Edgar Filing: FACTSET RESEARCH SYSTEMS INC

factset_10q-022912.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to ______

Commission File Number: 1-11869

FactSet Research Systems Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-3362547
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

601 Merritt 7, Norwalk, Connecticut	06851
(Address of principal executive office)	(Zip Code)

Registrant’s telephone number, including area code: (203) 810-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of the registrant’s common stock, $.01 par value, on March 30, 2012 was 44,917,383.

FactSet Research Systems Inc.

Form 10-Q

For the Quarter Ended February 29, 2012

Index		Page

Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Statements of Income for the three and six months ended February 29, 2012 and February 28, 2011	3

	Consolidated Balance Sheets at February 29, 2012 and August 31, 2011	4

	Consolidated Statements of Cash Flows for the six months ended February 29, 2012 and February 28, 2011	5

	Notes to the Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	42

Item 6.	Exhibits	42

	Signatures	42

For additional information about FactSet Research Systems Inc. and access to its Annual Reports to Stockholders and Securities and Exchange Commission filings, free of charge, please visit the website at http://investor.factset.com. Any information on or linked from the website is not incorporated by reference into this Form 10-Q.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

FactSet Research Systems Inc.

CONSOLIDATED STATEMENTS OF INCOME – Unaudited

	Three Months Ended				Six Months Ended
(In thousands, except per share data)	Feb 29, 2012		Feb 28, 2011		Feb 29, 2012		Feb 28, 2011

Revenues	$	199,371	$	177,635	$	395,819	$	350,924

Operating expenses
Cost of services		67,531		60,137		134,364		116,922
Selling, general and administrative		64,723		59,405		127,585		116,480
Total operating expenses		132,254		119,542		261,949		233,402

Operating income		67,117		58,093		133,870		117,522

Other income		496		132		773		257
Income before income taxes		67,613		58,225		134,643		117,779

Provision for income taxes		20,867		12,971		42,353		30,924
Net income	$	46,746	$	45,254	$	92,290	$	86,855

Basic earnings per common share	$	1.04	$	0.98	$	2.05	$	1.88
Diluted earnings per common share	$	1.02	$	0.95	$	2.01	$	1.83

Basic weighted average common shares		44,880		46,226		44,993		46,244
Diluted weighted average common shares		45,707		47,427		45,972		47,495

The accompanying notes are an integral part of these consolidated financial statements.

FactSet Research Systems Inc.

CONSOLIDATED BALANCE SHEETS – Unaudited

(In thousands, except share data)	February 29, 2012			August 31, 2011

ASSETS
Cash and cash equivalents	$	184,998		$	181,685
Investments		15,185			0
Accounts receivable, net of reserves of $1,914 at February 29, 2012 and $1,955 at August 31, 2011		71,459			75,004
Prepaid taxes		3,549			0
Deferred taxes		3,768			4,008
Prepaid expenses and other current assets		13,078			12,473

Total current assets		292,037			273,170

Property, equipment and leasehold improvements, at cost		186,456			173,990
Less accumulated depreciation and amortization		(107,861	)		(92,370	)
Property, equipment and leasehold improvements, net		78,595			81,620

Goodwill		225,275			228,265
Intangible assets, net		41,470			46,310
Deferred taxes		19,638			20,166
Other assets		6,809			7,909

TOTAL ASSETS	$	663,824			657,440


LIABILITIES
Accounts payable and accrued expenses	$	24,960		$	24,603
Accrued compensation		24,699			41,536
Deferred fees		28,950			28,252
Taxes payable		0			2,867
Dividends payable		12,085			12,165

Total current liabilities		90,694			109,423

Deferred taxes		2,853			3,712
Taxes payable		5,513			7,204
Deferred rent and other non-current liabilities		20,740			21,913

TOTAL LIABILITIES	$	119,800		$	142,252
Commitments and contingencies (See Note 16)

STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued	$	0		$	0
Common stock, $.01 par value, 150,000,000 shares authorized, 45,133,685 and 61,427,391 shares issued; 44,760,885 and 45,055,219 shares outstanding at February 29, 2012 and August 31, 2011, respectively		451			614
Additional paid-in capital		101,579			432,538
Treasury stock, at cost: 372,800 and 16,372,172 shares at February 29, 2012 and August 31, 2011, respectively		(33,242	)		(824,382	)
Retained earnings		490,815			912,078
Accumulated other comprehensive loss		(15,579	)		(5,660	)

TOTAL STOCKHOLDERS’ EQUITY		544,024			515,188

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	663,824		$	657,440

The accompanying notes are an integral part of these consolidated financial statements.

FactSet Research Systems Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS – Unaudited

	Six Months Ended
(In thousands)	Feb 29, 2012			Feb 28, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	92,290		$	86,855
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		16,692			18,758
Stock-based compensation expense		11,925			10,377
Deferred income taxes		(91	)		(1,275	)
Gain on sale of assets		(1	)		(4	)
Tax benefits from share-based payment arrangements		(4,973	)		(12,919	)
Changes in assets and liabilities
Accounts receivable, net of reserves		3,545			(10,808	)
Accounts payable and accrued expenses		155			(788	)
Accrued compensation		(16,298	)		(19,853	)
Deferred fees		697			2,765
Taxes payable, net of prepaid taxes		(3,372	)		2,849
Prepaid expenses and other assets		(456	)		(3,052	)
Deferred rent and other non-current liabilities		(922	)		139
Other working capital accounts, net		(732	)		(563	)

Net cash provided by operating activities		98,459			72,481

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments		(15,000	)		0
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions		(10,644	)		(15,433	)

Net cash used in investing activities		(25,644	)		(15,433	)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments		(24,182	)		(21,110	)
Repurchase of common stock		(59,795	)		(75,145	)
Proceeds from employee stock plans		13,843			27,961
Tax benefits from share-based payment arrangements		4,973			12,919

Net cash used in financing activities		(65,161	)		(55,375	)

Effect of exchange rate changes on cash and cash equivalents		(4,341	)		5,691

Net increase in cash and cash equivalents		3,313			7,364
Cash and cash equivalents at beginning of period		181,685			195,741

Cash and cash equivalents at end of period	$	184,998		$	203,105

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FactSet Research Systems Inc.

