Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

164K characters. Original on sec.gov · Markdown

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

		Page
Consolidated Financial Statements:
Management’s Statement of Responsibility for Financial Statements		41
Management’s Report on Internal Control over Financial Reporting		41
Reports of Independent Registered Public Accounting Firms		42-44
Consolidated Statements of Income for the years ended August 31, 2014, 2013 and 2012		45
Consolidated Statements of Comprehensive Income for the years ended August 31, 2014, 2013 and 2012		46
Consolidated Balance Sheets at August 31, 2014 and 2013		47
Consolidated Statements of Cash Flows for the years ended August 31, 2014, 2013 and 2012		48
Consolidated Statements of Changes in Stockholders’ Equity for the years ended August 31, 2014, 2013 and 2012		49
Notes to the Consolidated Financial Statements		50

Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts		80

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, 2014 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 met with the committee, with and without management present.

Management**’s Report** on Internal Control o****ver Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of August 31, 2014. 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 the Company’s internal control over financial reporting as of August 31, 2014, which is included in their report on page 43.

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.



/s/ PHILIP A. HADLEY	/s/ MAURIZIO NICOLELLI
Philip A. Hadley	Maurizio Nicolelli
Chairman of the Board of Directors and Chief Executive Officer	Senior Vice President and Chief Financial Officer
October 30, 2014	October 30, 2014

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 sheet of FactSet Research Systems Inc. as of August 31, 2014 and the related consolidated statement of income, comprehensive income, stockholders’ equity and cash flows for the year ended August 31, 2014. Our audit also included the financial statement schedule listed in the accompanying index. 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 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 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 audit provides 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, 2014, and the consolidated results of its operations and its cash flows for the year ended August 31, 2014, 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, 2014, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated October 30, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Ernst & Young LLP

Stamford, Connecticut

October 30, 2014

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 (the “Company”) internal control over financial reporting as of August 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). The Company'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.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of August 31, 2014, and the related consolidated statement of income, comprehensive income, stockholders’ equity and cash flows for the year ended August 31, 2014 of the Company and our report dated October 30, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Ernst & Young LLP

Stamford, Connecticut

October 30, 2014

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of FactSet Research Systems Inc.

In our opinion, the consolidated balance sheet as of August 31, 2013, and the related consolidated statements of income and comprehensive income, of stockholders’ equity and of cash flows for each of two years in the period ended August 31, 2013, present fairly, in all material respects, the financial position of FactSet Research Systems Inc. and its subsidiaries (the “Company”) at August 31, 2013, and the results of their operations and their cash flows for each of the two years in the period ended August 31, 2013, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for each of the two years in the period ended August 31, 2013 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Stamford, Connecticut

October 30, 2013

Consolidated Statements of Income

(In thousands, except per share data)

Years Ended August 31,	2014		2013		2012
Revenues	$	920,335	$	858,112	$	805,793

Operating expenses
Cost of services		353,686		306,379		275,537
Selling, general and administrative		264,430		282,314		257,266
Total operating expenses		618,116		588,693		532,803

Operating income		302,219		269,419		272,990
Other income		1,245		1,491		1,715

Income before income taxes		303,464		270,910		274,705
Provision for income taxes		91,921		72,273		85,896

Net income	$	211,543	$	198,637	$	188,809

Basic earnings per common share	$	4.98	$	4.53	$	4.22
Diluted earnings per common share	$	4.92	$	4.45	$	4.12

Weighted average common shares (Basic)		42,436		43,890		44,784
Weighted average common shares (Diluted)		42,970		44,624		45,810

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

Consolidated Statements of Comprehensive Income

(In thousands)

Years Ended August 31,	2014		2013			2012
Net income	$	211,543	$	198,637		$	188,809

Other comprehensive income (loss), net of tax
Net unrealized gain (loss) on cash flow hedges*		5,357		(3,296	)		(2,141	)
Foreign currency translation adjustments		7,895		(5,151	)		(14,925	)
Other comprehensive income (loss)		13,252		(8,447	)		(17,066	)
Comprehensive Income	$	224,795	$	190,190		$	171,743

The unrealized gain (loss) on cash flow hedges disclosed above was net of tax (expense) benefit of ($3,193), $1,965, and $1,283 for the fiscal years ended August 31, 2014, 2013 and 2012, respectively.

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

Consolidated Balance Sheets

(In thousands, except share data)

At August 31,	2014			2013
CURRENT ASSETS
Cash and cash equivalents	$	116,378		$	196,627
Investments		20,008			12,725
Accounts receivable, net of reserves of $1,662 and $1,644 at August 31, 2014 and 2013, respectively		90,354			73,290
Prepaid taxes		6,532			16,937
Deferred taxes		1,841			2,803
Prepaid expenses and other current assets		14,662			15,652
Total current assets		249,775			318,034

LONG-TERM ASSETS
Property, equipment and leasehold improvements, at cost		201,713			192,338
Less accumulated depreciation and amortization		(144,072	)		(126,967	)
Property, equipment and leasehold improvements, net		57,641			65,371
Goodwill		285,608			244,573
Intangible assets, net		41,855			36,223
Deferred taxes		22,377			22,023
Other assets		5,956			3,973
TOTAL ASSETS	$	663,212		$	690,197

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	26,971		$	29,864
Accrued compensation		42,481			40,137
Deferred fees		36,504			29,319
Taxes payable		5,036			3,769
Dividends payable		16,299			15,164
Total current liabilities		127,291			118,253

NON-CURRENT LIABILITIES
Deferred taxes		2,921			2,396
Taxes payable		5,501			5,435
Deferred rent and other non-current liabilities		16,417			22,334
TOTAL LIABILITIES	$	152,130		$	148,418

Commitments and contingencies (See Note 17)

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, 49,110,218 and 48,110,740 shares issued; 41,792,802 and 43,324,410 shares outstanding at August 31, 2014 and 2013, respectively		491			481
Additional paid-in capital		413,754			326,869
Treasury stock, at cost: 7,317,416 and 4,786,330 shares at August 31, 2014 and 2013, respectively		(734,746	)		(454,917	)
Retained earnings		849,504			700,519
Accumulated other comprehensive loss		(17,921	)		(31,173	)
TOTAL STOCKHOLDERS’ EQUITY		511,082			541,779
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	663,212		$	690,197

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

Consolidated Statements of Cash Flows

(In thousands)

Years Ended August 31,	2014			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	211,543		$	198,637		$	188,809
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		34,435			35,779			33,779
Stock-based compensation expense		22,891			39,951			21,982
Deferred income taxes		(1,028	)		3,175			(3,760	)
Gain on sale of assets		(62	)		(26	)		0
Tax benefits from share-based payment arrangements		(11,955	)		(25,225	)		(11,159	)
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable, net of reserves		(13,299	)		859			2,083
Accounts payable and accrued expenses		(2,903	)		3,355			9
Accrued compensation		1,953			(776	)		519
Deferred fees		3,594			(1,107	)		(2,573	)
Taxes payable, net of prepaid taxes		23,309			13,498			4,209
Prepaid expenses and other assets		(1,535	)		2,105			(445	)
Deferred rent and other non-current liabilities		(1,672	)		(2,846	)		(905	)
Other working capital accounts, net		(248	)		2,430			(583	)

Net cash provided by operating activities		265,023			269,809			231,965

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired		(46,873	)		(705	)		(21,329	)
Purchases of investments		(20,415	)		(15,613	)		(15,000	)
Proceeds from maturities of investments		14,323			14,423			0
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions		(17,743	)		(18,517	)		(22,520	)

