FACTSET RESEARCH SYSTEMS INC - Annual Report: 2010 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

For the fiscal year ended August 31, 2010

For the transition period from                  to                 

Commission File Number: 1-11869

FACTSET RESEARCH SYSTEMS INC.

(Exact name of registrant as specified in its charter)

601 Merritt 7, Norwalk, Connecticut 06851

(Address of principal executive office, including zip code)

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

Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 per share

Name of each exchange on which registered: New York Stock Exchange and the NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based upon the closing price of a share of the registrant’s common stock on February 26, 2010, the last business day of the registrant’s most recently completed second fiscal quarter, as reported by the New York Stock Exchange on that date, was $2,831,412,689.

The number of shares outstanding of the registrant’s common stock, as of October 18, 2010, was 46,363,733.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement dated October 29, 2010, for the Fiscal 2010 Annual Meeting of Stockholders to be held on December 14, 2010, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

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FACTSET RESEARCH SYSTEMS INC.

FORM 10-K

For The Fiscal Year Ended August 31, 2010

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Part I

Overview

FactSet Research Systems Inc. (the “Company” or “FactSet”) is a leading provider of global financial and economic information, including fundamental financial data on tens of thousands of companies worldwide. By integrating content from hundreds of databases with powerful analytics on a single platform, 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.

FactSet combines hundreds of data sets, including content regarding tens of thousands of companies and securities from major markets all over the globe, into a single online platform of information and analytics. Clients have simultaneous access to content from an array of sources, which they can combine and utilize in nearly all of the Company’s applications. 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, databases and financial applications. FactSet generates approximately 82% of its revenues from investment management clients, while the remaining revenue comes from investment banking firms who perform M&A advisory work and equity research.

Fiscal 2010 was the Company’s 32^nd year of operation, its 32^nd consecutive year of revenue growth and its 15^th consecutive year of positive earnings growth as a public company.

Focus

FactSet focuses on providing timely and accurate global financial data and premium client service. The Company provides accurate financial information and superior software solutions that empower the global investment professional to transform information into intelligence. With FactSet, users are able to gain powerful analytics tailored to their workflow, the broadest scope of data available and access to industry-leading client service. From first login, FactSet showcases reports and charts relevant to job function, which can be customized to support a user’s specific process. The Company consolidates all of the tools a professional would need to monitor global markets, public and private companies, and equity and fixed income portfolios in a single, intuitive interface. FactSet fits seamlessly into the workflow as it is designed for the global investment professional.

The Company’s service-oriented culture is one reason many of the world’s top financial firms deploy its services. FactSet offers and delivers on a premium suite of applications and fully integrated content. Its service offerings include access to well-trained, professional and motivated FactSet employees around the clock. This team includes hundreds of employees dedicated to front-line support – answering phone calls, building spreadsheet models and visiting clients, as well as its product development and support teams. Acting as an extension of its clients’ staff is a core value that has allowed FactSet to prosper over the years.

The FactSet Business Model

FactSet enhances the productivity of the global investments professional by providing superior workflow solutions. For over 30 years, the Company’s solutions have been built on creative use of technology and an unwavering dedication to client service. FactSet allows a user to access data anywhere, anytime – in real time. A global investment professional is able to keep track of thousands of global financial databases, get custom feeds or integrate their own data into FactSet’s solution that goes beyond the basics. The new FactSet provides clients with access to their data whenever and wherever they need it – including on virtually any mobile device.

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FactSet’s technology and solutions provide powerful analytical tools for actionable insight that allows a user to monitor global market, portfolio, and company performance with real-time and historical analysis. Other features include the ability to chart intraday contribution on your holdings and manipulate, audit, and export data. No other software platform offers this much control and is supported by hundreds of knowledgeable and dedicated consultants. A team of specialists are always available to help a client streamline its processes. In fiscal 2010, FactSet further integrated its own proprietary content into its product offerings, which allows the Company to enhance data in valuable and new ways. Quality controls are continuously performed over proprietary data to enhance data accuracy.

Personalized FactSet workspaces are designed for investment managers, global investment bankers and more, and include the following standard features and solutions:

Solutions for Investment Managers

FactSet addresses the challenges unique to investment managers in one integrated platform. With FactSet, a user gains a sophisticated solution customized with the exact data and analytics they need to support their firm’s workflow while reducing training, technology, content, and deployment costs. FactSet is tightly integrated to make research efforts seamless. The comprehensive FactSet platform enables investment managers to manipulate data to an unprecedented degree and to present data in an infinite variety of formats, including customized reports and charts. With FactSet, clients around the globe are able to meet virtually all of their research needs with just a few mouse clicks. The following are some of the key solutions offered to the buy-side professionals through the FactSet platform:

Solutions for Global Banking & Brokerage Professionals

FactSet enables investment banking professionals to gain in-depth company and industry insight with its integrated data and powerful analytical solutions designed specifically for a banker’s workflow. From the beginning of research strategy to the end of the pitch, an investment banking professional will have access to the tools and information they need to identify new opportunities and track the companies and industries that are important to them and their clients. The comprehensive FactSet platform enables investment bankers to manipulate data and to present data in a multitude of formats, including customized reports and charts. With FactSet, clients around the globe are able to meet virtually all of their research needs. The following are some of the key solutions offered to the sell-side professionals through the FactSet platform:

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Other FactSet Solutions for the Global Professional

As stated earlier, FactSet is a flexible, all-in-one system designed to help clients work efficiently and effectively. Not only is the new FactSet designed to enhance the workflows of investment managers and bankers, but it is also able to be customized to meet the needs of many more professionals involved in hedge funds, private equity, sell-side research, equity sales, trading, consulting, investor relations, law firms and academic institutions.

Hedge Funds – FactSet provides solutions for analyzing alternative investment strategies in the industry. The new FactSet offers hedge fund managers a solution for their investment process, including a variety of ways to pursue absolute return, capture alpha, manage risk, generate innovative investment ideas and conduct in-depth quantitative analysis. A hedge fund professional can leverage the Company’s integrated data with superior functionality needed for robust alternative investment analysis, including long/short positions, equity options and futures.

Private Equity and Venture Capital – The Company provides screening technology and links between funds and their portfolio companies to help the user uncover new investment opportunities, with everything from high-level company snapshot reports to tools that create presentation and deal-ready books.

Sell-Side Research – FactSet offers a straight path from the research provider to the buy-side firm so a user can have total control over their ideas. From tracking the latest market activity to building customized models to present findings, FactSet provides a complete set of tools needed to streamline every aspect of the sell-side research process.

Equity Sales – Clients can stay current with breaking news and trends, proactively monitor the markets, consolidate company and industry research, and manage and strengthen client relationships. They can combine client proprietary research data, such as price targets and recommendations, with real-time data and market data in a variety of displays. Clients use FactSet to prioritize and target morning calls to get relevant market news with FactSet Ownership. A user can monitor historic and upcoming economic and corporate events, and streamline client meetings through FactSet’s event tools.

Trading and Managing Market Data – Clients can view market data quotes, news, and analytics alongside portfolios to inform portfolio managers of the ramifications of volatility on stock selection and alpha. FactSet improves communication, so a user can more effectively convey information to portfolio managers and increase value to the investment process.

Consultants and Advisors – FactSet’s integrated analytics platform gives power to the user to understand their clients, leverage relationships and generate investment ideas. An advisor is able to combine the latest market data with their numbers, all in firm standard formats and branding, to quickly create flexible models and presentations. A user is able to identify opportunities and target potential customers and investors with powerful screening tools.

Investor Relations and Corporate Strategy – With FactSet, investor relations, corporate strategy and treasury teams gain the analytics to research comparable companies, manage business development and M&A, make and map connections, access raw and edited transcripts and listen to call audio from company meetings. FactSet is integrated with Corporate Intelligence which provides access to a full suite of tools for screening on institutions and investors, mapping connections among people, and analyzing institutional purchases and stock sales. Clients can gain visibility into current and potential investors with global share ownership information for institutions, mutual funds and insiders/stakeholders.

Legal, Accounting, Management Consulting and Other Professionals – Professionals rely on FactSet to deliver accurate, fast updates so they can monitor companies, analyze transactions, and advise clients. They use Merger data to analyze agreements, view trends in how public companies are implementing corporate governance measures and track which companies have a large number of activist holders and monitor the severity of activism with SharkWatch.

Academia – Professors and Students – FactSet’s Academic Package provides professors and MBA students access to the same tools used by global investment professionals to monitor global markets, public and private companies, equities and fixed income assets in a single interface. In addition, the new FactSet provides online tutorials on financial statement analysis, corporate valuation, economic and global market analysis and understanding fixed income securities.

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Key Accomplishments and Growth Initiatives achieved in fiscal 2010

Over the past three decades, there has been significant change and evolution at FactSet. The following key accomplishments and growth initiatives achieved in fiscal 2010 enabled FactSet to deliver high levels of profitability to its stockholders as finance professionals continued to rely on the Company to deliver financial data and software solutions to drive investment decisions.

Release of the New FactSet Platform

On September 14, 2009, FactSet announced the release of its newest financial software platform. The new platform is designed for the global investment professional and consolidates data and analytics, previously spread across multiple applications, onto one comprehensive, intuitive interface. The new FactSet is faster, more intuitive, easier to customize and offers tools to analyze companies, view market data in real time, generate investment ideas and manage portfolios. The platform can be easily customized to support a specific user’s workflow. New features include the ability to share workspaces with colleagues for improved collaboration and type ahead technology that helps users find securities more quickly. The platform also provides access to a range of data, including prices, financials, earnings estimates, economic data, ownership, M&A, research reports, and news. Visually, the new FactSet platform has been redesigned from top to bottom with a sleek, modern look.

Upon release in September 2009, FactSet initiated a global, company-wide effort to upgrade its client-base of more than 40,000 users to the new platform. During fiscal 2010, the Company saw substantial progress toward upgrading the majority of its clients. An upgrade to the new FactSet provided users with improved features and functionality within virtually every report and chart on FactSet as well as aided our sales teams in new client growth. The new platform was one of the primary drivers behind adding over 5,500 users and 65 clients in the last 12 months. Client usage rate continues to be strong, providing evidence that the new FactSet platform is delivering value.

Enhancements to the FactSet Product Offering and related Applications

The FactSet workstation is designed to provide solutions to the investment professional to enhance productivity through powerful analytics and an intuitive interface.

