten largest clients did not surpass 15% of total subscriptions, consistent with August 31, 2015
. At August 31, 2016 and 2015, the receivable reserve was $1.5 million and $1.6 million, respectively.
Derivative Instruments
As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk. FactSet has incorporated counterparty risk into the fair value of its derivative assets and its own credit risk into the value of the Company’s derivative liabilities. FactSet calculates credit risk from observable data related to CDS as quoted by publicly available information. Counterparty risk is represented by CDS spreads related to the senior secured debt of the respective bank with whom FactSet has executed these derivative transactions. Because CDS spread information is not available for FactSet, the Company’s credit risk is determined based on using a simple average of CDS spreads for peer companies as determined by FactSet. To mitigate counterparty credit risk, FactSet enters into contracts with large financial institutions and regularly review credit exposure balances as well as the creditworthiness of the counterparties.
Data Content Providers
Certain data sets that FactSet relies on have a limited number of suppliers, although the Company makes every effort to assure that, where reasonable, alternative sources are available. However, FactSet is not dependent on any one third party data supplier in order to meet the needs of its clients. FactSet combines the data from these commercial databases into its own dedicated single online service, which the client accesses to perform their analysis. No single vendor or data supplier represented 10% or more of FactSet's total data expenses in any fiscal year presented.
21. UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents selected unaudited financial information for each of the quarterly periods in the years ended August 31, 2016 and 2015. The results for any quarter are not necessarily indicative of future quarterly results and, accordingly, period-to-period comparisons should not be relied upon as an indication of future performance.
Fiscal 2016
(in thousands, except per share data)
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
Revenues
|
|
$
|
270,504
|
|
|
$
|
281,796
|
|
|
$
|
287,501
|
|
|
$
|
287,291
|
|
Cost of services
|
|
$
|
114,736
|
|
|
$
|
123,911
|
|
|
$
|
124,602
|
|
|
$
|
124,160
|
|
Selling, general and administrative
|
|
$
|
68,460
|
|
|
$
|
72,541
|
|
|
$
|
73,609
|
|
|
$
|
75,397
|
|
Operating income
|
|
$
|
87,308
|
|
|
$
|
85,344
|
|
|
$
|
89,290
|
|
|
$
|
87,734
|
|
Net income
|
|
$
|
59,965
|
|
|
$
|
67,763
|
|
|
$
|
66,781
|
|
|
$
|
144,306
|
|
Diluted earnings per common share
(1)
|
|
$
|
1.43
|
|
|
$
|
1.63
|
|
|
$
|
1.62
|
|
|
$
|
3.55
|
|
Weighted average common shares (diluted)
|
|
|
42,063
|
|
|
|
41,536
|
|
|
|
41,189
|
|
|
|
40,673
|
|
|
(1)
|
Diluted earnings per common share is calculated independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the fiscal year.
|
Fiscal 2015
(in thousands, except per share data)
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
Revenues
|
|
$
|
242,676
|
|
|
$
|
247,792
|
|
|
$
|
254,522
|
|
|
$
|
261,779
|
|
Cost of services
|
|
$
|
97,543
|
|
|
$
|
99,516
|
|
|
$
|
100,686
|
|
|
$
|
107,595
|
|
Selling, general and administrative
|
|
$
|
64,873
|
|
|
$
|
67,628
|
|
|
$
|
68,480
|
|
|
$
|
68,531
|
|
Operating income
|
|
$
|
80,260
|
|
|
$
|
80,648
|
|
|
$
|
85,356
|
|
|
$
|
85,653
|
|
Net income
|
|
$
|
55,860
|
|
|
$
|
61,598
|
|
|
$
|
61,409
|
|
|
$
|
62,184
|
|
Diluted earnings per common share
(1)
|
|
$
|
1.32
|
|
|
$
|
1.46
|
|
|
$
|
1.45
|
|
|
$
|
1.48
|
|
Weighted average common shares (diluted)
|
|
|
42,340
|
|
|
|
42,306
|
|
|
|
42,297
|
|
|
|
41,995
|
|
|
(1)
|
Diluted earnings per common share is calculated independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the fiscal year.
|