Net cash used in investing activities		(70,708	)		(20,412	)		(58,849	)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments		(61,007	)		(56,002	)		(49,983	)
Repurchase of common stock		(279,829	)		(332,168	)		(153,641	)
Proceeds from employee stock plans		52,152			124,537			33,747
Tax benefits from share-based payment arrangements		11,955			25,225			11,159

Net cash used in financing activities		(276,729	)		(238,408	)		(158,718	)

Effect of exchange rate changes on cash and cash equivalents		2,165			(3,406	)		(7,039	)

Net (decrease) increase in cash and cash equivalents		(80,249	)		7,583			7,359
Cash and cash equivalents at beginning of year		196,627			189,044			181,685

Cash and cash equivalents at end of year	$	116,378		$	196,627		$	189,044

Supplemental Disclosure of Cash Flow Information
Cash paid during the year for income taxes, net of refunds	$	67,152		$	53,153		$	73,219

Supplemental Disclosure of Non-Cash Transactions
Dividends declared, not paid	$	16,299		$	15,164		$	13,727
Stock issued for acquisition of business	$	0		$	0		$	3,974

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

Consolidated Statements of Changes in Stockholders’ Equity

(In thousands)

Years Ended August 31,	2014			2013			2012
COMMON STOCK
Balance, beginning of year	$	481		$	456		$	614
Common stock issued for employee stock plans		10			25			9
Retirement of treasury stock		0			0			(167	)
Balance, end of year	$	491		$	481		$	456

ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year	$	326,869		$	137,569		$	432,538
Common stock issued for employee stock plans		52,039			124,124			33,383
Stock-based compensation expense		22,891			39,951			21,982
Tax benefits from share-based payment arrangements		11,955			25,225			11,159
Stock issued for acquisition of business		0			0			(11	)
Retirement of treasury stock		0			0			(361,482	)
Balance, end of year	$	413,754		$	326,869		$	137,569

TREASURY STOCK
Balance, beginning of year	$	(454,917	)	$	(122,749	)	$	(824,382	)
Repurchase of common stock, including stock swaps		(275,415	)		(327,454	)		(152,933	)
Stock issued for acquisition of business		0			0			3,985
Purchase of common stock upon restricted stock vesting		(4,414	)		(4,714	)		(354	)
Retirement of treasury stock		0			0			850,935
Balance, end of year	$	(734,746	)	$	(454,917	)	$	(122,749	)

RETAINED EARNINGS
Balance, beginning of year	$	700,519		$	559,714		$	912,078
Net income		211,543			198,637			188,809
Dividends		(62,558	)		(57,832	)		(51,887	)
Retirement of treasury stock		0			0			(489,286	)
Balance, end of year	$	849,504		$	700,519		$	559,714

ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of year	$	(31,173	)	$	(22,726	)	$	(5,660	)
Foreign currency translation adjustments		7,895			(5,151	)		(14,925	)
Net unrealized gain (loss) on cash flow hedges, net of tax		5,357			(3,296	)		(2,141	)
Balance, end of year	$	(17,921	)	$	(31,173	)	$	(22,726	)

TOTAL STOCKHOLDERS’ EQUITY
Balance, beginning of year	$	541,779		$	552,264		$	515,188
Net income		211,543			198,637			188,809
Common stock issued for employee stock plans		52,039			124,149			33,392
Purchase of common stock upon restricted stock vesting		(4,414	)		(4,714	)		(354	)
Stock-based compensation expense		22,891			39,951			21,982
Tax benefits from share-based payment arrangements		11,955			25,225			11,159
Repurchase of common stock, including stock swaps		(275,415	)		(327,454	)		(152,933	)
Foreign currency translation adjustments		7,895			(5,151	)		(14,925	)
Stock issued for acquisition of business		0			0			3,974
Net unrealized gain (loss) on cash flow hedges, net of tax		5,357			(3,296	)		(2,141	)
Dividends		(62,558	)		(57,832	)		(51,887	)
Balance, end of year	$	511,082		$	541,779		$	552,264

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 to the global investment community. FactSet combines content regarding 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.

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 has evaluated subsequent events through the date that the financial statements were issued.

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 accrued compensation, allocation of purchase price to acquired assets and liabilities, income taxes, stock-based 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.

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 of 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 or client payments that are in excess of earned subscription revenues are reflected on the Consolidated Balance Sheets as deferred fees. As of August 31, 2014, the amount of accounts receivable that was unbilled totaled $3.0 million, which was billed in fiscal 2015.

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 $1.7 million and $1.6 million was recorded as of August 31, 2014 and 2013, respectively, in 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, amortization of identifiable intangible assets, computer maintenance and depreciation expenses 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, 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 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.

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, 2014 or 2013.

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 2014 and 2013 were $1.2 million and $1.3 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 2014 and 2013.

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

Goodwill has resulted from the acquisitions of the Insyte, LionShares, Mergerstat, CallStreet, JCF, TrueCourse, Derivative Solutions, AlphaMetrics, Global Filings, DealMaven, Thomson Fundamentals, Market Metrics, StreetAccount, Revere and Matrix businesses. Goodwill resulting from the acquisitions of LionShares, Mergerstat, TrueCourse, Derivative Solutions, Market Metrics, StreetAccount, Revere and Matrix are income tax-deductible based on the structure of the acquisition. 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. FactSet has determined that there were three reporting units during fiscal years 2014, 2013 and 2012, 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 2014, 2013 and 2012 and determined that there were no reporting units that were deemed at risk and there had been no impairment.

Intangible Assets

Intangible assets consist of certain acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from the acquisitions of Mergerstat (M&A data), JCF (earnings and other estimates), TrueCourse (takeover defense intelligence), Derivative Solutions (fixed income), AlphaMetrics (research and performance evaluation networking tool), Global Filings (equity and fixed income prospectuses), DealMaven (investment banking workflow tool), Thomson Fundamentals (financial data), Market Metrics (U.S. market research data on advisor-sold investments and insurance products), StreetAccount (financial news), Revere (industry taxonomy and supply chain data) and Matrix (UK mutual fund intelligence) depending on the nature of the intangible asset, 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.

Internal Use Software

Certain costs related to computer software developed or obtained for internal use are capitalized. FactSet capitalizes only those direct costs incurred during the application development and implementation stages for developing, purchasing or otherwise acquiring software solely to meet the Company’s internal needs. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the underlying software, three years or less. During fiscal 2014, 2013 and 2012, the Company capitalized $0.7 million, $0.7 million and $0.9 million, respectively of internal employee compensation costs associated with the application development and implementation stages for developing software for internal use only. In fiscal 2014, 2013 and 2012, FactSet recorded amortization expense related to capitalized software of $0.8 million, $0.9 million and $0.9 million, respectively.

Product Development

The Company capitalizes software development costs related to software to be sold, leased, or otherwise marketed. Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to the public. Once the point of technological feasibility is reached, which is the completion of a working prototype that has been certified as having no critical bugs and is a release candidate or has alternative future uses, development costs are capitalized until the product is ready for general release. Research and product development costs not subject to capitalization are expensed as incurred. As of August 31, 2014 and 2013, there were no software development costs capitalized related to software to be sold, leased, or otherwise marketed.

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. FactSet conducts a final review of Company and departmental individual performance each fiscal year end 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, 2014 and 2013, was $37.3 million and $35.2 million, respectively.

Derivative Instruments

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. 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 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. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes.