During fiscal 2010, FactSet had the following key product and application enhancements:

Real-time News and Quotes

Portfolio Analytics Product Suite

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FactSet Connect and FactSet Wireless

Market Metrics product offering

Delivery of FactSet Proprietary Content

The Company combines hundreds of commercial databases, including content regarding tens of thousands of companies and securities from major markets across the globe into a single powerful online platform of information and analytics, making FactSet a one-stop source for financial information. Clients have simultaneous access to content from an array of sources, which they can combine and utilize in FactSet applications.

Fiscal 2010 was a year of significant growth in FactSet’s proprietary content collection efforts in order to meet the needs of its clients. The Company understands that data is part of a broader investment process, so FactSet makes timeliness and reliability a priority. Over the past 24 months, FactSet has built out its content collection facilities in India and the Philippines, staffing the new centers with financial information industry experts. As of August 31, 2010, there were over 2,000 employees in Hyderabad and Manila responsible for collecting and publishing data on thousands of global companies using a proprietary FactSet collection process. A significant recent enhancement was Superfast Fundamentals, which optimized the process of harvesting data from source documents, with the aim of making critical data items for many companies available to the Company’s clients in less than an hour after they are publicly available.

Since 2001, FactSet has acquired eight content businesses, Thomson Fundamentals (global fundamentals data), LionShares (global equity ownership data), Mergerstat (M&A data), CallStreet (events and transcripts), JCF (earnings and other estimates), TrueCourse (takeover defense intelligence), Global Filings (equity and fixed income prospectus data) and Market Metrics (market research data on advisor-sold investments and insurance products). Each of these proprietary data sets enable the Company to offer clients a product offering powered by its own proprietary content, fully integrated into the many FactSet applications. With FactSet proprietary content, the Company leverages years of experience managing financial data to provide high-quality, global databases for key content categories as well as providing users with the scope and coverage they need for in-depth analysis. Each client of FactSet is able to create a single solution that encompasses proprietary content, industry-leading support and powerful delivery options that will deliver value and save costs.

As of August 31, 2010, FactSet now offers the following proprietary datasets that include the latest, most accurate information available: fundamentals, estimates, ownership, corporate new issues, people, private equity and venture capital, mergers and acquisitions, corporate events and transcripts, fixed income, global filings and benchmark data.

FactSet Fundamentals

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FactSet Estimates and Research Connect

FactSet Corporate Events and Transcripts

FactSet Ownership

Other Proprietary Content

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Continued Investment in People

During the recent market downturn over the past twelve months, FactSet has aggressively invested in its people in order to recruit, develop and retain a talented employee workforce. The Company believes that its future success depends in part on its continued ability to hire, assimilate and retain qualified personnel. FactSet’s employee base is comprised of talented individuals from diverse backgrounds. As of August 31, 2010, headcount was 4,116, up 39% from a year ago.

Of this total, 1,456 employees were located in the U.S., 520 in Europe and the remaining 2,140 in the Asia Pacific region. This marks the second consecutive year employee growth has exceeded 30% and was driven by the expansion of the Company’s proprietary content operations in Asia, as well as the hiring of consultants and software engineers in the second half of fiscal 2010. Over the last 12 months, FactSet has increased its content collection headcount by over 900 employees, primarily at its offshore facilities. Approximately 55% of the Company’s employees are involved with content collection, 20% conduct sales and consulting services, another 20% are involved in product development, software and systems engineering and the remaining 5% of employees provide administrative support.

One of FactSet’s top priorities is to maintain competitive compensation, benefits, equity participation and work environment policies in order to attract and retain qualified personnel. To date, FactSet believes that it has been successful in recruiting qualified employees. FactSet has not experienced any work stoppages and believes its employee relations are good. None of the Company’s employees are represented by a collective bargaining arrangement.

In addition, FactSet received the following accolades during fiscal 2010:

FactSet continued to build a talent development team by adding a number of employees to work on its Leadership and Management Development programs during fiscal 2010. FactSet Talent Development strengthens leadership, management and innovation across the Company by inspiring, connecting and developing the leaders of today and tomorrow. FactSet provides leadership and management training and follow-up to create a competitive advantage for the Company. The leadership development curriculum is designed to help pave career paths, devise succession planning and measure performance management. The creation of the FactSet Talent group also allowed the Company to centralize training and then to provide consistent training for all employees globally. Feedback from employees has been overwhelmingly positive and the Company looks forward to filling out the curriculum over the next several years. FactSet’s ultimate goal is maintain a program that provides efficient, relevant, and motivational insights for each stage of an employee’s career – from the individual contributor, who must learn how to manage time and set goals, to the senior manager who must learn how to delegate and think strategically.

Client Support

FactSet differentiates itself from other providers in the care and attention provided to each FactSet user. The Company’s top priority is to ensure that the user always has the most accurate data available and the support it needs to use FactSet most effectively. Whether it is a quick question or step-by-step guidance through a complex task, FactSet consultants will help the client find answers and maximize the value of FactSet. In addition to unlimited access to the global support desk, every FactSet client is assigned a consultant who becomes familiar with the user’s needs and processes. This knowledge enables the consultant to suggest and build innovative, personal solutions. Consultants train users, assist on projects and answer any questions the client may have.

Client Relationships

As of August 31, 2010, there were over 42,800 users of FactSet spread across 2,110 clients in 52 countries worldwide. Approximately 68% of fiscal 2010 revenues are from its client base in the U.S., 25% in Europe and the remaining 7% in Asia Pacific. A significant part of the Company’s strategy to maintain long-term client relationships involves both consulting services and client training. Clients are visited by company personnel for hands-on training and service. The Company’s help desk operates around the clock and sales and consulting personnel regularly visit clients to enhance support and the value of FactSet products. The Company strongly encourages its clients to fully utilize its consulting services and online tools for training. FactSet’s consulting and training programs are designed to give clients a comprehensive understanding of the service at no additional charge.

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Competition

The market for providing accurate financial information and software solutions to the global investment community is highly competitive. The global financial information services industry, in which FactSet competes, includes both large and well-capitalized companies, as well as smaller, niche firms. International and U.S. competitors include market data suppliers, news and information providers and many of the content providers that supply the Company with financial information included in the FactSet workstation. The main competitors and competitive products include online database suppliers and integrators and their applications, such as Thomson Reuters Inc. (“Thomson”), Bloomberg L.P., Standard & Poor’s Financial Services LLC including its Capital IQ product line (a subsidiary of The McGraw-Hill Companies, Inc.), RiskMetrics Group, Inc. (a wholly owned subsidiary of MSCI Inc.), Dealogic PLC, Bond Edge (owned by Interactive Data Corporation), The Yield Book, Inc. (a wholly owned subsidiary of Citigroup Capital Markets), Polypaths LLC and Wilshire Associates Incorporated. Many of these firms offer products or services which are similar to those sold by the Company.

FactSet believes the following competitive advantages have resulted in the Company being successful in the global financial information services industry during fiscal 2010:

Client Subscription Growth

Annual subscription value (“ASV”) at any given point in time represents the forward-looking revenues for the next twelve months from all subscription services being supplied to our clients. Excluding $16 million from the acquisition of Market Metrics and $1 million from the impact of foreign currency, ASV increased 7% since the beginning of fiscal 2010. At August 31, 2010, ASV was $684 million, up from the prior year total of $623 million. Of this total, 82% of ASV derives from buy-side clients and the remainder from the sell-side firms who perform M&A advisory work and equity research. Broad-based growth has been the catalyst for accelerating ASV growth rate to 7% in fiscal 2010 as the client base began to stabilize. Drivers of ASV growth were existing clients continuing to order additional FactSet proprietary content, portfolio analytics, the expansion of user count within global banking and brokerage clients, the increased commitment of buy-side clients and a $9 million annual price increase for investment management clients worldwide.

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Recent Market Trends

Since the fall of 2008, the global equity indices have experienced significantly increased volatility, which has had an impact on the solvency, size and buying power of some of FactSet’s clients and firms facing increasing pressure from regulators and investors to provide operational transparency. Despite this challenging climate, FactSet consistently grew quarterly revenues in fiscal 2010 and the Company anticipates continued volatility in the financial markets. FactSet believes that these difficult market conditions increase the value of FactSet’s ability to consolidate services for clients, including deploying real-time news and quotes, and advancing the sales of proprietary content.

Financial Information on Geographic Areas

FactSet’s operations are organized into three reportable segments based on geographic operations: the U.S., Europe and Asia Pacific. Financial information, including revenues and operating income related to the Company’s operations in the U.S. and other geographic areas are presented in Note 16, Segment Information, in the Notes to the Company’s Consolidated Financial Statements included in Item 8 below.

Each segment markets online integrated database services to investment managers, investment banks and other financial services professionals. Sales, consulting and data collection are the primary functional groups based at foreign operations. The U.S. segment services financial institutions throughout North America, while the European and Asia Pacific segments service investment professionals located throughout Europe, Asia and other regions. The European segment is headquartered in London, England and maintains office locations in France, Germany, the Netherlands and Italy. The Asia Pacific segment is headquartered in Tokyo, Japan with office locations in Hong Kong, Australia, India and the Philippines.

The following table reports revenues related to each of the three Company’s reportable segments.

Third-Party Data Content

During fiscal 2010, the Company continued to expand its core competency and increased its proprietary content collection efforts in order to meet the needs of its clients. However, not all of the global financial and economic data provided by the Company to investment professionals is proprietary. FactSet aggregates third-party content from more than 85 data suppliers and over 100 news sources and exchanges. The Company integrates content from premier providers such as Thomson, Standard & Poor’s Financial Services LLC (a subsidiary of The McGraw-Hill Companies, Inc.), FTSE, Interactive Data Corporation (“IDC”), Dow Jones & Company Inc., Northfield Information Services, Inc., MSCI Barra, APT, Global Insight Inc., Morningstar, Inc., Russell Investments and SIX Telekurs Ltd. FactSet combines the data from these commercial databases into its own dedicated online service which the client accesses to perform their analyses. Third-party content fees are either billed directly to FactSet or to its clients. Content fees billed to the Company may be on a fixed or royalty (per client) basis.

FactSet seeks to maintain contractual relationships with a minimum of two content providers for each type of financial data; however this is not possible for all types of data. Certain data sets that FactSet relies on have a limited number of suppliers, although the Company makes every effort to assure that alternative sources are available. The Company has entered into third-party content agreements with varying lengths from as long as five years to as short as on an ad-hoc basis. The agreements in some cases can be terminated on one year’s notice at predefined dates, in other cases on shorter notice. No single vendor or data supplier represented 10% or more of FactSet’s total expenses in any fiscal year presented.