February 29, 2012

(Unaudited)

1. ORGANIZATION AND NATURE OF BUSINESS

FactSet Research Systems Inc. (the “Company” or “FactSet”) is a provider of integrated financial information and analytical applications to the global investment community. FactSet combines content regarding tens of thousands of companies and securities from major markets all over the globe into a single online platform of information and analytics. By consolidating content from hundreds of databases with powerful analytics, FactSet supports the investment process from initial research to published results for buy and sell-side professionals. These professionals include portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers and fixed income professionals. The Company’s applications provide users access to company analysis, multicompany comparisons, industry analysis, company screening, portfolio analysis, predictive risk measurements, alphatesting, portfolio optimization and simulation, real-time news and quotes and tools to value and analyze fixed income securities and portfolios. With Microsoft Office integration, wireless access and customizable options, FactSet offers a complete financial workflow solution. The Company’s revenues are derived from subscriptions to services such as workstations, content and applications.

As of February 29, 2012, the Company employed 5,516 employees, a net increase of 66 employees over the past three months and up 16% or 748 employees from a year ago. Of these employees, 1,770 were located in the U.S., 602 in Europe and 3,144 in Asia Pacific. Approximately 54% of employees are involved with content collection, 24% work in product development, software and systems engineering, another 18% conduct sales and consulting services and the remaining 4% provide administrative support.

2. BASIS OF PRESENTATION

FactSet conducts business globally and is managed on a geographic basis. The 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. Certain reclassifications have been made to amounts for prior years in order to conform to the current year’s presentation.

The accompanying financial data as of February 29, 2012 and for the three and six months ended February 29, 2012 and February 28, 2011 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The August 31, 2011 Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011.

In the opinion of management, the accompanying balance sheets and related interim statements of income and cash flows include all normal adjustments in order to present fairly the results of the Company’s operations for the periods presented in conformity with accounting principles generally accepted in the United States.

FactSet has performed an evaluation of subsequent events occurring subsequent to the end of the Company’s fiscal 2012 second quarter and through the date the consolidated financial statements were issued based on the accounting guidance for subsequent events.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Guidance

Fair Value Measurement and Disclosure Requirements

On September 1, 2011, FactSet adopted guidance issued by the Financial Accounting Standards Board (“FASB”) on disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll-forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). Adoption of this new guidance did not have an impact on the Company’s consolidated financial statements.

No other new accounting pronouncements issued or effective during fiscal 2012 have had or are expected to have an impact on the Company’s consolidated financial statements.

Recent Accounting Guidance Not Yet Adopted

Fair Value Measurement and Disclosure Requirements

In May 2011, the FASB issued an accounting standard update which amends the fair value measurement guidance and includes new enhanced disclosure requirements. The guidance is the result of joint efforts by the FASB and International Accounting Standards Board to develop a single, converged fair value framework on how to measure fair value and what disclosures to provide about fair value measurements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. This accounting standard update is effective for FactSet beginning in the third quarter of fiscal 2012. Other than requiring additional disclosures, the adoption is not expected to have an impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued an accounting standard update requiring enhanced disclosures about certain financial instruments and derivative instruments that are offset in the balance sheet or that are subject to enforceable master netting arrangements or similar agreements. This accounting standard update is effective for FactSet beginning in the first quarter of fiscal 2014. Other than requiring additional disclosures, the adoption is not expected to have an impact on the Company’s consolidated financial statements.

Presentation of Comprehensive Income

In June 2011, the FASB issued an accounting standard update to provide guidance on increasing the prominence of items reported in other comprehensive income. The guidance eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity. Instead, it requires that the total of comprehensive income, the components of net income and the components of other comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. In December 2011, the FASB issued guidance which indefinitely defers the guidance related to the presentation of reclassification adjustments. The Company expects to present comprehensive income in two separate but consecutive statements upon adoption, beginning in the first quarter of fiscal 2013. Other than the change in presentation, the adoption is not expected to have an impact on FactSet’s consolidated financial statements.

Goodwill Impairment Testing

In September 2011, the FASB issued an accounting standard update intended to simplify how an entity tests goodwill for impairment. The guidance will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This accounting standard update is effective for FactSet beginning in the first quarter of fiscal 2013 and is not 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 in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, 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.

(a) Fair Value Hierarchy

The accounting guidance 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 and derivatives within the 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 February 29, 2012 or August 31, 2011.

(b) 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 February 29, 2012 and August 31, 2011 (in thousands):

	Fair Value Measurements at Reporting Date Using
February 29, 2012	Level 1			Level 2			Level 3			Total

Assets
Corporate money market funds (1)		$	159,482		$	0		$	0		$	159,482
Certificates of deposit (2)			0			15,185			0			15,185

Total assets measured at fair value		$	159,482		$	15,185		$	0		$	174,667

Liabilities
Derivative instruments (3)		$	0		$	795		$	0		$	795

Total liabilities measured at fair value		$	0		$	795		$	0		$	795

	Fair Value Measurements at Reporting Date Using
August 31, 2011	Level 1			Level 2			Level 3			Total

Assets
Corporate money market funds (1)		$	161,168		$	0		$	0		$	161,168
Derivative instruments (3)			0			897			0			897

Total assets measured at fair value		$	161,168		$	897		$	0		$	162,065

Liabilities
Derivative instruments (3)		$	0		$	0		$	0		$	0

Total liabilities measured at fair value		$	0		$	0		$	0		$	0

(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 on the consolidated balance sheet.

(2)

The Company’s certificates 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) on the Company’s consolidated balance sheet.

(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.

Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s Consolidated Balance Sheets at February 29, 2012 and August 31, 2011 as follows (in thousands):

	Fair Value Measurements at Reporting Date Using
February 29, 2012	Level 1			Level 2			Level 3			Total

Cash and cash equivalents		$	159,482		$	0		$	0		$	159,482
Investments (short-term)			0			15,185			0			15,185

Total assets measured at fair value		$	159,482		$	15,185		$	0		$	174,667

Accounts payable and accrued liabilities (derivative liabilities)		$	0		$	795		$	0		$	795

Total liabilities measured at fair value		$	0		$	795		$	0		$	795

	Fair Value Measurements at Reporting Date Using
August 31, 2011	Level 1			Level 2			Level 3			Total

Cash and cash equivalents		$	161,168		$	0		$	0		$	161,168
Other current assets (derivative assets)			0			897			0			897

Total assets measured at fair value		$	161,168		$	897		$	0		$	162,065

Accounts payable and accrued liabilities (derivative liabilities)		$	0		$	0		$	0		$	0

Total liabilities measured at fair value		$	0		$	0		$	0		$	0

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 and this condition is determined to be other-than-temporary. During the three and six months ended February 29, 2012, no fair value adjustments or material fair value measurements were required for the Company’s non-financial assets or liabilities.

5. CASH, CASH EQUIVALENTS AND INVESTMENTS

Cash and Cash Equivalents - consist of demand deposits and corporate money market funds with maturities of three months or less at the date of acquisition and are reported at fair value.

The following table summarizes the Company’s cash and cash equivalents at February 29, 2012 (in thousands):

	Amortized Cost		Gross Unrealized Gain		Fair Value
Cash on hand	$	25,516	$	0	$	25,516
Corporate money market funds		159,482		0		159,482
Total cash and cash equivalents	$	184,998	$	0	$	184,998

The following table summarizes the Company’s cash and cash equivalents at August 31, 2011 (in thousands):

	Amortized Cost		Gross Unrealized Gain		Fair Value
Cash on hand	$	20,517	$	0	$	20,517
Corporate money market funds		161,168		0		161,168
Total cash and cash equivalents	$	181,685	$	0	$	181,685

Investments - during the first quarter of fiscal 2012, the Company purchased $15.0 million of certificates of deposit with maturity dates ranging from nine months to twelve months from purchase date. These certificates of deposit are held for investment and are not debt securities. For the three and six months ended February 29, 2012, interest income from the certificates of deposit was $0.34 million and $0.48 million, respectively. The fair value of the certificates of deposit at February 29, 2012 was $15.2 million and reported as investments (short-term) in the Company’s consolidated balance sheet. The impact of foreign currency reduced the fair value by $0.3 million as these certificates of deposit are held in Indian Rupees. 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 2012 and 2011.

6. DERIVATIVE INSTRUMENTS

Foreign Exchange Risk Management

FactSet conducts business outside the U.S. in several currencies including the British Pound Sterling, Euro, Japanese Yen, Indian Rupee and Philippine Peso. As such, it is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. To manage the exposures related to the effects of foreign exchange rate fluctuations, the Company utilizes derivative instruments (foreign currency forward contracts). The Company’s primary objective in holding derivatives is to 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.

Cash Flow Hedges

FactSet enters into foreign currency forward contracts to reduce the effects of foreign currency fluctuations. These hedging programs are not designed to provide long-term foreign currency protection as the contracts have maturities of less than one year. In designing a specific hedging approach, FactSet considered several factors, including offsetting exposures, significance of exposures, forecasting risk and potential effectiveness of the hedge. The gains and losses on foreign currency forward contracts offset the variability in operating expenses associated with currency movements. There was no discontinuance of cash flow hedges during fiscal 2012 or fiscal 2011 and as such, no corresponding gains or losses were reclassified into earnings. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive (loss) income (“AOCLI”) and subsequently reclassified into operating expenses when the hedged exposure affects earnings.

During the first quarter of fiscal 2012, FactSet entered into foreign currency forward contracts to hedge approximately 90% of its Indian Rupee exposure through the end of the first quarter of fiscal 2013. During the first quarter of fiscal 2011, FactSet entered into foreign currency forward contracts to hedge approximately 95% of its Japanese Yen operating income through the end of the fourth quarter of fiscal 2011. In the second half of fiscal 2010, FactSet entered into foreign currency forward contracts to hedge approximately 95% of its net Euro exposure through the end of the first quarter of fiscal 2012 and 95% of its net British Pound Sterling exposure through the end of the third quarter of fiscal 2011.

At February 29, 2012 the notional principal and fair value of foreign exchange contracts to purchase Indian Rupees with U.S. dollars was $16.5 million and ($0.8) million, respectively. At February 29, 2012, there were no other outstanding foreign exchange forward contracts.

The following is a summary of all hedging positions and corresponding fair values (in thousands):

	Gross Notional Value				Fair Value Asset (Liability)
Currency Hedged (Buy/Sell)	Feb 29, 2012		Aug 31, 2011		Feb 29, 2012			Aug 31, 2011
Euro	$	0	$	8,422	$	0		$	916
British Pound Sterling		0		0		0			0
Japanese Yen		0		196		0			(19	)
Indian Rupee		16,500		0		(795	)		0
Total	$	16,500	$	8,618	$	(795	)	$	897

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 as determined by FactSet.

To mitigate counterparty credit risk, FactSet enters into contracts with large financial institutions (JPMorgan Chase and Bank of America). 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 (in thousands):

Designation of Derivatives	Balance Sheet Location	Feb 29, 2012		Aug 31, 2011
Derivatives designated as hedging instruments	Assets: Foreign Currency Forward Contracts
	Other current assets	$	0	$	897
	Liabilities: Foreign Currency Forward Contracts
	Accounts payable and accrued expenses	$	795	$	0
	Deferred rent and other non-current liabilities		0		0
	Total liabilities	$	795	$	0

Derivatives not designated as hedging instruments	None	$	0	$	0
	Net Derivative Assets (Liabilities)	$	(795)	$	897

Derivatives in Cash Flow Hedging Relationships for the three months ended February 29, 2012 and February 28, 2011 (in thousands):

	Gain Recognized in AOCLI on Derivatives (Effective Portion)				Location of (Loss) Gain Reclassified from AOCLI into Income (Effective Portion)	(Loss) Gain Reclassified from AOCLI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	2012		2011			2012		2011
Foreign currency forward contracts	$	598	$	1,815	SG&A	$	(412)	$	933

Derivatives in Cash Flow Hedging Relationships for the six months ended February 29, 2012 and February 28, 2011 (in thousands):

	(Loss) Gain Recognized in AOCLI on Derivatives (Effective Portion)				Location of Gain Reclassified from AOCLI into Income (Effective Portion)	Gain Reclassified from AOCLI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	2012		2011			2012		2011
Foreign currency forward contracts	$	(998)	$	3,284	SG&A	$	108	$	1,377

Note: 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.