Foreign Currency Translation

Certain wholly owned subsidiaries within the Europe 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 Philippines 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 accumulated other comprehensive loss as a component of stockholders’ equity. The accumulated foreign currency translation loss totaled $18.4 million and $26.3 million at August 31, 2014 and 2013, respectively.

Income and Deferred 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. 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, 2014, 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.

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 were 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 additional paid-in capital (“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 two fiscal years did not have an impact on the Company’s consolidated financial statements.

Balance Sheet Offsetting

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. In January 2013, the FASB issued a clarifying accounting standard update, which limited the scope of the previous guidance to only derivatives, repurchase type agreements and securities borrowing and lending transactions. This accounting standard update was adopted by FactSet in the first quarter of fiscal 2014. Other than the additional disclosure, the adoption of this accounting standard update did not have an impact on the Company’s consolidated financial statements.

Indefinite-lived Intangible Assets

In July 2012, the FASB issued an accounting standard update intended to simplify how an entity tests indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. FactSet adopted this accounting standard update in the first quarter of fiscal 2014 and its adoption did not have an impact on the Company’s consolidated financial statements.

Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued an accounting standard update to require reclassification adjustments from other comprehensive income to be presented either in the financial statements or in the notes to the financial statements. This accounting standard update became effective for FactSet beginning in the first quarter of fiscal 2014 and the additional information has been disclosed in Note 6.

Cumulative Translation Adjustments

In March 2013, the FASB issued an accounting standard update requiring an entity to release into net income the entire amount of a cumulative translation adjustment related to its investment in a foreign entity when as a parent it either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. This accounting standard update was adopted by FactSet beginning in the first quarter of fiscal 2014 and did not have an impact on the Company’s consolidated financial statements.

Recent Accounting Standards or Updates Not Yet Effective

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 will be effective for FactSet beginning in the first quarter of fiscal 2016. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued an accounting standard update which provides clarified principles for recognizing revenue arising from contracts with clients and supersedes 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. In applying the revenue model to contracts within its scope, an entity will identify the contract with a client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. 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.

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.

4**. FAIR VALUE MEASURES**

(a) 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 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, 2014 or 2013.

(b) Asse__ts 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, 2014 and 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
August 31, 2014	Level 1		Level 2		Level 3		Total

Assets
Corporate money market funds (1)	$	75,363	$	0	$	0	$	75,363
Certificates of deposit (2)		0		20,008		0		20,008
Derivative Instruments (3)		0		1,406		0		1,406
Total assets measured at fair value	$	75,363	$	21,414	$	0	$	96,777

Liabilities
Derivative instruments (3)	$	0	$	591	$	0	$	591
Total liabilities measured at fair value	$	0	$	591	$	0	$	591

	Fair Value Measurements at Reporting Date Using
August 31, 2013	Level 1		Level 2		Level 3		Total

Assets
Corporate money market funds (1)	$	156,693	$	0	$	0	$	156,693
Certificates of deposit (2)		0		12,725		0		12,725
Total assets measured at fair value	$	156,693	$	12,725	$	0	$	169,418

Liabilities
Derivative instruments (3)	$	0	$	7,740	$	0	$	7,740
Total liabilities measured at fair value	$	0	$	7,740	$	0	$	7,740

	(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 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.

(c) 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 2014 and fiscal 2013, no fair value adjustments or material fair value measurements were required for the Company’s non-financial assets or liabilities.

5**.** DERIVATIVE INSTRUMENTS

Cash Flow Hedges

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. 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. 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. There was no discontinuance of cash flow hedges during fiscal 2014 or fiscal 2013, and as such, no corresponding gains or losses related to changes in the value of our contracts were reclassified into earnings prior to settlement.

As of August 31, 2014, FactSet maintained foreign currency forward contracts to hedge approximately 75% of its Indian Rupee exposure through the fourth quarter of fiscal 2016 and approximately 50% of its Philippines Peso exposure through the second quarter of fiscal 2015. As of August 31, 2014, the notional principal and fair value of foreign exchange contracts to purchase Indian Rupees with U.S. dollars was Rs.2.5 billion and $0.7 million, respectively. As of August 31, 2014, the notional principal and fair value of foreign exchange contracts to purchase Philippine Pesos with U.S. dollars was Php288.6 million and $0.1 million, respectively.

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

	Gross Notional Value				Fair Value Asset (Liability)
Currency Hedged (in U.S. dollars)	Aug 31, 2014		Aug 31, 2013		Aug 31, 2014		Aug 31, 2013
Indian Rupee	$	38,479	$	47,388	$	700	$	(7,693	)
Philippine Peso		6,500		11,700		115		(178	)
British Pound		0		10,436		0		131
Total	$	44,979	$	69,524	$	815	$	(7,740	)

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 (in thousands):

Designation of Derivatives	Balance Sheet Location	Aug 31, 2014		Aug 31, 2013
Derivatives designated as hedging instruments	Assets: Foreign Currency Forward Contracts
	Prepaid expenses and other current assets	$	114	$	0
	Other assets	$	1,292		0
	Liabilities: Foreign Currency Forward Contracts
	Accounts payable and accrued expenses	$	591	$	3,085
	Deferred rent and other non-current liabilities	$	0	$	4,655

All derivatives were designated as hedging instruments as of August 31, 2014 and August 31, 2013, 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, 2014 (in thousands):

		Gain (Loss) Recognized in AOCL on Derivatives (Effective Portion)											Location of Gain (Loss)Reclassified from AOCL into Income (Effective		(Loss) Reclassifiedfrom AOCL into Income(Effective Portion)
Derivatives in Cash Flow Hedging Relationships		2014				2013				2012			Portion)		2014				2013				2012
Foreign currency forward contracts		$	8,294			$	(6,258	)		$	(4,450	)	SG&A		$	(260	)		$	(1,000	)		$	(1,031	)

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, 2014, FactSet estimates that $0.5 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, 2014 and 2013, respectively, information related to these offsetting arrangements was as follows (in thousands):

	Derivatives Offset in Consolidated Balance Sheets
August 31, 2014	Gross Derivative Amounts			Gross Derivative Amounts Offset in Balance Sheet		Net Amounts
Fair value of assets	$	1,406		$	0	$	1,406
Fair value of liabilities		(626	)		35		(591	)
Total	$	780		$	35	$	815

	Derivatives Offset in Consolidated Balance Sheets
August 31, 2013	Gross Derivative Amounts			Gross Derivative Amounts Offset in Balance Sheet		Net Amounts
Fair value of assets	$	131		$	0	$	131
Fair value of liabilities		(7,871	)		0		(7,871	)
Total	$	(7,740	)	$	0	$	(7,740	)

6. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of other comprehensive income (loss) during the twelve months ended August 31, 2014, 2013, and 2012 are as follows (in thousands):

	Aug 31, 2014				Aug 31, 2013						Aug 31, 2012
	Pre-tax		Net of tax		Pre-tax			Net of tax			Pre-tax			Net of tax
Foreign currency translation adjustments	$	7,895	$	7,895	$	(5,151	)	$	(5,151	)	$	(14,925	)	$	(14,925	)
Realized loss on cash flow hedges reclassified to earnings (1)		260		164		1,000			622			1,031			645
Unrealized gain (loss) on cash flow hedges recognized in AOCL		8,294		5,193		(6,258	)		(3,918	)		(4,450	)		(2,786	)
Other comprehensive income (loss)	$	16,449	$	13,252	$	(10,409	)	$	(8,447	)	$	(18,344	)	$	(17,066	)