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Data Centers

FactSet’s business is dependent on its ability to process rapidly and efficiently substantial volumes of data and transactions on its computer-based networks and systems. The Company’s global technology infrastructure supports its operations and is designed to facilitate the reliable and efficient processing and delivery of data and analytics to its clients. FactSet’s data centers contain multiple layers of redundancy to enhance system performance, including maintaining, processing and storing data at multiple data centers. User connections are load balanced between data centers and, in the event of a site failure, equipment problem or regional disaster, the remaining centers have the capacity to handle the additional load. FactSet continues to be focused on maintaining a global technical infrastructure that allows the Company to support its growing businesses, and provide data and analytics using various delivery methods designed to best meet the needs of its clients worldwide.

The Company deploys 22 Hewlett Packard Integrity mainframe machines in each of its data centers. FactSet has also established a vast private wide area network to provide clients access to the Company’s data centers. The Company’s wide area network provides a high-speed direct link between the client’s local network and the data content and powerful applications found on the Company’s mainframes.

Intellectual Property and other Proprietary Rights

FactSet’s success depends significantly upon its proprietary technology. FactSet has registered trademarks and copyrights for many of its products and services and will continue to evaluate the registration of additional trademarks and copyrights as appropriate. FactSet generally enters into confidentiality agreements with its employees, clients, resellers, vendors and others. The Company seeks to protect its software, documentation and other written materials under trade secret and copyright laws. While FactSet does not believe it is dependent on any one of its intellectual property rights, the Company does rely on the combination of intellectual property rights and other measures to protect its proprietary rights. Despite these efforts, existing intellectual property laws may afford only limited protection.

Government Regulation

The Company’s wholly owned subsidiary, FactSet Data Systems, Inc., is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and is a registered broker-dealer under Section 15 of the Securities and Exchange Act of 1934. FactSet Data Systems, Inc., as a registered broker-dealer, is subject to Rule 15c3-1 under the Securities and Exchange Act of 1934, which requires that the Company maintain minimum net capital requirements. The Company claims exemption under Rule 15c3-3(k)(2)(ii). In addition, the Company is subject to reporting requirements, disclosure obligations and other recordkeeping requirements per the Securities and Exchange Commission (“SEC”).

Corporate Information, including Internet Address

FactSet was founded as a Delaware corporation in 1978, and its principal executive offices are in Norwalk, Connecticut. The mailing address of the Company’s headquarters is 601 Merritt 7, Norwalk, Connecticut 06851, and its telephone number at that location is (203) 810-1000. The Company’s website address is www.factset.com.

Corporate History

The following timeline depicts FactSet’s growth within the financial industry over the past 32 years.

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Available Information

Through the Investor Relations section of the Company’s website (http://investor.factset.com), FactSet makes available the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC: the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements for the annual stockholder meetings, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available free of charge.

FactSet also broadcasts live its quarterly earnings calls via its investor relations web site. Additionally, the Company provides notifications of news or announcements regarding its financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of its investor relations web site. The contents of these web sites are not intended to be incorporated by reference into this report or in any other report or document the Company files and any reference to these web sites are intended to be inactive textual references only.

In addition, the Company’s Code of Ethical Conduct for Financial Managers and Code of Business Conduct and Ethics are posted in the Investor Relations section of the Company’s website and the same information is available in print to any stockholder who submits a written request to the Company’s Investor Relations department at its corporate headquarters. Any amendments to or waivers of such code required to be publicly disclosed by the applicable exchange rules or the SEC will be posted on the Company’s website. The charters of each of the committees of the Company’s Board of Directors are available on the Investor Relations section of the Company’s website and the same information is available in print free of charge to any stockholder who submits a written request to the Company’s Investor Relations department at its corporate headquarters.

Executive Officers of the Registrant

The following table shows the Company’s executive officers as of August 31, 2010:

Philip A. Hadley, Chairman of the Board of Directors, Chief Executive Officer and Director. Mr. Hadley was named Chairman and Chief Executive Officer of FactSet on September 5, 2000. Mr. Hadley joined FactSet in 1985 as a Consultant. From 1986 to 1989, Mr. Hadley was the Company’s Vice President, Sales. From 1989 to 2000, Mr. Hadley was Senior Vice President and Director of Sales and Marketing. Prior to joining the Company, Mr. Hadley was employed by Cargill Corporation. He currently serves as a member of the board of advisors of Kum & Go. Mr. Hadley received a B.B.A. in Accounting from the University of Iowa and has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.

Peter G. Walsh, Executive Vice President, Chief Operating Officer. Mr. Walsh joined the Company in 1996 as Vice President, Planning and Control within the Company’s Finance group. Mr. Walsh held the position of Vice President, Director of Finance from 1999 until 2001. From late 2001 to February 2005, Mr. Walsh occupied the position of Vice President, Regional Sales Manager of the U.S. Southeast Region. On March 1, 2005 he assumed the position of Chief Financial Officer and Treasurer. On October 1, 2009, Mr. Walsh was promoted to his current position as the Company’s Chief Operating Officer, where he is responsible for product development, content collection and software and systems engineering. Prior to joining FactSet, Mr. Walsh held several positions at Arthur Anderson & Co. Mr. Walsh received a B.S. in Accounting from Fairfield University. He is a CPA licensed in the state of New York, has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.

Michael D. Frankenfield, Executive Vice President and Director of Global Sales. Mr. Frankenfield joined the Company in 1989 within the Consulting Services Group. From 1990 to 1994, Mr. Frankenfield held the position of Vice President, Sales. From 1995 to 2000 Mr. Frankenfield was Director of Investment Banking Sales with the Company. From 2000 until 2005, Mr. Frankenfield was Director of Sales and Marketing and from September 2005 until August 2009, he was the Director of Investment Management Services. In August 2009, he was promoted to his current position as Director of Global Sales. Mr. Frankenfield received a B.A. in Economics and International Relations from the University of Pennsylvania and has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.

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Maurizio Nicolelli, Senior Vice President, Director of Finance and Principal Finance Officer. Mr. Nicolelli joined FactSet in 1996 as the Senior Accountant and held the position of Chief Accountant from 1999 to 2001. Since 2002, he has served as Vice President and Comptroller of the Company. On October 1, 2009, Mr. Nicolelli was appointed to Senior Vice President, Director of Finance and Principal Financial Officer. Prior to joining FactSet, he was employed at PricewaterhouseCoopers LLP. He holds a B.S. degree in Political Science from Syracuse University and an M.B.A. degree in Accounting from St. John’s University. Mr. Nicolelli is a CPA licensed in the state of New York.

Kieran M. Kennedy, Senior Vice President and Director of Global Sales Operations. Mr. Kennedy joined the Company in 1990 within the Consulting Services Group. From 1993 to 1997, Mr. Kennedy held the position of Sales and Consulting Manager for the West Coast. Mr. Kennedy was Director of Consulting from 1997 until he assumed the position as Director of Investment Banking and Brokerage Services in 2002. In August 2009, he assumed his current position as Director of Global Sales Operations. Prior to joining FactSet, Mr. Kennedy held a Currency Trading position at Goldman Sachs & Co. Mr. Kennedy received a B.A. in Economics from Syracuse University.

Additional Information

Additional information with respect to the Company’s business is included in the following pages and is incorporated herein by reference:

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Set forth below and elsewhere in this report and in other documents FactSet files with the SEC are risks and uncertainties that could cause actual results to differ materially from those expressed by the forward-looking statements contained in this report. Investors should carefully consider the risks described below before making an investment decision. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Annual Report on Form 10-K filed with the SEC, including the Company’s consolidated financial statements and related notes thereto.

FactSet’s operating results are subject to quarterly and annual fluctuations as a result of numerous factors. As a consequence, operating results for a particular future period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the following factors, or any other factors discussed elsewhere herein, could have a material adverse effect on the Company’s business, results of operations, and financial condition that could adversely affect its stock price.

Risk factors which could cause future financial performance to differ materially from the expectations as expressed in any of FactSet’s forward-looking statements made by or on the Company’s behalf include, without limitation:

A prolonged decline in equity returns impacting the buying power of FactSet’s investment management clients

Despite recent market improvements, since September 1, 2008, major equity indices (e.g., Dow Jones Industrials, Russell 1000, MSCI EAFE, S&P 500 and NASDAQ Composite) and the global economy have experienced increased levels of volatility.

Approximately 82% of the Company’s annual subscription value is derived from its investment management clients. The prosperity of these clients is tied to equity assets under management. An equity market decline not only depresses assets under management but could cause a significant increase in redemption requests to move money out of equities and into other asset classes. Moreover, extended declines in the equity markets may reduce new fund or client creation, resulting in lower demand for services from investment managers.

While increased use of FactSet services among hedge funds is not a significant driver of recent revenue growth, the Company does have more hedge fund clients today than three years ago. A decline in the equity markets could increase the normal rate of hedge fund closures and increase asset redemption rates in the near term. Many hedge funds rely on performance fees and utilize leverage. In addition, the rate of closure related to small hedge funds may increase if they were relying on performance fees to cover operating costs.

Historically, the correlation between the results of the Company’s operations and the performance of the global equity markets has not been one to one. Today, the Company believes that its market opportunity may be 10 times its current size even if the global equity markets, which we service, shrink by 10%. Difficult market conditions may increase the value of the Company’s ability to consolidate services for clients, including deploying real-time news and quotes, and may help advance the sales of proprietary content.

Continued uncertainty, consolidation, and business failures in the global investment banking industry may cause us to lose additional clients and users

The global investment banking industry has been experiencing uncertainty, consolidation and business failures since 2008. The uncertainty, consolidation and business failures have resulted and are expected to continue to result, in a reduction in the number of users and prospective clients from the investment banking sector. FactSet’s sell-side clients account for approximately 18% of its revenues. A significant portion of these revenues relate to services deployed by large, bulge bracket banks. The continued lack of available credit continues to impact many of the large banking clients due to the amount of leverage deployed in past operations. Additional uncertainty, consolidation and business failures in the global investment banking sector could adversely affect FactSet’s financial results and future growth.

FactSet services equity research and M&A departments. These are low risk businesses that do not deploy leverage and will likely continue to operate far into the future and should represent a larger percentage of the overall revenues of its clients. Regardless, the size of banks in general is shrinking as they deleverage their balance sheets and adjust their expense bases to future revenue opportunities. The Company’s revenues may decline if banks including those involved in recent merger activity significantly reduce headcount in the areas of corporate M&A and equity research to compensate for the issues created by other departments.