Accumulated Other Comprehensive (Loss) Income

The following table provides a summary of the activity associated with all of the Company’s designated cash flow hedges reflected in AOCLI (in thousands):

	Six Months Ended
	Feb 29, 2012			Feb 28, 2011
Beginning balance, net of tax	$	590		$	(238	)
Changes in fair value		(998	)		3,284
Realized gain reclassified to earnings		(108	)		(1,377	)
Ending balance, net of tax	$	(516	)	$	1,669

7. SEGMENT REPORTING

Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. FactSet’s CODM is its Chief Executive Officer, who is responsible for making decisions about resources allocated amongst the operating segments based on actual results.

FactSet’s reportable segments are aligned with how the Company, including its CODM, manages the business and the demographic markets in which FactSet serves. The Company’s internal financial reporting structure is based on three reportable segments; 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 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 North America, while the European and Asia Pacific segments service investment professionals located throughout Europe and Asia.

The European segment is headquartered in London, England and maintains office locations in France, Germany, the Netherlands, Dubai and Italy. The Asia Pacific segment is headquartered in Tokyo, Japan with office locations in Hong Kong, Australia, India and the Philippines. Segment revenues reflect direct sales to clients based in their respective geographic locations. There are no intersegment or intercompany sales of the FactSet service. Each segment records compensation, including stock-based compensation, data collection costs, 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 and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the other segments. Of the total $225 million of goodwill reported by the Company at February 29, 2012, 65% was recorded in the U.S. segment, 33% in the European segment and the remaining 2% 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).

For the three months ended February 29, 2012	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	136,415	$	48,824	$	14,132	$	199,371
Segment operating profit		37,565		22,536		7,016		67,117
Total assets		358,963		258,805		46,056		663,824
Capital expenditures		4,255		156		179		4,590


For the three months ended February 28, 2011	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	121,550	$	43,869	$	12,216	$	177,635
Segment operating profit		32,411		20,199		5,483		58,093
Total assets		414,259		242,672		26,139		683,070
Capital expenditures		5,510		178		1,724		7,412

For the six months ended February 29, 2012	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	270,892	$	96,929	$	27,998	$	395,819
Segment operating profit		74,001		46,317		13,552		133,870
Capital expenditures		9,867		211		566		10,644


For the six months ended February 28, 2011	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	239,774	$	87,056	$	24,094	$	350,924
Segment operating profit		67,612		38,718		11,192		117,522
Capital expenditures		12,130		345		2,958		15,433

8. GOODWILL

There was no goodwill acquired during fiscal 2012. Changes in the carrying amount of goodwill by segment for the six months ended February 29, 2012 are as follows (in thousands):

	U.S.		Europe			Asia Pacific			Total
Balance at August 31, 2011	$	145,826	$	78,172		$	4,267		$	228,265

Goodwill acquired during the period		0		0			0			0
Foreign currency translations		0		(2,755	)		(235	)		(2,990	)
Balance at February 29, 2012	$	145,826	$	75,417		$	4,032		$	225,275

On an ongoing basis, the Company evaluates goodwill at the reporting unit level for indications of potential impairment. 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. The Company has three reporting units, which are consistent with the operating segments reported because there is no discrete financial information available for the subsidiaries within each operating segment. The Company’s reporting units evaluated for potential impairment were U.S., Europe and Asia Pacific, which reflects the level of internal reporting the Company uses to manage its business and operations. The Company performed an annual goodwill impairment test during the fourth quarter of fiscal years 2011, 2010, and 2009, which determined that there were no reporting units that were deemed at risk. The fair value of each of the Company’s reporting units significantly exceeded carrying value, thus there had been no impairment.

9. 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 all acquired intangible assets is 12.1 years at February 29, 2012.

The Company amortizes intangible assets over their estimated useful lives. Amortizable intangible assets are tested for impairment based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. No impairment of intangible assets has been identified during any of the periods presented. The intangible assets have no assigned residual values.

The gross carrying amounts and accumulated amortization totals related to the Company’s identifiable intangible assets are as follows (in thousands):

At February 29, 2012	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Data content	$	49,468	$	16,923	$	32,545
Client relationships		20,269		13,143		7,126
Software technology		18,725		18,222		503
Non-compete agreements		1,750		613		1,137
Trade names		572		413		159
Total	$	90,784	$	49,314	$	41,470

At August 31, 2011	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Data content	$	52,438	$	16,849	$	35,589
Client relationships		21,088		12,782		8,306
Software technology		19,093		18,222		871
Non-compete agreements		1,750		437		1,313
Trade names		572		341		231
Total	$	94,941	$	48,631	$	46,310

There were no intangible assets acquired during fiscal 2012. The change in the gross carrying amount of intangible assets at February 29, 2012 as compared to August 31, 2011 was due to foreign currency translations.

Amortization expense recorded for intangible assets was $1.8 million and $2.1 million for the three months ended February 29, 2012 and February 28, 2011, respectively. Amortization expense recorded for intangible assets was $3.7 million and $4.3 million for the six months ended February 29, 2012 and February 28, 2011, respectively. As of February 29, 2012, estimated intangible asset amortization expense for each of the next five years and thereafter are as follows (in thousands):

Fiscal Year	Estimated Amortization Expense
2012		$	3,618
2013			5,828
2014			4,751
2015			4,050
2016			2,557
Thereafter			20,666
Total		$	41,470

10. COMMON STOCK AND EARNINGS PER SHARE

On February 14, 2012, the Company’s Board of Directors approved a regular quarterly dividend of $0.27 per share, or $1.08 per share per annum. The cash dividend of $12.1 million was paid on March 20, 2012, to common stockholders of record on February 29, 2012. Shares of common stock outstanding were as follows (in thousands):

	Six Months Ended
	Feb 29, 2012			Feb 28, 2011

Balance at September 1		45,055			46,024
Common stock issued for employee stock plans		364			925
Repurchase of common stock		(658	)		(809	)
Balance at February 29, 2012 and February 28, 2011, respectively		44,761			46,140

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 earnings per share 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 when the award becomes deductible are assumed to be used to repurchase shares.