(1) Reclassified to Selling, General and Administrative Expenses

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

	Aug 31, 2014			Aug 31, 2013
Accumulated unrealized gains (losses) on cash flow hedges, net of tax	$	510		$	(4,847	)
Accumulated foreign currency translation adjustments		(18,431	)		(26,326	)
Total accumulated other comprehensive loss	$	(17,921	)	$	(31,173	)

7. SEGMENT INFORMATION

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 operating 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 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 the Americas, while the European and Asia Pacific segments service investment professionals located throughout Europe and Asia, 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, the Netherlands, Latvia, Sweden, Dubai and Italy. The Asia Pacific segment is headquartered in Tokyo, Japan with office locations in Hong Kong, Singapore, Australia and Mumbai, India. 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, 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 $285.6 million of goodwill reported by the Company at August 31, 2014, 63% was recorded in the U.S. segment, 36% 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, 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

Year Ended August 31, 2013	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	586,865	$	208,827	$	62,420	$	858,112
Segment operating profit		138,706		100,187		30,526		269,419
Total assets		444,406		193,202		52,589		690,197
Depreciation and amortization		27,757		4,027		3,995		35,779
Stock-based compensation		37,307		2,264		380		39,951
Capital expenditures		13,649		1,276		3,592		18,517

Year Ended August 31, 2012	U.S.		Europe		Asia Pacific		Total
Revenues from clients	$	550,474	$	197,404	$	57,915	$	805,793
Segment operating profit		149,968		95,417		27,605		272,990
Total assets		377,320		266,967		49,856		694,143
Depreciation and amortization		25,061		4,922		3,796		33,779
Stock-based compensation		20,180		1,680		122		21,982
Capital expenditures		20,408		488		1,624		22,520

GEOGRAPHIC INFORMATION - The following table sets forth information for those countries that are 10% or more of revenues (in thousands).

Years Ended August 31,	2014		2013		2012

Revenue__s*
United States	$	624,642	$	586,865	$	550,474
United Kingdom		131,848		121,072		114,435
All other European countries		95,547		87,755		82,969
Asia Pacific		68,298		62,420		57,915
Total revenues	$	920,335	$	858,112	$	805,793

Revenues are attributed to countries based on the location of the client.

The following table sets forth long-lived assets by geographic area (in thousands):

At August 31,	2014		2013		2012

Long-lived Assets**
United States	$	46,294	$	51,184	$	60,288
United Kingdom		4,669		4,806		5,466
All other European countries		2,267		3,051		2,951
Asia Pacific		4,411		6,330		7,825
Total long-lived assets	$	57,641	$	65,371	$	76,530

** 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**

Revere Data

On September 1, 2013, FactSet acquired the assets of Revere Data, LLC (“Revere”) to complement the Company's commitment to provide its clients with insightful content sets, for $15.3 million in cash. Revere classifies companies into a unique industry taxonomy and offers a database of supply chain relationships that helps investors identify companies’ interrelationships and mutual dependencies. As of the date of acquisition, Revere had annual subscriptions of $5 million. The opportunity for FactSet to offer this robust data to new and existing clients contributed to a purchase price in excess of fair value of the Revere net tangible and intangible assets. As a result, FactSet recorded goodwill in connection with this transaction.

Allocation of the purchase price to the assets acquired and liabilities assumed was finalized during the second quarter of fiscal 2014. The total purchase price was allocated to Revere’s net tangible and intangible assets based upon their estimated fair value as of the date of acquisition.

The final Revere purchase price of $15.3 million was allocated as follows (in thousands):

Tangible assets acquired	$	544
Amortizable intangible assets
Data content		2,799
Client relationships		827
Non-compete agreements		162
Trade name		293
Goodwill		11,612
Total assets acquired		16,237
Liabilities assumed		(949	)
Net assets acquired	$	15,288

Intangible assets of $4.1 million have been allocated to amortizable intangible assets consisting of data content, amortized over five years using a straight-line amortization method; client relationships, amortized over seven years using an accelerated amortization method; non-compete agreements, amortized over two years using a straight-line amortization method; and trade name, amortized over four years using a straight-line amortization method.

Goodwill totaling $11.6 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the Revere acquisition is included in the U.S. segment and is deductible for income tax purposes. The results of the operations of Revere have been included in the Company’s Consolidated Statement of Income since the completion of the acquisition on September 1, 2013 and did not have a material impact on fiscal 2014 results. Pro forma information has not been presented because the effects of this acquisition were not material to the Company’s consolidated financial results.

Matrix Data Limited

During the second quarter of fiscal 2014, FactSet acquired Matrix Data Limited (“Matrix”) for a total purchase price of $31.8 million. Matrix’ primary line of business is a provider of intelligence to the UK financial services industry, covering market share of mutual fund distribution. Matrix has developed customer, channel and market benchmarking solutions that help clients optimize product distribution and improve marketing effectiveness to drive revenue growth. At the time of acquisition, Matrix had annual subscriptions of $7 million. The acquisition of Matrix allows FactSet to expand its current U.S. advisor-sold investments and insurance products to the UK, with the potential to ultimately expand this coverage throughout continental Europe. The opportunity for FactSet to develop an international presence and complement its existing U.S. product offerings contributed to a purchase price in excess of fair value of the Matrix net tangible and intangible assets, leading to the recognition of goodwill in connection with the acquisition.

Allocation of the purchase price to the assets acquired and liabilities assumed was finalized during the third quarter of fiscal 2014. There were no material adjustments between the preliminary and final allocation of purchase price. The total purchase price was allocated to Matrix’ net tangible and intangible assets based upon their estimated fair value as of the date of acquisition.

The final Matrix purchase price of $31.8 million was allocated as follows (in thousands):

Tangible assets acquired	$	7,459
Amortizable intangible assets
Data content		3,408
Client relationships		2,816
Software technology		1,708
Trade name		670
Non-compete agreements		147
Goodwill		25,531
Total assets acquired		41,739
Liabilities assumed		(9,941	)
Net assets acquired	$	31,798

Intangible assets of $8.7 million have been allocated to amortizable intangible assets consisting of data content, amortized over four years using a straight-line amortization method; client relationships, amortized over eight years using an accelerated amortization method; software technology, amortized over five years using a straight-line amortization method; non-compete agreements, amortized over three years using a straight-line amortization method; and trade name, amortized over four years using a straight-line amortization method.

Goodwill totaling $25.5 million represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill generated from the Matrix acquisition is included in the European segment and is deductible for income tax purposes. The results of the operations of Matrix have been included in the Company’s Consolidated Statement of Income since the completion of the acquisition and did not have a material impact on consolidated fiscal 2014 financial results, and as such, pro forma information has not been presented.

9**. GOODWILL**

Changes in the carrying amount of goodwill by segment for fiscal years ended August 31, 2014 and 2013 are as follows (in thousands):

	U.S.		Europe			Asia Pacific			Total
Balance at August 31, 2012	$	167,817	$	73,806		$	4,168		$	245,791
Goodwill acquired during the period		5		0			0			5
Foreign currency translations		0		(382	)		(841	)		(1,223	)
Balance at August 31, 2013	$	167,822	$	73,424		$	3,327		$	244,573
Goodwill acquired during the period		11,612		25,531			0			37,143
Foreign currency translations		0		4,077			(185	)		3,892
Balance at August 31, 2014	$	179,434	$	103,032		$	3,142		$	285,608

Goodwill is not amortized as it has an estimated infinite life. At least annually, the Company evaluates goodwill at the reporting unit level for 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 2014, 2013 and 2012, 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.

10**.** 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, 2014 was 11.1 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 2014, 2013 and 2012. Amortizable intangible assets are tested for impairment 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.