A global market crisis and related economic recession may affect FactSet’s revenues and liquidity

Current global economic and financial market conditions, and the potential for a significant and prolonged global economic recession, could adversely affect FactSet’s business, results of operations, financial condition and liquidity. The worldwide impact of the recent global economic downturn and related market uncertainty, including the recent European economic and

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financial uncertainty related to sovereign debt issues in certain countries could materially impact clients, including large accounts, causing them to go out of business entirely; defer, reduce, or not increase the volume of the subscriptions they purchase from FactSet in the future; or terminate existing relationships. Changes of this type could significantly affect FactSet’s business and liquidity or could have a material adverse effect on its results of operations and financial condition.

Increased competition in FactSet’s industry that may cause price reductions or loss of market share

FactSet continues to experience intense competition across all markets for its products. Its competitors range in size from multi-billion dollar companies to small, single-product businesses that are highly specialized. While the Company believes the breadth and depth of its suite of products and applications offer benefits to its clients that are a competitive advantage, its competitors may offer price incentives to acquire new business. Competitive pricing pressures did not have a material impact on the Company’s results of operations during fiscal 2010 or in any other fiscal year presented. However, future competitive pricing pressures may result in decreased sales volumes and price reductions, resulting in lower revenues. Weak economic conditions can also result in clients’ seeking to utilize lower-cost information that is available from alternative sources.

The impact of cost-cutting pressures across the industries FactSet serves could lower demand for its services. In the past two years, FactSet saw clients intensify their focus on containing or reducing costs as a result of the more challenging market conditions. Clients within the financial services industry that strive to reduce their operating costs may seek to reduce their spending on financial market data and related services. If clients elect to reduce their spending with FactSet, the Company’s results of operations could be materially adversely affected. Alternatively, clients may use other strategies to reduce their overall spending on financial market data services by consolidating their spending with fewer vendors, by selecting vendors with lower-cost offerings or by self-sourcing their need for financial market data. If clients elect to consolidate their spending on financial market data services with other vendors and not FactSet, the Company’s results of operations could be materially adversely affected.

FactSet must continue to introduce new products and product enhancements to maintain its leading technological position

The market for FactSet is characterized by rapid technological change, changes in client demands and evolving industry standards. New technologies or industry standards can render existing products obsolete and unmarketable. As a result, the Company’s future success will continue to depend upon its ability to develop new products and product enhancements that address the future needs of its target markets and to respond to their changing standards and practices. FactSet may not be successful in developing, introducing, marketing and licensing the Company’s new products and product enhancements on a timely and cost effective basis, or at all, and the Company’s new products and product enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. In addition, clients may delay purchases in anticipation of new products or product enhancements.

FactSet’s ability to integrate and market FactSet proprietary data as a high quality asset and win new clients

Fiscal 2010 was a year of significant growth in the Company’s proprietary content collection efforts in order to meet the needs of our clients. FactSet now offers the following proprietary datasets that include the latest, most accurate information available: fundamentals, estimates, ownership, corporate new issues, people, private equity and venture capital, mergers and acquisitions, corporate events and transcripts, fixed income, global filings and benchmark data. FactSet understands that data is part of a broader investment process, so the Company makes timeliness and reliability a priority. In order to ensure accuracy, timeliness and reliability of the data, FactSet must continue to build on its content collection operations to populate the proprietary content databases. As of August 31, 2010, there were over 2,000 employees in Hyderabad and Manila responsible for collecting and publishing data on thousands of global companies using a proprietary FactSet collection process. This complex process involves hiring, training and retaining thousands of employees and successfully deploying collection software and processes. In addition, FactSet must be able to market and sell this proprietary content to new and existing clients.

FactSet must ensure the protection and privacy of client data

Many of FactSet’s products and services, as well as its internal systems and processes, involve the storage and transmission of proprietary information and sensitive or confidential data, including client portfolios. FactSet relies on a complex network of internal controls to protect the privacy of client data. If FactSet fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if FactSet experiences difficulties in their implementation, misappropriation of client data by an employee or an external third party could occur, which could damage the Company’s reputation and ultimately its business. Breaches of the Company’s security measures could expose FactSet, its clients or the individuals affected to a risk of loss or misuse of this information, potentially resulting in litigation and liability for the Company, as well as the loss of existing or potential clients and damage to the company’s brand and reputation.

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A prolonged or recurring outage at one of FactSet’s data centers could result in reduced service and the loss of clients

FactSet’s clients rely on the Company for the delivery of time-sensitive, up-to-date data. FactSet’s business is dependent on its ability to rapidly and efficiently process substantial volumes of data and transactions on its computer-based networks and systems. The Company’s computer operations and those of its suppliers and clients are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failures, terrorist attacks, acts of war, internet failures, computer viruses and other events beyond the Company’s reasonable control. FactSet maintains back-up facilities for each of its major data centers to minimize the risk that any such event will disrupt operations. However, the insurance FactSet carries is likely not to be sufficient to compensate the Company fully for losses or damages that may occur as a result of such material events. In addition, a loss of the Company’s services may induce its clients to seek alternative data suppliers. Any such losses or damages incurred by FactSet could have a material adverse effect on its business. Although the Company seeks to minimize these risks through security measures, controls and back-up data centers, there can be no assurance that such efforts will be successful or effective.

Malicious, ignorant or illegal employee acts regarding insider information

If FactSet fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls surrounding insider information, or if FactSet experiences difficulties in their implementation, misappropriation of insider information by an employee, which could damage the Company’s reputation and ultimately its business. Breaches of the Company’s insider information could expose FactSet, its clients or the individuals affected to a risk of loss or misuse of this information, potentially resulting in litigation and liability for the Company, as well as the loss of existing or potential clients and damage to the Company’s brand and reputation.

Man-made problems such as computer viruses or terrorism may disrupt FactSet’s operations

Despite FactSet’s implementation of network security measures, its servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with the Company’s computer systems. Any such event could have a material adverse effect on FactSet’s business, operating results and financial condition. Efforts to limit the ability of malicious third parties to disrupt the operations of the Internet or undermine the Company’s own security efforts may meet with resistance. In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the U.S. and other countries and create further uncertainties or otherwise materially harm FactSet’s business, operating results and financial condition. Likewise, events such as widespread blackouts could have similar negative impacts. To the extent that such disruptions or uncertainties result in delays or cancellations by clients, FactSet’s business, operating results and financial condition could be materially and adversely affected.

FactSet’s ability to integrate newly acquired companies

FactSet has made and expects to continue to make acquisitions from time to time. Acquisitions present significant challenges and risks relating to the integration of the business into FactSet’s operations, and there can be no assurances that FactSet will manage acquisitions successfully. The related risks include the Company failing to achieve strategic objectives and anticipated revenue improvements as well as the failure to retain key personnel of the acquired business and the assumption of liabilities related to litigation or other legal proceedings involving the acquired business.

Under generally accepted accounting principles, FactSet reviews its amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of its goodwill or amortizable intangible assets may not be recoverable include a decline in stock price, market capitalization, future cash flows and slower growth rates in its industry. FactSet may be required to record a charge to earnings in its financial statements during the period in which any impairment of its goodwill or amortizable intangible assets is determined, resulting in an impact on its results of operations.

The negotiation of contract terms supporting new and existing data sets or products

FactSet is a provider of global financial and economic information, including fundamental financial data on tens of thousands of companies worldwide. The Company combines hundreds of databases, including content regarding tens of thousands of companies and securities from major markets all over the globe, into a single online platform of information and analytics. Clients have access to the data and content found within these databases, which they can combine and utilize in nearly all of the Company’s applications. These databases are important to the Company’s operations because they provide its clients with key information such as company fundamentals, estimates, global equity ownership, M&A data, events and transcripts, earnings and other equity and fixed income data.

During fiscal 2010, the Company continued to expand its core competency and increased its proprietary content collection efforts in order to meet the needs of its clients. All of the Company’s proprietary data sets, across the entire spectrum of content, have been fully integrated into the new FactSet application. However, not all of the global financial and economic

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data provided by the Company to investment professionals is proprietary. FactSet aggregates third-party content from more than 85 data suppliers and over 100 news sources and exchanges. The Company integrates content from premier providers such as Thomson, Standard & Poor’s Financial Services LLC, FTSE, IDC, Dow Jones & Company Inc., Northfield Information Services, Inc., MSCI Barra, APT, Global Insight Inc., Morningstar, Inc., Russell Investments and SIX Telekurs Ltd. The Company has entered into third-party content agreements with varying lengths from as long as five years to as short as on an ad-hoc basis. The agreements in some cases can be terminated on one year’s notice at predefined dates, in other cases on shorter notice. No single vendor or data supplier represented 10% or more of FactSet’s total expenses in any fiscal year presented.

The Company seeks to maintain contractual relationships with a minimum of two content providers for each type of financial data; however this is not possible for all types of data. Certain data sets that FactSet relies on have a limited number of suppliers, although the Company makes every effort to assure that alternative sources are available. These data sets include (1) Equity Pricing from exchanges such as NASDAQ, (2) Global Exchange Indices, (3) S&P CUSIP distribution, (4) S&P Ratings and (5) Moody’s Investor Service Corporate Ratings. The data provided to FactSet clients from each of these databases is essential to the end user’s workflow and financial analysis. FactSet combines the data from these commercial databases into its own dedicated single online service, which the client accesses to perform their analysis. The failure of its suppliers to deliver accurate data and in a timely manner could adversely affect the Company’s business.

Exposure to fluctuations in currency exchange rates that could negatively impact financial results and cash flows

The Company faces exposure to adverse movements in foreign currency exchange rates because 65% of FactSet’s employees and over 37% of its leased office space are located outside the U.S. These exposures may change over time as business practices evolve, and they could have a material adverse impact on the Company’s financial results and cash flows. The Company’s primary exposures relate to non-U.S. dollar denominated expenses in Europe, Japan, India and the Philippines. This exposure has increased during fiscal 2010 as compared to the year ago period primarily because the Company’s international employee base is up 63% from 1,627 employees at August 31, 2009 to 2,660 at August 31, 2010. A decrease in the value of the U.S. dollar increases operating expenses. From time to time, FactSet enters into foreign exchange forward contracts to reduce the short-term impact of foreign currency fluctuations. FactSet’s attempt to hedge against these risks may not be successful, resulting in an adverse impact on the Company’s results of operations.

Third parties may claim FactSet infringes upon their intellectual property rights

FactSet may receive notice from others claiming that the Company has infringed upon their intellectual property rights. Responding to these claims may require the Company to enter into royalty and licensing agreements on less favorable terms, enter into settlements, require FactSet to stop selling or to redesign affected products, or to pay damages or to satisfy indemnification commitments with the Company’s clients including contractual provisions under various license arrangements. If FactSet is required to enter into such agreements or take such actions, its operating margins may decline as a result. FactSet has made and expects to continue making significant expenditures to acquire the use of technology and intellectual property rights as part of its strategy to manage this risk.