A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share computations is as follows (in thousands, except per share data):

	Net Income (Numerator)		Weighted Average Common Shares (Denominator)		Per Share Amount

For the three months ended February 29, 2012
Basic EPS
Income available to common stockholders	$	46,746		44,880	$	1.04
Diluted EPS
Dilutive effect of stock options and restricted stock				827
Income available to common stockholders plus assumed conversions	$	46,746		45,707	$	1.02

For the three months ended February 28, 2011
Basic EPS
Income available to common stockholders	$	45,254		46,226	$	0.98
Diluted EPS
Dilutive effect of stock options and restricted stock				1,201
Income available to common stockholders plus assumed conversions	$	45,254		47,427	$	0.95

For the six months ended February 29, 2012
Basic EPS
Income available to common stockholders	$	92,290		44,993	$	2.05
Diluted EPS
Dilutive effect of stock options and restricted stock				979
Income available to common stockholders plus assumed conversions	$	92,290		45,972	$	2.01

For the six months ended February 28, 2011
Basic EPS
Income available to common stockholders	$	86,855		46,244	$	1.88
Diluted EPS
Dilutive effect of stock options and restricted stock				1,251
Income available to common stockholders plus assumed conversions	$	86,855		47,495	$	1.83

Dilutive potential common shares consist of stock options and unvested restricted stock awards. The number of stock options excluded from the calculation of diluted earnings per share for the three and six months ended February 29, 2012 was 440,515 and 300,651, respectively, because their inclusion would have been anti-dilutive. No stock options were excluded from the calculation of diluted earnings per share for the three months ended February 28, 2011. However, 4,838 stock options were excluded for the six months ended February 28, 2011. The number of restricted stock awards excluded from the calculation of diluted earnings per share for the three months ended February 29, 2012 and February 28, 2011 was 30,090 and 183, respectively, because their inclusion would have been anti-dilutive. For the six months ended February 29, 2012 and February 28, 2011, the number of restricted stock awards excluded was 30,090 and 92, respectively.

For the three and six months ended February 29, 2012, the number of performance-based stock option grants excluded from the calculation of diluted earnings per share was 2,323,117. Similarly, 2,531,598 performance-based stock option grants were excluded from the calculation of diluted earnings per share for the three and six months ended February 28, 2011. Performance-based stock options should be omitted from the calculation of diluted earnings per share until the performance criteria have been met. The criteria had not yet been met at February 29, 2012 and February 28, 2011 for these performance-based stock options.

11. STOCKHOLDERS’ EQUITY

Preferred Stock

At February 29, 2012 and August 31, 2011, 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 the fiscal 2011 Annual Meeting of Stockholders (the “Meeting”) of FactSet held on December 13, 2011, the stockholders of FactSet voted on and approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock, par value $0.01, of FactSet from 100,000,000 to 150,000,000 shares. Such amendment to FactSet’s Restated Certificate of Incorporation had previously been approved on October 24, 2011, by the Company’s Board of Directors. On December 16, 2011, a Certificate of Amendment was filed with the Secretary of State of Delaware to effect, as of such date, the foregoing amendment of the Company’s Restated Certificate of Incorporation. The newly 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. These additional shares provide the Company the flexibility to issue shares for future corporate needs without potential expense or delay incident to obtaining stockholder approval for any particular issuance.

Treasury Stock

On December 31, 2011, FactSet retired 16,658,741 shares of treasury stock. These retired shares are now included in the Company’s pool of authorized but unissued shares. The retired treasury stock was initially recorded using the cost method and had a carrying value of $850.9 million at December 31, 2011. The Company’s accounting policy upon the formal retirement of treasury stock is to deduct its par value from common stock ($0.2 million), reduce additional paid-in capital (“APIC”) by the amount recorded in APIC when the stock was originally issued ($361.4 million) and any remaining excess of cost as a deduction from retained earnings ($489.3 million).

Share Repurchase Program

On June 13, 2011, the Company’s Board of Directors approved a $200 million expansion to the existing share repurchase program. During the first six months of fiscal 2012, the Company repurchased 657,800 shares for $59.6 million under the existing share repurchase program. At February 29, 2012, $83 million remains authorized for future share repurchases. Repurchases will be made from time to time in the open market and privately negotiated transactions, subject to market conditions. No minimum number of shares to be repurchased has been fixed. There is no timeframe to complete the repurchase program and it is expected that share repurchases will be paid using existing and future cash generated by operations.

Restricted Stock

During the first six months of fiscal 2012, the Company did not grant restricted stock awards which entitle the holder to shares of common stock as the awards vest over time. The Company’s restricted stock awards granted in fiscal 2011 vest between five and six years and are amortized to stock-based compensation expense over the vesting period.

Dividends

The Company’s Board of Directors declared the following historical dividends:

Declaration Date	Dividends Per Share of Common Stock		Type	Record Date	Total $ Amount (in thousands)		Payment Date
February 14, 2012	$	0.27	Regular (cash)	February 29, 2012	$	12,085	March 20, 2012
November 10, 2011	$	0.27	Regular (cash)	November 30, 2011	$	12,181	December 20, 2011
August 11, 2011	$	0.27	Regular (cash)	August 31, 2011	$	12,165	September 20, 2011
May 9, 2011	$	0.27	Regular (cash)	May 31, 2011	$	12,374	June 21, 2011
February 9, 2011	$	0.23	Regular (cash)	February 28, 2011	$	10,612	March 15, 2011
November 10, 2010	$	0.23	Regular (cash)	November 30, 2010	$	10,660	December 21, 2010
August 10, 2010	$	0.23	Regular (cash)	August 31, 2010	$	10,586	September 21, 2010
May 14, 2010	$	0.23	Regular (cash)	May 28, 2010	$	10,655	June 15, 2010
February 9, 2010	$	0.20	Regular (cash)	February 26, 2010	$	9,329	March 16, 2010
November 10, 2009	$	0.20	Regular (cash)	November 30, 2009	$	9,423	December 15, 2009

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.