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

At August 31, 2014	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Data content	$	56,974	$	27,644	$	29,329
Client relationships		25,821		17,443		8,378
Software technology		22,881		20,089		2,792
Non-compete agreements		2,465		1,881		584
Trade names		1,729		958		771
Total	$	109,870	$	68,015	$	41,855

At August 31, 2013	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Data content	$	49,185	$	22,419	$	26,766
Client relationships		22,915		16,185		6,730
Software technology		20,914		19,126		1,788
Non-compete agreements		2,154		1,293		861
Trade names		758		680		78
Total	$	95,926	$	59,703	$	36,223

During the first quarter of fiscal 2014, $4.1 million of intangible assets were acquired with a weighted average useful life of 5.2 years due to the Revere acquisition. During the second quarter of fiscal 2014, FactSet acquired an additional $8.7 million of intangible assets in connection with the Matrix acquisition with a weighted average estimated useful life of 5.4 years. There were no intangible assets acquired during fiscal 2013.

The details of the intangible assets acquired in the Revere acquisition during fiscal 2014 are outlined as follows (in thousands):

Revere Intangible Asset Allocation	Amortization Period	Acquisition Cost
Data content	5.0 years	$	2,799
Client relationships	7.0 years		827
Non-compete agreements	2.0 years		162
Trade name	4.0 years		293
Total	5.2 years	$	4,081

The details of the intangible assets acquired in the Matrix acquisition during fiscal 2014 are outlined as follows (in thousands):

Matrix Intangible Asset Allocation	Amortization Period	Acquisition Cost
Data content	4.0 years	$	3,408
Client relationships	7.9 years		2,816
Non-compete agreements	3.0 years		147
Trade name	3.8 years		670
Technology	4.8 years		1,708
Total	5.4 years	$	8,749

Amortization expense recorded for intangible assets during fiscal years 2014, 2013 and 2012 was $8.5 million, $7.1 million and $7.5 million, respectively. As of August 31, 2014, estimated intangible asset amortization expense for each of the next five years and thereafter are as follows (in thousands):

Fiscal Year	Estimated Amortization Expense

2015	$	7,670
2016		5,855
2017		5,773
2018		4,622
2019		3,335
Thereafter		14,600
Total	$	41,855

11**. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS**

Property, equipment and leasehold improvements consist of the following (in thousands):

At August 31,	2014			2013
Leasehold improvements	$	90,487		$	90,040
Computers and related equipment		81,853			73,320
Furniture and fixtures		29,373			28,978
Subtotal	$	201,713		$	192,338
Less accumulated depreciation and amortization		(144,072	)		(126,967	)
Property, equipment and leasehold improvements, net	$	57,641		$	65,371

Depreciation expense was $25.9 million, $28.4 million and $26.1 million for fiscal years 2014, 2013 and 2012, respectively.

12**. COMMON STOCK AND EARNINGS PER SHARE**

On May 5, 2014, FactSet’s Board of Directors approved an 11% increase in the regular quarterly dividend, beginning with the Company’s dividend payment in June 2014 of $0.39 per share, or $1.56 per share per annum.

Shares of common stock outstanding were as follows (in thousands):

Years Ended August 31,
Balance, beginning of year (September 1)	43,324		44,279		45,055
Common stock issued for employee stock plans	959		2,459		825
Stock issued for acquisition of business	-		-		43
Repurchase of common stock	(2,490	)	(3,414	)	(1,644	)
Balance, end of year (August 31)	41,793		43,324		44,279

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
Years Ended August 31,	2014		2013		2012		2014		2013		2012		2014		2013		2012
Basic EPS
Income available to common stockholders	$	211,543	$	198,637	$	188,809		42,436		43,890		44,784	$	4.98	$	4.53	$	4.22
Diluted EPS
Dilutive effect of stock options and restricted stock								534		734		1,026
Income available to common stockholders plus assumed conversions	$	211,543	$	198,637	$	188,809		42,970		44,624		45,810	$	4.92	$	4.45	$	4.12

Dilutive potential common shares consist of stock options and unvested restricted stock. No outstanding stock options were excluded from the fiscal 2014 calculation of diluted earnings per share compared to 6,408 stock options excluded from the fiscal 2013 calculation because their inclusion would have been anti-dilutive. A total of 383,058 stock options were excluded from the fiscal 2012 calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

As of August 31, 2014, 2013 and 2012, 380,653, 1,202,685 and 1,710,017, respectively, performance-based stock option grants were excluded from the calculation of diluted earnings per share_._ Performance-based stock options are omitted from the calculation of diluted earnings per share until the performance criteria have been met.

13**.** STOCKHOLDERS’ EQUITY

Preferred Stock

At August 31, 2014 and 2013, 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, 2014 and 2013, there were 150,000,000 shares of common stock ($.01 par value per share) authorized, of which 49,110,218 and 48,110,740 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, 2014 and 2013, there were 7,317,416 and 4,786,330 shares of treasury stock (at cost) outstanding, respectively. As a result, 41,792,802 and 43,324,410 shares of FactSet common stock were outstanding at August 31, 2014 and 2013, respectively.

Share Repurchase Program

On December 16, 2013, FactSet’s Board of Directors approved a $300 million expansion to the existing share repurchase program. During fiscal 2014, the Company repurchased 2,489,993 shares for $275.4 million. At August 31, 2014, $87.0 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. During fiscal 2013, the Company repurchased 3.4 million shares for $327.3 million under the share repurchase program.

In addition to the purchase of 2,489,993 shares under the existing share repurchase program, FactSet repurchased 41,093 shares for $4.4 million from employees to cover their cost of taxes upon the vesting of previously granted restricted stock during fiscal 2014, as compared to 50,828 shares for $4.7 million in fiscal 2013.

Restricted Stock

Restricted stock awards entitle the holder to shares of common stock as the awards vest over time. During fiscal 2014, 135,205 of previously granted restricted stock awards vested and were included in common stock outstanding as of August 31, 2014 (less 41,093 shares repurchased from employees to cover their cost of taxes upon vesting of the restricted stock). During fiscal 2013, 149,741 of previously granted restricted stock awards vested and were included in common stock outstanding at August 31, 2013 (less 50,828 shares repurchased from employees to cover their cost of taxes upon vesting of the restricted stock). During fiscal 2012, 14,258 restricted stock awards vested.

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 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
August 15, 2013	$	0.35	Regular (cash)	August 31, 2013	$	15,164	September 17, 2013
May 14, 2013	$	0.35	Regular (cash)	May 31, 2013	$	15,413	June 18, 2013
February 21, 2013	$	0.31	Regular (cash)	February 28, 2013	$	13,510	March 19, 2013
November 15, 2012	$	0.31	Regular (cash)	November 30, 2012	$	13,746	December 18, 2012
August 8, 2012	$	0.31	Regular (cash)	August 31, 2012	$	13,727	September 18, 2012
May 8, 2012	$	0.31	Regular (cash)	May 31, 2012	$	13,893	June 19, 2012
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

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.

14. EMPLOYEE STOCK OPTION AND RETIREMENT PLANS

Stock Options

Options granted without performance conditions under the Company’s stock option plans expire either seven or ten years from the date of grant and the majority vest at a rate of 20% after the first year and 1.67% per month thereafter for years two through five. 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. Majority of the options granted with performance conditions expire ten years from the date of grant and vest at a rate of 40% after the first two years and 1.67% per month thereafter for years three through five. Options are not transferable or assignable other than by will or the laws of descent and distribution. During the grantee’s lifetime, they may be exercised only by the grantee.