FactSet defends its intellectual property rights and combats unlicensed copying and use of software and intellectual property rights through a variety of techniques. Preventing unauthorized use or infringement of its rights is difficult. While these activities adversely affect U.S. revenues, the impact on revenues from outside the U.S. could be more significant, particularly in countries where laws are less protective of intellectual property rights.

Unauthorized parties may attempt to copy aspects of FactSet’s products or to obtain and use information that the Company regards as proprietary

FactSet’s success depends significantly upon its proprietary technology. FactSet has registered trademarks and copyrights for many of its products and services and will continue to evaluate the registration of additional trademarks and copyrights as appropriate. FactSet generally enters into confidentiality agreements with its employees, clients, resellers, vendors and others. The Company seeks to protect its software, documentation and other written materials under trade secret and copyright laws. While FactSet does not believe it is dependent on any one of its intellectual property rights, the Company does rely on the combination of intellectual property rights and other measures to protect its proprietary rights. Despite these efforts, existing intellectual property laws may afford only limited protection. In addition, it may be possible for unauthorized third parties to copy certain portions of FactSet content or to reverse engineer or otherwise obtain and use its proprietary information. In addition, FactSet cannot be certain that others will not develop or acquire substantially equivalent or superseding proprietary technology, or that equivalent or better products will not be marketed in competition with its services, thereby substantially reducing the value of its proprietary rights. Despite the Company’s efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of its products or to obtain and use information that FactSet regards as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws in the U.S. Litigation may be necessary to protect the Company’s proprietary technology which may be time-consuming and expensive, with no assurance of success.

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Volatility in general economic conditions

Future results could be materially adversely affected by a variety of uncontrollable and changing factors, including, among others, foreign currency exchange rates; interest rate increases; inflationary pressures or volatile energy prices; political or social unrest; terrorist attacks; economic instability or natural disasters in a specific country or region; environmental and trade protection measures; political considerations that affect data and service providers and government spending patterns; health or similar issues, such as pandemic or epidemic; difficulties in staffing and managing international operations; and adverse tax consequences, including imposition of withholding or other taxes on payments by subsidiaries. FactSet believes that demand for its solutions could be disproportionately affected by fluctuations, disruptions, instability or downturns in the economy, which may cause clients and potential clients to exit the industry or delay, cancel or reduce any planned expenditures. Any or all of these factors could have a material adverse impact on the Company’s revenues, expenses and financial condition.

Risks of doing business internationally

During fiscal 2010, approximately 32% of the Company’s revenue was generated outside the U.S. Because FactSet sells its services outside the U.S, its business is subject to risks associated with doing business internationally. In addition, employee count overseas grew significantly due to the FactSet content collection operations in India and the Philippines. As of August 31, 2010, the Company employed 2,660 employees outside the U.S., representing 65% of all employees company-wide.

International operations are subject to inherent risks that could have a material adverse effect on the Company’s revenue or results of operations including:

FactSet must hire and retain key qualified personnel

FactSet’s business is based on successfully attracting and retaining talented employees. Competition for technical personnel in the industry in which the Company competes is strong. The Company is limited in its ability to recruit internationally by restrictive domestic immigration laws. If the Company is less successful in its recruiting efforts, or if it is unable to retain key employees, its ability to develop and deliver successful products and services may be adversely affected. FactSet needs technical resources such as product development engineers to develop new products and enhance existing products. The Company relies upon sales personnel to sell its products and services and maintain healthy business relationships. In order to ensure accuracy, timeliness and reliability of the Company’s proprietary data, FactSet must continue to hire qualified employees for its content collection operations. FactSet must be successful in the hiring, training and retaining of thousands of employees and successfully deploying collection software and processes.

Resolution of ongoing and other probable audits by tax authorities

FactSet is subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining its worldwide provision for income taxes. In the ordinary course of its business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company’s provision for income taxes, tax liability or effective tax rates in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws, regulations, accounting principles or interpretations thereof. FactSet is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. Although FactSet believes its tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on its provision for income taxes and tax liability.

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Adverse resolution of litigation or governmental investigations may harm FactSet’s operating results

FactSet is party to lawsuits in the normal course of its business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Unfavorable resolution of lawsuits or governmental investigations could have a material adverse effect on the Company’s business, operating results or financial condition. For additional information regarding certain matters in which FactSet is involved, see Item 3, Legal Proceedings, contained in Part I of this report.

Changes in accounting may affect FactSet’s reported earnings and operating income

FactSet prepares its consolidated financial statements in conformity with accounting principles generally accepted in the U.S. These principles and accompanying accounting standards, implementation guidelines and interpretations for many aspects of its business are highly complex and involve subjective judgments. Changes in accounting rules, their interpretation, or changes in the Company’s products or business could significantly change its reported earnings and operating income and could add significant volatility to those measures, without a comparable underlying change in cash flows from operations.

In connection with the preparation of the Consolidated Financial Statements, FactSet uses certain estimates and assumptions, which are based on historical experience and management’s knowledge of current events and actions that FactSet may undertake in the future. Significant estimates have been made in areas that include income taxes, useful lives of fixed assets and intangibles, fair value measurements, accrued compensation, stock-based compensation, receivable reserves, contingent liabilities and allocation of purchase price to assets and liabilities acquired. In addition, FactSet makes certain estimates including decisions related to legal proceedings and reserves. While management believes that these estimates and assumptions are reasonable under the circumstances, by definition they involve the use of judgment and the exercise of discretion, and therefore actual results may differ.

Internal controls may be ineffective

Effective internal controls are necessary to provide reasonable assurance with respect to its financial reports and to effectively prevent fraud. Pursuant to the Sarbanes-Oxley Act of 2002, FactSet is required to furnish a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If FactSet fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if FactSet experiences difficulties in its implementation, its business and operating results could be adversely impacted.

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None.

At August 31, 2010, the Company leases approximately 169,000 square feet of office space at its headquarters in Norwalk, Connecticut. In addition, FactSet leases office space in the U.S. in New York, New York; Boston, Massachusetts; Chicago, Illinois; Manchester, New Hampshire; Reston, Virginia; Austin, Texas; San Mateo, California; Newark, New Jersey; and Tuscaloosa, Alabama. Outside the U.S., the Company’s operations are conducted in leased office space in London, England; Paris and Avon, France; Amsterdam, the Netherlands; Frankfurt, Germany; Milan, Italy; Tokyo, Japan; Hong Kong; Hyderabad and Mumbai, India; Sydney, Australia; and Manila, the Philippines. The leases expire on various dates through March 2021. Total minimum rental payments associated with the leases are recorded as rent (a component of selling, general and administrative expenses) on a straight-line basis over the periods of the respective non-cancelable lease terms. The Company believes that its leased office space is adequate for its current needs and that additional facilities are available for lease to meet any future needs.

During fiscal 2010, the Company entered into new lease agreements in the ordinary course of business to support operations in New York and the Philippines resulting in incremental future minimum rental payments of $7.1 million over the remaining non-cancelable lease term. The new office space expanded the existing New York location by 22,000 square feet and the Company’s Manila office by 17,200 square feet. Including the agreements signed during fiscal 2010 for additional space in New York and Manila, the Company’s worldwide leased office space increased to approximately 640,000 square feet, up 6% from a year ago. The additional office space is necessary to support the Company’s employee base that rose by 39% over the last twelve months driven by the growth of the FactSet proprietary content collection operation and the hiring of consultants and software engineers in the second half of fiscal 2010.

At August 31, 2010, 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):

FactSet is subject to legal proceedings, claims and litigation arising in the ordinary course of business. Although FactSet’s management currently believes that resolving claims against the Company, individually or in the aggregate, will not have a material adverse impact on its consolidated financial position, its results of operations or its cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

Not applicable.

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Part II

(a) Market Information

FactSet common stock is listed on the New York Stock Exchange and the NASDAQ Stock Market under the symbol “FDS.” The following table sets forth the range of high and low per share sales prices as reported for each fiscal period indicated and reflects all stock splits effected for the Company’s common stock as reported by the New York Stock Exchange:

(b) Holders of Record

As of October 18, 2010, there were approximately 63,342 holders of record of FactSet common stock. However, because many of FactSet’s shares of common stock are held by brokers and other institutions on behalf of stockholders, FactSet is unable to estimate the total number of stockholders represented by these record holders. The closing price of FactSet’s common stock on October 18, 2010 was $87.63 per share as reported by the New York Stock Exchange.

(c) Dividends

In fiscal 2010, the Company’s Board of Directors declared the following dividends:

All of the above cash dividends have been 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.

(d) Issuer Purchases of Equity Securities

The following table provides a month-to-month summary of the share repurchase activity under the current stock repurchase program during the three months ended August 31, 2010:

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Securities Authorized for Issuance under Equity Compensation Plans

Information regarding securities authorized for issuance under equity compensation plans is incorporated by reference from the Company’s Proxy Statement to be filed for its Fiscal 2010 Annual Meeting of Stockholders.

(e) Recent Sales of Unregistered Securities

There were no sales of unregistered equity securities in fiscal 2010.

(f) Five-year financial performance graph

The annual changes for the five-year period shown in the graph on this page are based on the assumption that $100 had been invested in FactSet common stock, the NYSE Composite Index, the Dow Jones U.S. Financial Services Index and the Standard & Poor’s 500 Index on August 31, 2005, and that all quarterly dividends were reinvested at the average of the closing stock prices at the beginning and end of the quarter. The total cumulative dollar returns shown on the graph represent the value that such investments would have had on August 31, 2010.

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The following selected financial data has been derived from FactSet’s consolidated financial statements. This financial data should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item  8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Consolidated Statements of Income Data

(in thousands, except per share data)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:

The MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Executive Overview

FactSet is a leading provider of financial and economic information, including fundamental financial data on tens of thousands of companies worldwide. By integrating content from hundreds of databases with powerful analytics on a single platform, 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. Our 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.

We combine hundreds of data sets, including content regarding tens of thousands of companies and securities from major markets all over the globe, into a single online platform of information and analytics. Clients have simultaneous access to content from an array of sources, which they can combine and utilize in nearly all of our applications. With Microsoft Office integration, wireless access and customizable options, we offer the most complete financial workflow solution. Our revenues are primarily derived from month-to-month subscriptions to services, databases and financial applications. We generate 82% of our revenues from our buy-side clients and the remainder is from the sell-side firms who perform M&A advisory work and equity research.