12. COMPREHENSIVE INCOME

Comprehensive Income

The components of comprehensive income were as follows for the periods presented (in thousands):

	Three Months Ended				Six Months Ended
	Feb 29, 2012		Feb 28, 2011			Feb 29, 2012			Feb 28, 2011
Net income	$	46,746	$	45,254		$	92,290		$	86,855
Other comprehensive income, net of tax:
Net unrealized gain (loss) on cash flow hedges		1,010		882			(1,106	)		1,907
Foreign currency translation adjustments		2,835		9,025			(8,813	)		11,733
Comprehensive income	$	50,591	$	55,161		$	82,371		$	100,495

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

	Feb 29, 2012			Aug 31, 2011
Accumulated unrealized (loss) gain on cash flow hedges, net of tax	$	(516	)	$	590
Accumulated foreign currency translation adjustments		(15,063	)		(6,250	)
Total accumulated other comprehensive loss	$	(15,579	)	$	(5,660	)

13. EMPLOYEE STOCK OPTION AND RETIREMENT PLANS

During the first six months of fiscal 2012, FactSet granted 1,085,144 stock options at a weighted average exercise price of $94.84 to existing employees of the Company.

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, 2011		6,132		$	57.28
Granted – non performance-based		420			94.84
Granted – performance-based		666			94.84
Exercised		(188	)		29.40
Forfeited		(25	)		71.49
Balance at November 30, 2011		7,005		$	63.79
Granted – non-employee Directors grant		21			87.26
Exercised		(135	)		35.34
Forfeited		(13	)		86.13
Balance at February 29, 2012		6,878		$	64.38

The total number of in-the-money options exercisable as of February 29, 2012 was 2.9 million with a weighted average exercise price of $44.43. As of August 31, 2011, 2.6 million in-the-money outstanding options were exercisable with a weighted average exercise price of $38.99. The aggregate intrinsic value of in-the-money stock options exercisable at February 29, 2012 and August 31, 2011 was $122.7 million and $129.3 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price of $87.40 at February 29, 2012 and the exercise price multiplied by the number of options exercisable as of that date. The total pre-tax intrinsic value of stock options exercised during the three months ended February 29, 2012 and February 28, 2011 was $7.2 million and $18.6 million, respectively. The total pre-tax intrinsic value of stock options exercised during the six months ended February 29, 2012 and February 28, 2011 was $18.5 million and $49.6 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 for both organic ASV and diluted earnings per share during the two fiscal years subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet during the two subsequent fiscal years, 0%, 20%, 60% or 100% 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.

November 2010 Annual Employee Performance-based Option Grant Review

In November 2010, the Company granted 734,334 performance-based employee stock options. The number of performance-based options that vest is based on the Company achieving performance levels for both organic ASV and diluted earnings per share during the two fiscal years ended August 31, 2012. At February 29, 2012, the Company estimated that 20% or 146,867 of the performance-based stock options would vest which results in unamortized stock-based compensation expense of $1.8 million to be recognized over the remaining vesting period.

A change in the actual financial performance levels achieved by FactSet could result in the following changes to the Company’s current estimate of the vesting percentage and related expense (in thousands):

Vesting Percentage	Total Unamortized Stock-based Compensation Expense at February 29, 2012		Cumulative Catch-up Adjustment*			Average Remaining Quarterly Expense to be Recognized
0%	$	0	$	(1,216	)	$	0
20%	$	1,811	$	0		$	124
60%	$	5,433	$	2,432		$	372
100%	$	9,055	$	4,864		$	620

* Amounts represent the cumulative catch-up adjustment to be recorded for the November 2010 performance-based option grant if there had been a change in the vesting percentage as of February 29, 2012. The cumulative adjustment increments each quarter by approximately the amount stated in the average remaining quarterly expense to be recognized column.

November 2011 Annual Employee Performance-based Option Grant Review

In November 2011, the Company granted 665,551 performance-based employee stock options. The number of performance-based options that vest is based on the Company achieving performance levels for both organic ASV and diluted earnings per share during the two fiscal years ended August 31, 2013. At February 29, 2012, the Company estimated that 20% or 113,110 of the performance-based stock options would vest which results in unamortized stock-based compensation expense of $3.3 million to be recognized over the remaining vesting period.

Vesting Percentage	Total Unamortized Stock-based Compensation Expense at February 29, 2012		Cumulative Catch-up Adjustment*			Average Remaining Quarterly Expense to be Recognized
0%	$	0	$	(366	)	$	0
20%	$	3,275	$	0		$	175
60%	$	9,825	$	732		$	525
100%	$	16,375	$	1,464		$	875

* Amounts represent the cumulative catch-up adjustment to be recorded if there had been a change in the vesting percentage as of February 29, 2012. The cumulative adjustment increments each quarter by approximately the amount stated in the average remaining quarterly expense to be recognized column.

Other Performance-based Option Grants

Between June 2010 and July 2011, the Company granted 950,923 performance-based employee stock options that vest based on FactSet achieving certain ASV targets. At February 29, 2012, the Company estimated that 204,508 of the performance-based stock options will vest which results in unamortized stock-based compensation expense of $1.1 million to be recognized over the remaining vesting period of approximately 1.6 years.

A change in the actual financial performance levels achieved by FactSet due to unforeseen significant ASV growth in future fiscal years could result in the following changes to the Company’s current estimate of the vesting percentage and related expense (in thousands):

Vesting Percentage	Total Unamortized Stock-based Compensation Expense at February 29, 2012		Cumulative Catch-up Adjustment*		Average Remaining Quarterly Expense to be Recognized
0%	$	0	$	0	$	0
50%	$	5,017	$	2,608	$	386
100%	$	8,712	$	6,538	$	968

Restricted Stock and Stock Unit Awards

The Company’s option plan permits the issuance of restricted stock and restricted stock units. Restricted stock awards are subject to continued employment over a specified period. 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, 2011		407		$	71.31
Granted (restricted stock and stock units)		0		$	0
Vested		0		$	0
Canceled/forfeited		(2	)	$	70.66
Balance at November 30, 2011		405		$	71.31
Granted (restricted stock and stock units)		0		$	0
Vested		0		$	0
Canceled/forfeited		(1	)	$	73.90
Balance at February 29, 2012		404		$	71.30

There were no restricted stock awards granted during the first six months of fiscal 2012.