Stock Option Activity

In fiscal years 2014, 2013 and 2012, stock options to purchase 391,478, 1,674,966, and 1,468,513 shares of common stock, respectively, at prices which ranged from $87.26 to $110.31 were granted to existing employees and non-employee directors of the Company. A summary of stock option activity is as follows (in thousands, except per share data):

			Weighted Average Exercise Price Per Share

Balance at August 31, 2011	6,132		$	57.28
Granted – non performance-based	540			93.96
Granted – performance-based	907			93.80
Granted – non-employee Directors grant	21			87.26
Exercised	(731	)		35.96
Forfeited*	(786	)		87.37
Balance at August 31, 2012	6,083		$	64.76
Granted – non performance-based	645			92.22
Granted – performance-based	1,011			92.22
Granted – non-employee Directors grant	19			91.06
Exercised	(2,286	)		52.25
Forfeited**	(743	)		93.84
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***	(849	)		91.98
Balance at August 31, 2014	3,482		$	79.67

In November 2010, the Company granted 734,334 performance-based employee stock options. None of these performance-based stock options granted vested because FactSet did not achieve certain performance levels during the two fiscal years ended August 31, 2012. As such, these stock options were recorded as forfeitures in August 2012.

** In November 2011, the Company granted 665,551 performance-based employee stock options. None of these performance-based stock options granted vested because FactSet did not achieve certain performance levels during the two fiscal years ended August 31, 2013. As such, these stock options were recorded as forfeitures in August 2013.

*** Included in the number of stock options forfeited during fiscal 2014 were 791,348 shares that related to previously granted performance-based stock options. 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 2014.

Stock Options Outstanding and Exercisable

The following table summarizes ranges of outstanding and exercisable options as of August 31, 2014 (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		Aggregate Intrinsic Value		Number Exercisable		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
$29.00	-	$58.78		356		0.9	$	35.28	$	32,845		356	$	35.28	$	32,845
$63.09	-	$65.67		527		1.7	$	64.23	$	33,265		386	$	64.65	$	24,211
$66.46	-	$66.81		565		2.1	$	66.47	$	34,411		528	$	66.47	$	32,188
$87.26	-	$91.06		489		6.5	$	90.21	$	18,192		229	$	89.80	$	8,599
$92.22	-	$92.55		751		8.1	$	92.22	$	26,416		195	$	92.23	$	6,852
$94.84	-	$103.30		542		7.5	$	96.90	$	16,535		205	$	95.11	$	6,612
$107.65	-	$110.31		252		9.1	$	109.32	$	4,559		0	$	109.32	$	0
Total Fiscal 2014				3,482		5.2	$	79.67	$	166,223		1,899	$	68.78	$	111,307

Prior Year Amounts		2013				2012
	Number of Shares		Weighted Average Exercise Price Per Share		Number of Shares		Weighted Average Exercise Price Per Share
Outstanding at fiscal year end		4,729	$	75.95		6,083	$	64.76
Exercisable at fiscal year end		1,925	$	59.70		2,858	$	48.44

The aggregate intrinsic value of in-the-money stock options exercisable at August 31, 2014 and 2013 was $111.3 million and $82.1 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price of $127.40 at August 31, 2014 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, 2014 and 2013 was 3.4 years and 2.8 years, respectively. The total pre-tax intrinsic value of stock options exercised during fiscal 2014, 2013 and 2012 was $44.0 million, $99.1 million, and $43.0 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 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 2012 Annual Employee Performance-based Option Grant Review

In November 2012, FactSet granted 1,011,510 performance-based employee stock options. The number of performance-based options that would become eligible to vest was based upon the Company achieving performance levels for both organic ASV and diluted earnings per share during the two fiscal years ended August 31, 2014. Based upon the actual growth in organic ASV and diluted EPS through August 31, 2014, 20%, or 185,014 (net of options forfeited through the end of fiscal 2014), of the previously granted shares became eligible to vest on August 31, 2014 with 40% scheduled to vest on November 1, 2014 and the remaining 60% will vest at a monthly rate of 1.67% through October 2017. As of the end of fiscal 2014, total unamortized stock-based compensation expense of $2.1 million will be recognized over the remaining vesting period of 3.1 years in connection with this grant.

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. During the fourth quarter of fiscal 2013, the StreetAccount business achieved the growth target as outlined within the terms of the grant, thus 20% or 48,314 options vested on August 31, 2013. The second 20% tranche vested on August 31, 2014 as a result of accelerated expansion of Street Account users. In addition, due to the accelerated 2014 growth and forecasted future usage growth, the Company estimated that the third 20% tranche would vest by August 31, 2017. This reflected a higher performance level than previously estimated and accordingly, increased the number of options that will vest to a total 60%, which required FactSet to record a pre-tax stock-based compensation charge of $1.4 million in the third quarter of fiscal 2014. The change in estimate also results in unamortized stock-based compensation expense of $0.9 million to be recognized over the remaining vesting period of 3.0 years.

Matrix and Revere Performance-based Option Grants

In connection with the acquisitions of Matrix and Revere during fiscal 2014, FactSet granted 165,949 and 36,695 performance-based stock options, to senior management of those companies, respectively. The performance-based options granted in connection with the acquisition of Matrix will vest only if ASV and operating margin targets related to the Matrix business are met during a five year measurement period ending December 23, 2018, and the option holders remain employed by FactSet. As of August 31, 2014 FactSet did not believe these targets were probable of being achieved, and as such, no stock-based compensation expense is expected to be realized in connection with these options. Of the 36,695 performance-based stock options granted in connection with the Revere acquisition, FactSet estimates that 18,553 options will vest based upon the achievement of certain ASV and operating margins during the measurement period ending August 31, 2015. This view results in unamortized stock-based compensation expense of $0.5 million to be recognized over the remaining vesting period of 4.0 years.

Restricted Stock and Stock Unit Awards

The Company’s option plans permit 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):

			Weighted Average Grant Date Fair Value Per Award
Balance at August 31, 2011	407		$	71.31
Granted (restricted stock and stock units)	-			-
Vested	(14	)		69.02
Canceled/forfeited	(10	)		77.13
Balance at August 31, 2012	383		$	71.34
Granted (restricted stock and stock units)	132			85.80
Vested*	(150	)		62.34
Canceled/forfeited	(7	)		81.38
Balance at August 31, 2013	358		$	80.43
Granted (restricted stock and stock units)	204			101.95
Vested**	(135	)		84.48
Canceled/forfeited	(59	)		86.39
Balance at August 31, 2014	368		$	89.77

*Of the total 149,741 restricted stock awards that vested during fiscal 2013, 87,758 related to awards granted on October 23, 2009. These restricted stock awards cliff vested 60% after three years (on October 23, 2012) and the remaining 40% will vest after five years (on October 23, 2014). An additional 55,572 awards that vested in fiscal 2013 related to awards granted on February 9, 2010 which cliff vested 100% after three years (on February 9, 2013). The remaining 6,411 restricted stock awards that vested were previously granted between June 2010 and July 2011 and vesting occurred when certain ASV targets were met in fiscal 2013.

** 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) and the remaining 50% vesting after six years on February 9, 2016.

November 2013 Employee Restricted Stock Award

On November 1, 2013, FactSet granted 153,972 restricted stock awards with a fair value of $102.22, which entitle the holder to shares of common stock as the awards vest over time. These restricted stock awards cliff vest 60% after three years (on November 1, 2016) and the remaining 40% after five years (on November 1, 2018). As of August 31, 2014 unamortized stock-based compensation expense of $11.3 million is to be amortized ratably to compensation expense over the remaining vesting period of 4.2 years.