Transforming information into intelligence

FactSet provides financial information and superior software solutions that empowers the global investment professional to transform information into intelligence. We consolidate all the tools a professional would need to monitor global markets, public and private companies, and equity and fixed income portfolios in a single, intuitive interface. With FactSet, users gain powerful analytics tailored to their workflows, the broadest scope of data available, and access to industry-leading client service.

Over the past three decades, much has changed at FactSet. Throughout, our commitment to our corporate values has kept us focused on our clients, returning profit to our stockholders and growth in our employee base. Several key accomplishments and growth initiatives achieved in fiscal 2010 enabled FactSet to deliver high levels of profitability to our stockholders as finance professionals continued to rely on us to deliver financial data and software solutions to drive investment decisions.

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For fiscal year 2010, revenues grew 3% to $641 million and diluted earnings per share grew 5% to $3.13. The number of clients subscribing to our services as of August 31, 2010 totaled 2,110 and our workstation count, which is a measure of the number of financial professionals within our client base that use our services, was 42,800.

Key Strategic Objectives Achieved in Fiscal 2010

Release of the New FactSet Platform

On September 14, 2009, we announced the release of our newest financial software platform. The new platform is designed for the global investment professional and consolidates data and analytics, previously spread across multiple applications, onto one comprehensive, intuitive interface. The new FactSet is faster, more intuitive, easier to customize and offers tools to analyze companies, view market data in real time, generate investment ideas and manage portfolios. The platform can be easily customized to support a specific user’s workflow. New features include the ability to share workspaces with colleagues for improved collaboration and type ahead technology that helps users find securities more quickly. The platform also provides access to a range of data, including prices, financials, earnings estimates, economic data, ownership, M&A, research reports, and news. Visually, the new FactSet platform has been redesigned from top to bottom with a sleek, modern look.

Upon release in September 2009, we initiated a global, company-wide effort to upgrade our client-base of more than 40,000 users to the new platform. During fiscal 2010 we saw substantial progress toward upgrading the majority of our clients. An upgrade to the new FactSet provided users with improved features and functionality within virtually every report and chart on FactSet as well as aided our sales teams in new client growth. We believe the new platform was the main driver behind adding over 5,500 users and 65 clients in the last 12 months. Our client usage rate continues to be strong, providing evidence that the new FactSet platform is delivering value to our clients.

Deliver Proprietary Content

Fiscal 2010 was a year of significant growth in our proprietary content collection efforts in order to meet the needs of our clients. We understand that data is part of a broader investment process, so FactSet makes timeliness and reliability a priority. Over the past 24 months, we have built out our content collection facilities in India and the Philippines, staffing the new centers with financial information industry experts. As of August 31, 2010, there were over 2,000 employees in Hyderabad and Manila responsible for collecting and publishing data on thousands of global companies using a proprietary FactSet collection process. Our proprietary collection process allows us to enhance data in valuable and new ways. A significant recent enhancement was Superfast Fundamentals, which optimized the process of harvesting data from source documents, with the aim of making critical data items for many companies available to our clients in less than an hour after they are publicly available.

All of our proprietary data sets have been fully integrated into the new FactSet application. With FactSet proprietary content, we leverage years of experience managing financial data to provide high-quality, global databases for key content categories as well as providing users with the scope and coverage they need for in-depth analysis. Each client of FactSet is able to create a single solution that encompasses proprietary content, industry-leading support and powerful delivery options that will deliver value and save costs.

FactSet now offers the following proprietary datasets that generally include the latest, most accurate information available: fundamentals, estimates, ownership, corporate new issues, people, private equity and venture capital, mergers and acquisitions, corporate events and transcripts, fixed income, global filings and benchmark data.

FactSet Fundamentals

FactSet Estimates

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FactSet Ownership

FactSet Corporate Events and Transcripts

Other Proprietary Content

FactSet has also developed and released the following proprietary contents sets, all of which are integrated into the new FactSet workstation:

Enhance the FactSet Product Offering and related Applications

The FactSet workstation is designed to provide solutions to the investment professional to enhance productivity through powerful analytics and an intuitive interface.

During fiscal 2010, we had the following key product and application enhancements:

Portfolio Analytics Product Suite

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Real-time News and Quotes

FactSet Connect and FactSet Wireless

Investment in our People

We are proud of our growing workforce as we aggressively invested during the recent market downturn in terms of people.

Growth across all Geographies

In fiscal 2010, we delivered solid growth across all of our key metrics as our sales and consulting staff continued to sell our broad range of products across each geographic region. We gained new clients and users both in the U.S. and internationally, as new and existing clients continue to value our functionality and content.

U.S. Operations

International Operations

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Continued High Levels of Capital Expenditure

Achieved Records in Several Key Metrics

Returning Value to Stockholders

Acquisition of Market Metrics

On June 1, 2010, we acquired Market Metrics, the leading market research firm in the U.S. focused on advisor-sold investments and insurance products. Each year Market Metrics conducts more than 20,000 in-depth surveys of financial advisors, brokers, research analysts and gatekeepers. Leveraging this unique body of data, Market Metrics helps senior managers to understand better their competitive strengths and weaknesses, and how they can improve their relationships with customers and increase market share. As of August 31, 2010, Market Metrics did not have an international presence. We believe we can leverage our international network to sell Market Metrics products outside the U.S., as many of their current clients would like to see their service offering expand its reach into Europe. Market Metrics also represents a new, unique content set for FactSet and another touch point with our larger asset management clients. The analytical content Market Metrics creates is original and is in demand in this industry, but it is not available from any other source. We expect to deepen our relationships with our common clients by providing them an even broader range of powerful content and analytical services. Market Metrics has annual subscriptions of $16 million and did not have a material impact on our fiscal 2010 fourth quarter diluted earnings per share.

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Results of Operations

For an understanding of the significant factors that influenced our performance during the past three fiscal years, the following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented in this Annual Report.

Revenues

Fiscal 2010 compared to Fiscal 2009

Revenues in fiscal 2010 were $641.1 million, up 31% from $622.0 million for the same period a year ago. We delivered solid growth across a range of product areas and geographic regions. The fourth quarter of fiscal 2010 experienced the highest quarterly change in the last two years for both client and user growth. During fiscal 2010, our user count increased by 5,500, net new clients rose to 65 and annual subscriptions increased by $61 million. Broad-based growth has been the catalyst for accelerating our organic ASV growth rate to 7% over the past 12 months. We have been focusing on promoting the new FactSet workstation and upgrading existing clients to this more intuitive, easier to use platform. Upgrades to the new FactSet are occurring at a pace in-line with our internal goals. We have gained new clients at traditional money managers, regional broker dealers and among research and sales departments both in the U.S. and internationally, as new and existing clients continue to value our functionality and content. Our buy-side clients continue to experience strong growth across all geographies and represented 82% of our total revenues in fiscal 2010 consistent with the prior year.

Positive revenue drivers during fiscal 2010 were the expanded deployment of our proprietary data across all geographies including incremental subscriptions to FactSet Fundamentals and Estimates, the continued development of new functionality within FactSet that improves our clients’ processes, our ability to consolidate multiple services into one through the FactSet platform enabling our clients to recognize efficiencies in many instances, clients continuing to license our advanced applications such as Portfolio Analysis (“PA”), an annual price increase for our investment management clients, $3.9 million of incremental revenue from the acquisition of Market Metrics on June 1, 2010 and a meaningful reduction in the number of client cancels.

Expanded deployment of our proprietary data

Traditionally, FactSet has been known for its breadth of functionality and outstanding client support and service. We are now seeing the benefits of coupling these strengths with proprietary content that we can control and differentiate our offerings from our competitors’ databases. The sale and expanded deployment of our proprietary data both on and off the standard FactSet platform was a revenue driver during 2010. We are pleased by the growing returns from our investment in proprietary content. The acceptance rate of FactSet Fundamentals by new and existing clients continues to grow. We now offer a more complete, robust product with our proprietary content seamlessly integrated into our industry-leading software. During the past 12 months, we have reduced our third party vendor payments related to fundamental and estimates data by $6.1 million due to clients switching to FactSet Fundamentals and FactSet Estimates from third party vendor databases.

New functionality within FactSet that improves our clients’ processes and consolidate multiple services into one platform

In September 2009, we released our newest financial software platform, the new FactSet, and have been introducing it to our clients and prospects. The new FactSet consolidates data and analytics, previously spread across multiple applications, into one comprehensive, intuitive interface improving both functionality and ease of use. We continue to receive positive feedback on our new user interface and believe that the new FactSet is deepening the engagement level of thousands of users as our broad range of content and functionality is readily accessible through the new user interface. Real-time news and quotes is a product that services the needs of a global investor and continues to be a source of revenue growth for us. Real-time users have increased every quarter since it was released in 2002. Deployment of real-time news and quotes has resulted in a significant increase in user count over the last 12 months in conjunction with the release of the new FactSet. In addition, the ability for our end users to access more than 85 premium third-party content providers and integrate their own data for use in FactSet applications continues to be a reason for revenue growth. We continue to appeal to larger institutions because of our ability to service many different user groups and our ability to deliver intensive computing power and analytics to end users.

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Growth in our advanced applications

During fiscal 2010 our core applications continued to be in demand by our clients as sales of our quantitative products accelerated and led to revenue growth year over year. We expanded our PA suite in 2010 to include Axioma models, which were well received by our client base. Since September 1, 2009, the number of PA users increased by 651, while the number of PA clients rose by 46. The rise in users of PA during the past year was primarily from our largest investment management clients. The PA suite is made of eight separate products and describing the growth of one does not always accurately portray how this suite of products has performed and understates the breadth of clients who rely on our advance analytics. After this report and going forward, we will disclose changes in ASV from changes in subscription levels to our advanced analytics products, without providing specific metrics on the number of clients and users of PA.

Annual price increases for our investment management clients

An annual price increase was implemented for our U.S. investment management clients in the second quarter of fiscal 2010 and attributed $7.7 million to our ASV growth in the year. In addition, an annual price increase for our non-U.S. investment management clients was rolled out during the third quarter of fiscal 2010, which increased ASV by $1.3 million.

Partially offsetting the positive revenue drivers discussed above were continued client consolidations, firm failures and sell-side companies that scaled back expenditures in the first half of fiscal 2010, emphasizing savings over spending. During the first six months of fiscal 2010, the sales environment was challenging for us as our sell-side clients made changes to stabilize themselves. Several of our largest banking clients ceased operations as employment contracted across most of the industry, resulting in a $0.9 million decrease in our sell-side ASV through the first six months of fiscal 2010. Despite the ongoing volatility in the global markets, we continued to focus on our selling efforts and in the second half of fiscal 2010 began to see the results of some sales opportunities that first developed during the recent market downturn. Although the market is still stabilizing, revenues grew 3.1% year over year.