During the first six months of fiscal 2011, the following restricted stock award was granted.

November 2010 Employee Restricted Stock Award

In November 2010, the Company granted 117,723 restricted stock awards which entitle the holder to shares of common stock as the awards vest over time. The Company’s restricted stock awards cliff vest 60% after three years and the remaining 40% after five years. Restricted stock grants are amortized to expense over the vesting period using the straight-line attribution method. Employees granted restricted stock awards in November 2010 are not entitled to dividends declared on the underlying shares while the restricted stock is unvested. As such, the grant date fair value of the award was 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 shares during the requisite service period, discounted at the appropriate risk-free interest rate. The resulting fair value of the restricted stock awards granted in November 2010 was $84.38. As of February 29, 2012, unamortized stock-based compensation expense of $6.1 million is to be amortized to compensation expense over the remaining vesting period.

Other Employee Restricted Stock and Stock Unit Awards

Between November 2010 and January 2011, the Company granted 5,376 restricted stock awards which entitle the holder to shares of common stock as the awards vest over time. As of February 29, 2012, unamortized stock-based compensation expense of $0.1 million is to be amortized to compensation expense over the remaining vesting period.

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 Option Plan			Share-based Awards Available for Grant under the Non-Employee Directors Plan
Balance at August 31, 2011		4,977			147
Granted – non performance-based options		(666	)		0
Granted – performance-based options		(420	)		0
Share-based awards canceled/forfeited*		31			0
Balance at November 30, 2011		3,922			147
Granted – non-employee Directors grant		0			(21	)
Share-based awards canceled/forfeited*		16			0
Balance at February 29, 2012		3,938			126

* 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

On December 16, 2008, the Company’s stockholders ratified the adoption of the FactSet Research Systems Inc. 2008 Employee Stock Purchase Plan (the “Purchase Plan”). A total of 500,000 shares have been reserved for issuance under the Purchase Plan. There is no expiration date for the Purchase Plan. Shares of FactSet common stock may be purchased by eligible employees under 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 the three months ended February 29, 2012, employees purchased 19,690 shares at a weighted average price of $74.29 as compared to 16,872 shares at a weighted average price of $77.09 in the same period a year ago. At February 29, 2012, 237,682 shares were reserved for future issuance under the Purchase Plan.

401(k) Plan

The Company established a 401(k) Plan (the “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. Each year, participants may contribute up to 60% of their eligible annual compensation, subject to annual limitations established by the Internal Revenue Code. The Company matches up to 4% of employees’ earnings, capped at the IRS 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 $3.1 and $3.0 million in matching contributions to employee 401(k) accounts during the six months ended February 29, 2012 and February 28, 2011, respectively.

14. 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. 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 were estimated based on historical experience.

The following table summarizes stock-based compensation expense for the three and six months ended February 29, 2012 and February 28, 2011 (in thousands):

	Three Months Ended						Six Months Ended
	Feb 29, 2012			Feb 28, 2011			Feb 29, 2012			Feb 28, 2011
Stock-based compensation (1)	$	6,044		$	6,701		$	11,925		$	10,377
Tax effect of stock-based compensation		(1,868	)		(2,058	)		(3,756	)		(3,252	)
Stock-based compensation, net of tax	$	4,176		$	4,643		$	8,169		$	7,125

(1) Included in the second quarter of fiscal 2011 was a pre-tax charge of $2.5 million related to an increase in the estimated number of performance-based stock options that became eligible to vest.

As of February 29, 2012, $48.6 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.3 years. There was no stock-based compensation capitalized as of February 29, 2012 or August 31, 2011, 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.

Fiscal 2012

Q1 2012 – 419,593 non performance-based employee stock options and 665,551 performance-based employee stock options were granted at a weighted average exercise price of $94.84 and a weighted average estimated fair value of $32.08 per share.

Q2 2012 – There were no employee stock options granted during the three months ended February 29, 2012.

Fiscal 2011

Q1 2011 – 84,811 non performance-based employee stock options and 809,239 performance-based employee stock options were granted at a weighted average exercise price of $88.40 and a weighted average estimated fair value of $24.42 per share.

Q2 2011 – 65,224 performance-based employee stock options were granted at a weighted average exercise price of $99.78 and a weighted average estimated fair value of $29.07 per share.

The weighted average estimated fair value of employee stock options granted was determined using the binomial model with the following weighted average assumptions:

	Three Months Ended				Six Months Ended
	Feb 29, 2012	Feb 28, 2011			Feb 29, 2012			Feb 28, 2011
Term structure of risk-free interest rate	n/a		0.18% - 1.88	%		0.13% - 2.41	%		0.18% - 1.88	%
Expected life	n/a	5.9 - 6.5 years			7.6 – 7.8 years			5.8 - 6.5 years
Term structure of volatility	n/a		26% - 34	%		30% - 36	%		26% - 34	%
Dividend yield	n/a		1.25	%		1.11	%		1.25	%
Weighted average estimated fair value	n/a	$	29.07		$	32.08		$	24.47

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 is 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 2012

On January 13, 2012, FactSet granted 20,976 stock options to the Company’s non-employee Directors, including a one-time new Director grant of 5,244 stock options for Robin A. Abrams, who was elected to FactSet’s Board of Directors on December 13, 2011. All of the options granted on January 13, 2012 have a weighted average estimated fair value of $24.79 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate		0.94	%
Expected life	5.43 years
Expected volatility		33.6	%
Dividend yield		1.11	%

Fiscal 2011

On January 14, 2011, 14,514 stock options were granted to the Company’s non-employee Directors with a weighted average estimated fair value of $26.87 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate		2.13	%
Expected life	5.43 years
Expected volatility		31.1	%
Dividend yield		1.18	%

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 2012

There were no restricted stocks awards granted during fiscal 2012.

Fiscal 2011

117,723 shares of restricted stock with a fair value of $84.38 were granted on November 8, 2010.