Matrix and Revere Restricted Stock Units

In connection with the acquisitions of Matrix and Revere, FactSet granted 30,144 restricted stock units and 7,744 performance-based restricted stock units, respectively. The Matrix restricted stock units cliff vest 60% after three years with the remaining 40% vesting after five years. As of August 31, 2014 unamortized stock-based compensation expense of $2.7 million is to be amortized ratably to compensation expense over the remaining vesting period of 4.3 years. Of the 7,744 performance-based restricted stock units granted in connection with the Revere acquisition, 3,872 are estimated to vest based upon management’s belief that certain ASV and operating margin targets will be achieved during the measurement period ending August 31, 2017. As of August 31, 2014 unamortized stock-based compensation of $0.3 million will be amortized to compensation expense over the remaining vesting period of 4.0 years. The remaining 3,872 performance-based restricted stock units granted in connection with the Revere acquisition are expected to be forfeited.

Share-based Awards Available for Grant

A summary of share-based awards available for grant is as follows (in thousands):


Balance at August 31, 2011	4,977		147
Granted – non performance-based options	(540	)	-
Granted – performance-based options	(907	)	-
Granted – non-employee Directors grant	-		(21	)
Restricted stock awards granted*	-		-
Share-based awards canceled/forfeited	810		-
Balance at August 31, 2012	4,340		126
Granted – non performance-based options	(645	)	-
Granted – performance-based options	(1,011	)	-
Granted – non-employee Directors grant	-		(19	)
Restricted stock awards granted*	(329	)	-
Share-based awards canceled/forfeited	761		-
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*	(510	)	-
Share-based awards canceled/forfeited	993		9
Balance at August 31, 2014	3,222		102

Under the Company’s option plan, for each restricted stock award granted/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 fiscal 2014, employees purchased 74,889 shares as compared to 75,281 shares in fiscal 2013 and 85,487 shares in fiscal 2012. At August 31, 2014, 44,881 shares were reserved for future issuance under the Purchase Plan. On October 23, 2014, FactSet’s Board of Directors approved an amendment to increase the maximum number of shares available for purchase under the Purchase Plan to 1,000,000 shares. Approval of the amendment to the Purchase Plan is subject to approval by stockholders of FactSet at the Company’s annual meeting scheduled to be held on December 16, 2014.

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 $7.7 million, $7.5 million, and $6.7 million in matching contributions to employee 401(k) accounts during fiscal 2014, 2013 and 2012, respectively.

15**.** STOCK-BASED COMPENSATION

The Company recognized total stock-based compensation expense of $22.9 million, $40.0 million, and $22.0 million in fiscal 2014, 2013, and 2012, respectively. Stock-based compensation expense for fiscal 2013 includes pre-tax charges of $18.3 million related to the vesting of performance-based options granted in connection with the acquisition of Market Metrics in June 2010 and StreetAccount in June 2012. These performance-based options vested in fiscal 2013 when each acquired business accelerated to achieve stretch growth targets established on the date of grant.

As of August 31, 2014, $49.4 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 August 31, 2014 and 2013, respectively.

Employee Stock Option Fair Value Determination__s

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 201__4

	-	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.

Fiscal 2013

	●	Q1 2013 – 635,308 non performance-based employee stock options and 1,011,510 performance-based employee stock options were granted at a weighted average exercise price of $92.22 and a weighted average estimated fair value of $26.87 per share.

	●	Q2 2013 – 9,367 non performance-based employee stock options were granted at a weighted average exercise price of $92.55 and a weighted average estimated fair value of $26.69 per share.

	●	Q3 2013 – There were no employee stock options granted during the third quarter of fiscal 2013.

	●	Q4 2013 – There were no employee stock options granted during the fourth quarter of fiscal 2013.

Fiscal 201__2

	●	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 second quarter of fiscal 2012.

	●	Q3 2012 – There were no employee stock options granted during the third quarter of fiscal 2012.

	●	Q4 2012 – 120,847 non performance-based employee stock options and 241,546 performance-based employee stock options were granted at a weighted average exercise price of $90.92 and fair value of $33.11 per share.

The weighted average estimated fair value of employee stock options granted during fiscal 2014, 2013 and 2012 was determined using the binomial model with the following weighted average assumptions:


Term structure of risk-free interest rate	0.01%	-	2.6%	0.16%	-	1.91%	0.13%	-	2.41%
Expected life (years)	7.6	-	7.8	7.6	-	7.8	7.6	-	9.1
Term structure of volatility	23%	-	33%	24%	-	33%	29%	-	36%
Dividend yield		1.35%			1.30%			1.16%
Weighted average estimated fair value		$29.64			$26.87			$32.34
Weighted average exercise price		$106.69			$92.22			$93.86
Fair value as a percentage of exercise price		27.8%			29.1%			34.5%

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-Emplo__yee 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 201__4

On January 15, 2014, FactSet granted 14,424 stock options to the Company’s non-employee Directors. All of the options granted on have 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 (in years)	5.4
Expected volatility	28.9	%
Dividend yield	1.35	%

Fiscal 20__13

On January 15, 2013, FactSet granted 18,781 stock options to the Company’s non-employee Directors at a weighted average estimated fair value of $24.23 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	0.89	%
Expected life (years)	5.4
Expected volatility	32	%
Dividend yield	1.30	%

Fiscal 20__12

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 (years)	5.4
Expected volatility	34	%
Dividend yield	1.11	%

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 Determination__s

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 201__4

	●	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.

Fiscal 2013

	●	131,702 restricted stock units granted on April 8, 2013 with a fair value of $85.80.

Fiscal 2012

	●	There were no restricted stocks awards granted during fiscal 2012.

Employee Stock Purchase Plan Fair Value Determinations

During fiscal 2014, employees purchased 74,889 shares at a weighted average price of $89.28 as compared to 75,281 shares at a weighted average price of $80.77 in fiscal 2013 and 85,487 shares at a weighted average price of $75.20 in fiscal 2012. Stock-based compensation expense recorded during fiscal 2014, 2013, and 2012 relating to the employee stock purchase plan was $1.3 million, $1.2 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 2014, 2013 and 2012 were $17.76, $15.79, and $16.09 per share, respectively, with the following weighted average assumptions:


Risk-free interest rate	0.04	%	0.07	%	0.06	%
Expected life (months)	3		3		3
Expected volatility	9.8	%	9.8	%	14.8	%
Dividend yield	1.38	%	1.38	%	1.26	%

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.