Fiscal 2009 compared to Fiscal 2008

Revenues in fiscal 2009 advanced to $622.0 million from $575.5 million in fiscal 2008. Revenue growth of 8.1% in fiscal 2009 was driven by expanded deployment of our proprietary data, our real-time news and quotes and clients continuing to license our advanced applications.

Sales of proprietary content are a growing source of revenue. Both new and existing clients continue to deploy FactSet Fundamentals. In addition, our investment to expand coverage globally and add textual research from sell-side firms has led to growth in the demand for FactSet Estimates. Real-time news and quotes is a product that services the needs of a global investor and continues to be a source of revenue growth for us. Deployment of real-time news and quotes has been strong over the past four fiscal quarters, with a 27% increase in user count year over year. Our clients continue to license our advanced portfolio applications. PA 2.0 clients rose by 10 in fiscal 2009 with approximately 647 clients consisting of 5,640 users subscribed to PA as of August 31, 2009.

Revenue growth from sell-side clients was negative in fiscal 2009 as several of our largest banking clients ceased operations, and employment contracted across most of the sell-side, resulting in a 15% decrease in our sell-side user count since September 1, 2008. Revenues from our investment banking clients expressed as a percentage of total revenues decreased to 18% in fiscal 2009 as compared to 21% in fiscal 2008. However, during the fourth quarter of fiscal 2009 we began to see a change in the overall business environment resulting in more capital market transactions and a corresponding decline in our clients’ willingness to trim deployment of financial information systems.

Revenues by Geographic Region

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Revenues from our U.S. business increased 2.7% to $435.4 million in fiscal 2010 compared to $423.9 million in the same period a year ago. Revenues from our U.S. business rose 6.4% in fiscal 2009, up from $398.3 million in fiscal 2008. Our revenue growth rates in the U.S. reflect modest client and user growth, our real-time news and quotes capabilities included in the new FactSet, growth in PA, the expanded deployment of our proprietary, our annual price increase for U.S. investment management clients, $3.9 million from the acquisition of Market Metrics partially offset by client consolidations, firm failures and sell-side companies that scaled back expenditures in the first half of fiscal 2010. The annual price increase for our U.S. investment management clients in January 2010 drove revenues up by approximately $5 million in fiscal 2010.

International revenues in fiscal 2010 were $205.7 million, an increase of 3.8% from $198.1 million in the prior year period. The impact from foreign currency increased international revenues by $0.9 million year over year. European revenues advanced 3.2% to $161.6 million, largely related to offering a broader selection of global content and the continued deployment of our portfolio analysis, risk and quantitative applications. Asia Pacific revenues grew to $44.1 million, up 6.2% from the same period a year ago, a reflection of our ability to sell additional services to existing clients, expansion of our real-time news and quotes that services the needs of a global investor and a reallocation of sell-side investment professionals to major non-U.S. money centers. Revenues from international operations accounted for 32% of our consolidated revenues in fiscal 2010, consistent with fiscal 2009. International growth rates were also positively impacted by our annual price increase for non-U.S. investment management clients in the third quarter of fiscal 2010, which increased revenues by approximately $0.5 million.

International revenues increased 11.8% in fiscal 2009, up from $177.2 million in fiscal 2008. The impact from foreign currency reduced international revenues by $0.2 million in fiscal 2009. European revenues advanced 11.0% to $156.6 million and Asia Pacific revenues grew to $41.5 million, up 14.8% from fiscal 2008.

Annual Subscription Value (ASV)

ASV at a given point in time represents the forward-looking revenues for the next twelve months from all subscription services being supplied to our clients. With proper notice to us, our clients are generally able to add to, delete portions of, or terminate service at any time. Excluding $16 million from the acquisition of Market Metrics and $1 million from the impact of foreign currency, ASV increased 7% over the last twelve months. At August 31, 2010, ASV was $684 million, up from the prior year total of $623 million. Of this total, 82% of ASV derives from buy-side clients and the remainder from the sell-side firms who perform M&A advisory work and equity research. ASV from international operations increased from $200 million at August 31, 2009 to $218 million at August 31, 2010, representing 32% of the Company-wide total. Broad-based growth has been the catalyst for accelerating our growth rate to 7% in fiscal 2010 as we saw our client base stabilize. Drivers of ASV growth were existing clients continuing to order additional FactSet proprietary content, portfolio analytics, the expansion of user count within our global banking and brokerage clients, the increased commitment of our buy-side clients and a $9 million annual price increase for our investment management clients worldwide. With the financial industry recovering from the market lows of 2009 and most major stock indices exhibiting signs of stability, our clients entered 2010 with more optimism and were looking for ways to improve their investment process. This improved mindset, coupled with our strategy of continual product and service enhancement translated into strong ASV growth in fiscal 2010.

ASV growth in fiscal 2009 was generated from our ability to license our proprietary content and an improved performance in both the U.S. and international investment management client base, which demonstrates our ability to deepen the engagement of existing FactSet users. Demand for PA and real-time news and quotes continued to be positive as PA 2.0 client count grew and our real-time news and quotes experienced a 27% increase in user count year over year. Success with these applications partially offset the reduction of our ASV due to a difficult operating environment for investment banks. An already difficult selling environment was amplified by weakening equity markets in fiscal 2009. In the last calendar quarter of 2008, sell-side firms scaled back expenditures, emphasizing savings over spending. Cost cuts were significant due to the decline in asset values and the majority of our clients implemented expense reductions. These actions reduced our user growth in fiscal 2009 as compared to fiscal 2008. The performance of portfolio analytics, including FactSet Fundamentals and Estimates, enhanced our ASV growth.

Users and Clients

At August 31, 2010, professionals using FactSet increased to 42,800, up 5,500 users from the beginning of the year. Client count was 2,110 as of August 31, 2010, a net increase of 65 clients during fiscal 2010. At August 31, 2010, the average ASV per client was $324,000, up from $305,000 at August 31, 2009 and $298,000 at August 31, 2008. User and client growth showed the highest quarterly change in the last two years during the fourth quarter of fiscal 2010. Our client count expanded with 65 net new clients during fiscal 2010 as we saw fewer cancellations and more new clients. The decline in cancellations is directly correlated to a decrease in firm closures. Total user count growth of 5,500 professionals over the past 12 months was from both buy-side and sell-side firms and driven by the combination of advanced FactSet applications including real-time news and quotes with a vast array of data supported by FactSet client service.

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At August 31, 2009, client count was 2,045, a net decline of 40 clients over the prior year. Sell-side firms continued to scale back as the headcount reduction in 2009 was almost entirely sell-side driven and was the effect of several large mergers and industry-wide employee reductions. The lack of available credit throughout most of the fiscal year adversely impacted the number of M&A transactions and the profitability of sell-side banks.

At August 31, 2010, annual client retention was greater than 95% of ASV, consistent with last year. On a client basis, our annual retention rate improved to 90% of clients at August 31, 2010 as compared to 87% a year ago, reflecting a reduction in client turnover. Although we continue to see client consolidations and firm failures in the industry, we are experiencing the success of some longer term sales efforts as firms are more willing to commit to FactSet to replace other systems, demonstrating the value of our service to clients. As of August 31, 2010, our largest individual client accounted for less than 2% of total ASV. Subscriptions from our ten largest clients did not surpass 16% of total ASV as of August 31, 2010, consistent with August 31, 2009 and down from 17% as of August 31, 2008.

Operating Expenses

Cost of Services

Fiscal 2010 compared to Fiscal 2009

For the twelve months ended August 31, 2010, cost of services decreased 1% to $206.6 million as compared to $209.4 million in the same period a year ago. Cost of services expressed as a percentage of revenues was 32.2% during fiscal 2010, a decline of 145 basis points from fiscal 2009. The decrease year over year was driven by lower levels of third party data costs and a reduction in data vendor royalty payments partially offset by higher employee compensation.

Data costs, expressed as a percentage of revenues, decreased 210 basis points for the twelve months ended August 31, 2010 compared to fiscal 2009. Lower external collection costs were the result of a reduction in data amortization expense associated with the Thomson Reuters transition services agreement and the termination of a business process outsourcing (“BPO”) relationship in May 2009. Variable fees payable to data vendors based on deployment of their content over the FactSet platform declined as the result of increased client usage of our proprietary content, including FactSet Fundamentals, FactSet Estimates and FactSet Economics. Annual third-party royalty payments were reduced by $6.1 million in fiscal 2010 due to the deployment of our own proprietary content over the FactSet platform.

An increase in employee compensation partially offset the overall decrease to cost of services expressed as a percentage of revenues during fiscal 2010 compared to the same period a year ago. Employee compensation, expressed as a percentage of revenues, increased 70 basis points during the twelve months ended August 31, 2010 due to expanding the number of employees in our offshore proprietary content collection operations and increased variable compensation. Over the last 12 months, we have increased our content collection headcount by over 900 employees, primarily at our offshore facilities in India and the Philippines. At August 31, 2010, approximately 55% of our employees were involved with content collection, as compared to 45% at August 31, 2009.

Fiscal 2009 compared to Fiscal 2008

Cost of services advanced 9% to $209.4 million in fiscal 2009 from $191.2 million in fiscal 2008. Cost of services expressed as a percentage of revenues increased 45 basis points to 33.7% during fiscal 2009 from 33.2% a year ago. The increase was driven by higher employee compensation, computer related expenses and computer depreciation partially offset by a reduction in data costs.

Employee compensation, expressed as a percentage of revenues, increased 20 basis points during fiscal 2009 due to expanding the number of employees, primarily for our investment in FactSet Fundamentals which was not in operation before August 2008. The first quarter of fiscal 2009 marked the first full quarter of operations for FactSet Fundamentals. Employee count as of August 31, 2009 was 2,962, up 53% over the prior year and was driven by the expansion of FactSet’s proprietary content operation including the FactSet Fundamentals collection team. We discontinued a BPO relationship in May 2009. Computer related expenses, including computer maintenance costs, rose 30 basis points in fiscal 2009 as compared to fiscal 2008 primarily due to the transition to Hewlett Packard Integrity mainframe machines in our data centers.

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Computer maintenance contracts on the new mainframe machines commenced one year after deployment, as each were covered under warranty during fiscal 2008. Computer depreciation increased 20 basis points in fiscal 2009 as compared to the same period in fiscal 2008 because no mainframe machines became fully depreciated during in fiscal 2009.