3,291 restricted stock units with a fair value of $83.49 were granted on November 8, 2010.

1,719 restricted stock units with a fair value of $94.50 were granted on January 27, 2011.

366 shares of restricted stock with a fair value of $95.24 were granted on January 27, 2011.

Employee Stock Purchase Plan Fair Value Determinations

During the three months ended February 29, 2012, employees purchased 19,690 shares at a weighted average price of $74.29 as compared to 16,872 shares at a weighted average price of $77.09 in the same period a year ago. During the first six months of fiscal 2012, employees purchased 42,856 shares at a weighted average price of $73.95 as compared to 38,606 shares at a weighted average price of $70.23 in the same period a year ago.

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 the three months ended February 29, 2012 and February 28, 2011 were $15.97 and $14.97 per share, respectively, with the following weighted average assumptions:

	Three Months Ended
	Feb 29, 2012			Feb 28, 2011
Risk-free interest rate		0.05	%		0.14	%
Expected life	3 months			3 months
Expected volatility		12.4	%		9.4	%
Dividend yield		1.2	%		1.0	%

The weighted average estimated fair value of employee stock purchase plan grants during the six months ended February 29, 2012 and February 28, 2011 were $15.69 and $13.65 per share, respectively, with the following weighted average assumptions:

	Six Months Ended
	Feb 29, 2012			Feb 28, 2011
Risk-free interest rate		0.03	%		0.14	%
Expected life	3 months			3 months
Expected volatility		15.1	%		9.6	%
Dividend yield		1.2	%		1.1	%

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.

15. 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 by geographic operations is as follows (in thousands):

	Three Months Ended									Six Months Ended
	Feb 29, 2012			Feb 28, 2011			Change			Feb 29, 2012			Feb 28, 2011			Change
U.S. operations	$	57,014		$	49,394			15.4	%	$	114,102		$	99,571			14.6	%
Non-U.S. operations		10,599			8,831			20.0	%		20,541			18,208			12.8	%
Income before income taxes	$	67,613		$	58,225			16.1	%	$	134,643		$	117,779			14.3	%
U.S. operations	$	18,707		$	10,748			74.1	%	$	38,070		$	26,426			44.1	%
Non-U.S. operations		2,160			2,223			(2.8	) %		4,283			4,498			(4.8	) %
Total provision for income taxes	$	20,867		$	12,971			60.9	%	$	42,353		$	30,924			37.0	%
Effective tax rate		30.9	%		22.3	%					31.5	%		26.3	%

The following table provides details of income taxes (in thousands, except percentages):

	Three Months Ended						Six Months Ended
	Feb 29, 2012			Feb 28, 2011			Feb 29, 2012			Feb 28, 2011
Income before income taxes	$	67,613		$	58,225		$	134,643		$	117,779
Provision for income taxes	$	20,867		$	12,971		$	42,353		$	30,924
Effective tax rate		30.9	% *		22.3	% **		31.5	% *		26.3	% **

* The expiration of the U.S. Federal R&D tax credit on December 31, 2011 increased the annual effective tax rate by 1.3%.

** The Company’s annual effective tax rate before discrete items for fiscal 2011 was 31.0%. During the second quarter of fiscal 2011, FactSet recorded $4.9 million of income tax benefits from the reenactment of the R&D credit in December 2010, which resulted in an actual effective tax rate for the second quarter of 22.3% and 26.3% for the six months ended February 28, 2011. Excluding the $4.9 million of income tax benefits, the effective tax rate for the second quarter of fiscal 2011 was 30.7%.

The components of the provision for income taxes consist of the following (in thousands):

	Six Months Ended
	Feb 29, 2012				Feb 28, 2011
Current:
U.S. federal		$	35,702			$	24,112
U.S. state and local			2,114				3,441
Non-U.S.			4,497				4,923
Total current taxes		$	42,313			$	32,476

Deferred:
U.S. federal		$	278			$	(1,077	)
U.S. state and local			(24	)			(50	)
Non-U.S.			(214	)			(425	)
Total deferred taxes		$	40			$	(1,552	)
Total tax provision		$	42,353			$	30,924

Deferred Tax Assets and Liabilities

The significant components of deferred tax assets that are recorded in the Consolidated Balance Sheets were as follows (in thousands):

	Feb 29, 2012			Aug 31, 2011
Deferred tax assets
Current
Receivable reserve	$	716		$	736
Deferred rent		3,052			3,272
Net current deferred taxes	$	3,768		$	4,008
Non-current
Depreciation on property, equipment and leasehold improvements		1,317			2,437
Deferred rent		2,774			2,793
Stock-based compensation		20,326			18,096
Purchased intangible assets, including acquired technology		(5,165	)		(4,549	)
Other		386			1,389
Net non-current deferred taxes		19,638			20,166
Total deferred tax assets	$	23,406		$	24,174

The significant components of deferred tax liabilities that are recorded in the Consolidated Balance Sheets were as follows (in thousands):

	Feb 29, 2012				Aug 31, 2011
Deferred tax liabilities (non-current)
Purchased intangible assets, including acquired technology		$	3,282			$	3,712
Stock-based compensation			(429	)			0
Total deferred tax liabilities (non-current)		$	2,853			$	3,712

A provision has not been made for additional U.S. Federal taxes as of February 29, 2012 on undistributed earnings of foreign subsidiaries, except for France, because the Company intends to reinvest these funds indefinitely to support foreign growth opportunities. The amount of such undistributed earnings of foreign subsidiaries included in consolidated retained earnings was immaterial at February 29, 2012 and August 31, 2011. It is not practicable to estimate the unrecognized deferred tax liability on these undistributed earnings. 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 and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

As of February 29, 2012, the Company had gross unrecognized tax benefits totaling $5.5 million, including $1.1 million of accrued interest, recorded as non-current taxes payable in the consolidated balance sheet. 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 effectively 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 during the first six months of fiscal 2012 (in thousands):

Unrecognized tax benefits at August 31, 2011	$	7,204
Additions based on tax positions related to the current year		372
Additions for tax positions of prior years		225
Reductions from settlements with taxing authorities		(2,288	)
Unrecognized income tax benefits at February 29, 2012