16**. INCOME TAXES**

Provision for Income Taxes

The provision for income taxes is as follows (in thousands):

Years Ended August 31,	2014			2013			2012
U.S. operations	$	242,839		$	220,778		$	229,772
Non-U.S. operations		60,625			50,132			44,933
Income before income taxes	$	303,464		$	270,910		$	274,705
U.S. operations	$	81,998		$	61,328		$	76,020
Non-U.S. operations		9,923			10,945			9,876
Total provision for income taxes	$	91,921		$	72,273		$	85,896
Effective tax rate		30.3	%		26.7	%		31.3	%

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

Years Ended August 31,	2014			2013			2012
Current
U.S. federal	$	77,368		$	52,625		$	73,272
U.S. state and local		3,972			3,309			4,305
Non-U.S.		10,350			11,188			10,224
Total current taxes	$	91,690		$	67,122		$	87,801
Deferred
U.S. federal	$	547		$	5,036			(1,405	)
U.S. state and local		111			359			(152	)
Non-U.S.		(427	)		(243	)		(348	)
Total deferred taxes	$	231		$	5,151		$	(1,905	)
Total provision for income taxes	$	91,921		$	72,273		$	85,896

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 (expressed as a percentage of income before income taxes):

Years Ended August 31,
Tax at federal U.S. 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	1.8		2.0		2.1
Foreign income at other than U.S. rates	(2.9	)	(2.5	)	(1.9	)
Domestic production activities deduction	(2.1	)	(2.6	)	(2.6	)
Income tax benefit from R&D tax credits	(1.1	)	(4.1	)	(0.8	)
Income tax benefits from foreign tax credits	(0.4	)	(1.2	)	(0.5	)
Other, net	0.0		0.1		0.0
Effective tax rate	30.3	%	26.7	%*	31.3	%

The fiscal 2013 effective tax rate of 26.7% includes income tax benefits of $7.2 million primarily from the reenactment of the U.S. Federal R&D tax credit in January 2013 and the finalization of the fiscal 2012 tax return. The reenactment of the credit was retroactive to January 1, 2012 and extends through the end of the 2013 calendar year.

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):

At August 31,	2014			2013
Deferred tax assets
Current
Receivable reserve	$	597		$	614
Deferred rent		1,067			2,191
Other		177			(2	)
Net current deferred taxes	$	1,841		$	2,803
Non-current
Depreciation on property, equipment and leasehold improvements	$	9,831		$	6,329
Deferred rent		3,572			2,772
Stock-based compensation		18,160			19,828
Purchased intangible assets, including acquired technology		(10,750	)		(8,401	)
Other		1,564			1,495
Net non-current deferred taxes	$	22,377		$	22,023
Total deferred tax assets	$	24,218		$	24,826

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

At August 31,	2014			2013
Deferred tax liabilities (non-current)
Purchased intangible assets, including acquired technology	$	3,478		$	2,761
Stock-based compensation		(860	)		(365	)
Other		303			0
Total deferred tax liabilities (non-current)	$	2,921		$	2,396

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, 2014 and August 31, 2013. 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, 2014, 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. Approximately $0.9 million of these unrecognized tax benefits would have affected the current year effective tax rate if realized as of August 31, 2014. 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, 2011	$	7,204
Additions based on tax positions related to the current year		691
Additions for tax positions of prior years		470
Statute of limitations lapse		(613	)
Reductions from settlements with taxing authorities		(2,288	)

Unrecognized income tax benefits at August 31, 2012	$	5,464
Additions based on tax positions related to the current year		1,372
Additions for tax positions of prior years		986
Statute of limitations lapse		(1,103	)
Reductions from settlements with taxing authorities		(1,284	)

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

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, 2014, 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 2014
State (various)		2010 through 2014

Europe
France		2011 through 2014
United Kingdom		2012 through 2014

17**.** 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, 2014 the Company leases approximately 193,000 square feet of office space at its headquarters in Norwalk, Connecticut. In addition, FactSet leases office space for its U.S. reportable segment in New York, New York; Boston, Massachusetts; Chicago, Illinois; San Francisco, California; Austin, Texas; Jackson, Wyoming; Atlanta, Georgia; Tuscaloosa, Alabama; Newark, Ridgewood and Piscataway, New Jersey; Manchester, New Hampshire; Reston, Virginia, Youngstown, Ohio, and Toronto, Canada. The Company’s European segment operates in leased office space in London, England; Paris and Avon, France; Amsterdam, the Netherlands; Frankfurt, Germany; Dubai, United Arab Emirates; Milan, Italy; Stockholm, Sweden; and Riga, Latvia. Office space in Tokyo, Japan; Hong Kong; Singapore; Mumbai, India; and Sydney, Australia are leased by FactSet for its Asia Pacific operating segment. The data content collection centers located in Hyderabad, India and Manila, the Philippines benefit all of the Companies operating segments. The leases expire on various dates through 2031. Total minimum rental payments associated with the leases are recorded as rent expense (a component of selling, general and administrative expenses) on a straight-line basis over the periods of the respective non-cancelable lease terms.

During fiscal 2014, 2013 and 2012, rent expense (including operating costs) for all operating leases amounted to $37.7 million, $36.2 million, and $34.6 million, respectively. At August 31, 2014 and 2013, deferred rent reported within the consolidated balance sheet totaled $18.3 million and $19.6 million, of which $14.9 million and $16.1 million, respectively, was reported as a non-current liability within the line item Deferred Rent and Other Non-Current Liabilities. Approximately $1.8 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, 2014. 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, 2014 and 2013, FactSet was in compliance with all covenants contained in the standby letters of credit.

At August 31, 2014, the Company’s lease commitments for office space provide for the following future minimum rental payments under non-cancelable operating leases with remaining terms in excess of one year (in thousands):

Years Ended August 31,	Minimum Lease Payments
2015	$	26,717
2016		20,610
2017		23,779
2018		22,448
2019		20,878
Thereafter		91,757
Total	$	206,189

Included in the future minimum rental payments outlined above are $93.7 million in future rent payments related to a 15-year lease agreement executed in February 2014 to support the Company’s New York operations into calendar year 2031. Additional lease commitments assumed in connection with the Revere and Matrix acquisitions were immaterial, but did add approximately 11,000 square feet of office space.

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, 2014 and 2013, the Company had total purchase commitments with suppliers of $53.3 million and $50.2 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, 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 16). FactSet is currently under audit by multiple tax authorities. The Company has reserved for potential adjustments to its provision for income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities, and the Company believes that the final outcome of these examinations or agreements 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.

18. RISK****S 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 to these Consolidated Financial Statements for additional analysis of the Company’s foreign currency exchange rate risk.

Interest Rate Risk

The fair market value of the Company’s cash and investments at August 31, 2014 was $136.4 million. FactSet’s cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or fewer 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 reported as short-term investments. It is anticipated that the fair market value of the Company’s portfolio will continue to be immaterially affected by fluctuations in interest rates. Because FactSet 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 the recent credit crisis.

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, 2014, 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, 2013. At August 31, 2014 and 2013, the receivable reserve was $1.7 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 credit default swaps 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 datasets 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.

19. UNAUDITED QUARTERLY FINANCIAL DATA

The following table presents selected unaudited financial information for each of the quarterly periods in the years ended August 31, 2014 and 2013. 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 (in thousands, except per share data).

Fiscal 2014	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

Revenues	$	222,975	$	226,934	$	231,761	$	238,664
Cost of services		83,250		87,254		90,661		92,521
Selling, general and administrative		64,985		64,626		68,063		66,757
Operating income		74,740		75,054		73,037		79,386
Net income		52,178		52,426		51,532		55,407
Diluted earnings per common share*	$	1.19	$	1.22	$	1.21	$	1.31
Weighted average common shares (diluted)		43,773		43,107		42,615		42,386

Fiscal 2013	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

Revenues	$	211,085	$	213,083	$	214,613	$	219,332
Cost of services		73,586		75,842		76,721		80,231
Selling, general and administrative		66,414		81,077		66,255		68,567
Operating income		71,085		56,164		71,637		70,534
Net income		49,769		44,539		53,367		50,964
Diluted earnings per common share*	$	1.11	$	1.00	$	1.20	$	1.16
Weighted average common shares (diluted)		44,984		44,455		44,485		44,043

Diluted earnings per common share is calculated independently for each of the periods presented. Accordingly, the sum of the quarterly earnings per share amounts may not equal the total for the year.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9A. CONTROLS AND PROCEDURES