A reduction in data costs partially offset the overall increase to cost of services in fiscal 2009. Data costs, as a percentage of revenues, decreased 20 basis points in fiscal 2009 compared to fiscal 2008. Lower data costs were the result of ending a BPO relationship in May 2009 and a reduction in variable fees payable to data vendors based on deployment of their content over the FactSet platform.

Selling, General and Administrative

Fiscal 2010 compared to Fiscal 2009

Selling, general, and administrative (“SG&A”) expenses increased 6% to $212.9 million in fiscal 2010 from $201.6 million in fiscal 2009. SG&A expenses, expressed as a percentage of revenues, rose 80 basis points to 33.2% in fiscal 2010 from 32.4% a year ago. The increase was driven by higher employee compensation, a rise in travel and entertainment (“T&E”) expenses, increased occupancy costs, including the amortization and depreciation of furniture, fixtures and leasehold improvements and higher marketing costs partially offset by foreign currency.

Employee compensation expressed as a percentage of revenues increased 90 basis points during fiscal 2010 compared to the same period a year ago due to headcount growth, normal merit salary increases and higher variable compensation partially offset by favorable currency rates. During fiscal 2010, the number of employees performing SG&A functions increased 9%. As of August 31, 2010, 20% of our employees conduct sales and consulting services and 5% provide administrative support, representing approximately 1,000 employees. The increase in headcount was partially offset by the strengthening of the U.S. dollar during fiscal 2010 as 40% of our employees performing SG&A roles reside outside the U.S.

T&E expenses, expressed as a percentage of revenues, increased 30 basis points during fiscal 2010 compared to the same period in fiscal 2009 primarily due to more client visits and an increase in U.S. traveling overseas. During the past 12 months, travel has increased to enable us to manage our Hyderabad and Manila operations, as we continue to expand our proprietary content collection. Total T&E costs related to air travel and hotel stays by U.S. employees rose by 30% year over year as a result of increased international airline ticketing fees and hotel costs. Occupancy costs, including rent and depreciation of furniture and fixtures, expressed as a percentage of revenues, increased 65 basis points compared to a year ago due to recent office expansions in New York, Hyderabad and Manila in addition to the acquisition of Market Metrics on June 1, 2010. Occupancy costs continue to rise as we further fit-out space for our content collection operations in the Far East. Marketing expenses, expressed as a percentage of revenues, increased 20 basis points compared to a year ago as we increased the number of advertising campaigns in fiscal 2010 to market the new FactSet, especially in London, New York and Chicago.

Partially offsetting the increase in SG&A expenses were foreign currency hedging losses included in the prior year as compared to fiscal 2010. A loss on derivatives of $5.2 million was recorded in SG&A in fiscal 2009 as compared to a gain of $0.8 million in the current year. This impacted SG&A, expressed as a percentage of revenues, by 100 basis points during fiscal 2010.

Fiscal 2009 compared to Fiscal 2008

SG&A expenses rose 1% to $201.6 million in fiscal 2009 as compared to $200.4 million in fiscal 2008. However, SG&A expenses expressed as a percentage of revenues declined to 32.4% in fiscal 2009 compared to 34.8% in fiscal 2008. The decrease of 240 basis points in SG&A was driven by lower employee compensation and T&E expenses partially offset by an increase in occupancy costs.

Employee compensation expressed as a percentage of revenues decreased 135 basis points during fiscal 2009 compared to fiscal 2008 due to favorable currency rates and reduced headcount growth in the U.S. and Europe. The U.S. dollar strengthened during fiscal 2009, reducing our international employee compensation base. The decrease in T&E costs expressed as a percentage of revenues of 145 basis points in fiscal 2009 as compared to fiscal 2008 was primarily due a decrease in the cost per trip, a prudent approach to interoffice travel and the occurrence of our engineering conference only in fiscal 2008.

A reduction in employee compensation and T&E was partially offset by an increase in occupancy costs year in fiscal 2009 compared to fiscal 2008. Occupancy costs, including rent and depreciation of furniture and fixtures, expressed as a percentage of revenues increased 45 basis points in fiscal 2009 due to recent office expansions in Boston, New York, Norwalk, Hyderabad, Tokyo and Manila.

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Operating Income and Operating Margin

Fiscal 2010 compared to Fiscal 2009

Operating income increased 5% to $221.6 million in fiscal 2010 from $211.0 million in fiscal 2009. Our operating margin during fiscal 2010 was 34.6%, up 70 basis points from 33.9% a year ago primarily due to lower data costs and foreign currency gains from hedging activities partially offset by higher compensation expense and a rise in T&E and occupancy costs. Since 98% of our ASV is billed in U.S. dollars, the strengthening of the U.S. dollar year over year improved our operating margin 70 basis points. Foreign currency reduced our operating expenses by $3.8 million and increased operating income by $4.7 million during fiscal 2010. Over the past 12 months we entered into foreign currency forward contracts to hedge approximately 95% of our net Euro exposure through the end of the first quarter of fiscal 2012 and 95% of our net British Pound Sterling exposure through the end of the third quarter of fiscal 2011. A continued focus on efficiency and trimming non-essential costs has allowed FactSet to improve operating income and margin in an environment with 3% revenue growth year over year.

Partially offsetting the benefit from favorable currency rates and lower data costs was the continued investment in our personnel. Employee count grew 39% to 4,116 as of August 31, 2010 and was driven by the expansion of our proprietary content collection operations in India and the Philippines, as well as the hiring of consultants and software engineers in the second half of fiscal 2010.

Fiscal 2009 compared to Fiscal 2008

Operating income was up 15% in fiscal 2009 as compared to fiscal 2008. Our operating margin was 33.9% in fiscal 2009, an increase of 190 basis points from 32.0% in fiscal 2008. The 190 basis point increase was primarily due to favorable currency rates, cost saving initiatives and incremental stock-based compensation in the prior year. The strengthening of the U.S. dollar improved our operating margin by 220 basis points as operating expenses were reduced by $13.8 million and operating income increased $13.6 million during fiscal 2009. Cost saving initiatives covered a range of operational areas, including implementing more cost effective means to connect clients to our data centers, data cost reductions from renegotiating terms with vendors, review of usage data for royalty-based payments, implementing an approval process to encourage a more judicious approach to interoffice travel, reducing the number of ex-patriot assignments, improving our marketing spend efficiency and using the capabilities of a laptop to eliminate the need to purchase a phone for every employee. Included in fiscal 2008 was a pre-tax charge of $2.4 million related to an increase in the estimate of the number of performance-based stock options that vested in August 2008. The change in the estimate increased operating expenses by $2.4 million in the year ago period and decreased operating margins by 40 basis points.

FactSet Fundamentals expenses in fiscal 2009 partially offset operating margin growth by 120 basis points when compared to fiscal 2008 as compensation expense from new employee growth to support the fundamental collection operation and the amortization of acquired intangible assets and prepaid daily database updates were incurred.

Operating Income by Segment

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 related to its employees. Expenditures associated with our data centers, product development and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the European and Asia Pacific segments.

Fiscal 2010 compared to Fiscal 2009

Operating income from our U.S. business decreased 5% to $136.0 million in fiscal 2010 compared to $142.9 million in the same period a year ago. The decrease in operating income from our U.S. business was due to higher compensation expense, a rise in T&E expense and increased occupancy and marketing costs partially offset by $11.4 million of incremental revenues and lower data costs. The increase in U.S. employee compensation is due to a 9% headcount growth in the U.S., normal merit salary increases of approximately 5% and higher variable compensation. T&E rose because we had more client visits and increased travel from the U.S. to our content collections operations in India and the Philippines. During fiscal 2010 we entered into a new lease agreement to expand our New York location by 22,000 square feet to support operations resulting in

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higher occupancy costs in the current year as well as incremental future minimum rental payments of $6.2 million over the remaining non-cancelable lease term. Lastly, marketing costs increased in fiscal 2010 as compared to the prior year in the U.S. and throughout each operating segment as we released the new FactSet in September 2009. Revenues from our U.S. business increased $11.4 million in fiscal 2010 compared to a year ago due to client and user growth, our real-time news and quotes capabilities included in the new FactSet, growth in PA, the expanded deployment of our proprietary, our annual price increase for U.S. investment management clients, $3.9 million from the acquisition of Market Metrics partially offset by client consolidations, firm failures and sell-side companies that scaled back expenditures in the first half of fiscal 2010.

European operating income increased $28.7 million in fiscal 2010 compared to same period a year ago. The increase in European operating income is due to a $5.0 million increase in revenues, favorable currency exchange rates, lower variable fees payable to data vendors, a reduction in data amortization expense associated with the Thomson Reuters transition services agreement and the termination of a BPO relationship in May 2009. European revenues advanced $5.0 million due to a broader selection of global content and the continued deployment of our portfolio analysis, risk and quantitative applications. The strengthening of the U.S. dollar against the British Pound Sterling and Euro year over year resulted in a benefit to operating income by $5.5 million within the European segment.

Asia Pacific operating income decreased 55% to $9.3 million in fiscal 2010 compared to $20.5 million in fiscal 2009. The decrease in Asia Pacific operating income is primarily driven by the offshore expansion of our proprietary content operations in India and the Philippines as well as increased occupancy costs for our office expansions in Japan, India and the Philippines, partially offset by a 6% increase in revenues. Employee compensation increased due to expanding the number of employees in our offshore proprietary content collection operations. Over the last 12 months, we have increased our content collection headcount by over 900 employees at our offshore facilities in India and the Philippines. At August 31, 2010, approximately 55% of our employees are involved with content collection, as compared to 45% at August 31, 2009.

Fiscal 2009 compared to Fiscal 2008

Operating income from our U.S. segment advanced 15% to $142.9 million during fiscal 2009 compared to $124.0 million in fiscal 2008 primarily due to a 6% increase in revenues, lower variable data fees, a decline in T&E costs and a reduction in SG&A employee compensation partially offset by higher computer related expenses. European operating income increased 25% to $47.6 million during fiscal 2009 compared to $38.1 million in fiscal 2008 primarily due to an 11% increase in revenues and a decrease in T&E costs. Asia Pacific operating income decreased 6% to $20.5 million during fiscal 2009 compared to $21.8 million in fiscal 2008 primarily due to a full year of operations for FactSet Fundamentals and increased rent expense for office expansion in Japan, India and the Philippines partially offset by a 15% increase in revenues.

Other Income, Income Taxes, Net Income and Diluted Earnings per Share