FACTSET RESEARCH SYSTEMS INC - Annual Report: 2014 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

☒   Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended August 31, 2014

☐   Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from            to             

Commission File Number: 1-11869

FACTSET RESEARCH SYSTEMS INC.

(Exact name of Registrant as specified in its charter)

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 ☒    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 ☒

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 ☒    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 (§229.405 of this chapter) 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. ☐

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.

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

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 28, 2014, 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 $4,157,120,990.

The number of shares outstanding of the registrant’s common stock, as of October 20, 2014, was 41,747,436.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement dated October 30, 2014, for the 2014 Annual Meeting of Stockholders to be held on December 16, 2014, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

FACTSET RESEARCH SYSTEMS INC.

FORM 10-K

For The Fiscal Year Ended August 31, 2014

Part I

ITEM 1. BUSINESS

Overview

FactSet Research Systems Inc. (the “Company” or “FactSet”) is a provider of integrated financial information and analytical applications to the global investment community. FactSet combines content regarding companies and securities from major markets all over the globe into a single online platform of information and analytics. By consolidating content from hundreds of databases with powerful analytics, FactSet supports the investment process from initial research to published results for buy and sell-side professionals. These professionals include portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers and fixed income professionals. The Company’s applications provide users access to company analysis, multicompany comparisons, industry analysis, company screening, portfolio analysis, predictive risk measurements, alphatesting, portfolio optimization and simulation, real-time news and quotes and tools to value and analyze fixed income securities and portfolios. With Microsoft Office integration, wireless access and customizable options, FactSet offers a complete financial workflow solution. The Company’s revenues are derived from subscriptions to services, content and financial applications. Approximately 82.6% of FactSet’s revenues are derived from investment management clients, with the remainder from investment banking firms that perform Mergers & Acquisitions (“M&A”) advisory work, capital markets services and equity research.

Fiscal 2014 was a successful year for FactSet as it once again attained record levels of revenues, operating income, net income and diluted earnings per share. This fiscal year marked the Company’s 36^th year of operation, its 34^th consecutive year of revenue growth and its 18^th consecutive year of earnings growth as a public company. In the past 12 months, FactSet has become more relevant to a broader range of users as the Company continues to dedicate itself to building tools to support a variety of user workflows from traditional Asset Management to Wealth Managers, Mergers & Acquisitions, Advisory, Sales & Trading, Hedge Funds and Private Equity. FactSet is on the desktops of many of the largest and most successful financial companies in the world.

About FactSet

Fiscal 2014 Highlights

Business Strategy

FactSet’s business strategy is to be a leading provider of integrated financial information and analytical applications to the global investment community by consolidating data content with powerful analytics on a single platform, while providing superior individual desktop client service. For over 36 years, the Company has focused on the use of its people, technology and dedication to client service to drive revenue and earnings per share growth as well increase its international reach, headcount, and ultimately, its competitive edge. Its focus on people resulted in the hiring of 381 net new employees in the past 12 months, of which 53% were added in non-U.S. locations. The number of office locations around the world increased from 29 to 35. FactSet now has office locations in nearly every major money center in the world. The strategic focus on technology continued as FactSet improved the speed and ease of its analytical applications via Project NextGen, invested heavily in new data center technologies and released new products such as the FactSet Multi-Asset Class (“MAC”) Risk Model, the Security Trading Utility tool, Fixed Income Analytical Services (“FIAS”) and Supply Chain Analytics. The Company’s use of technology enables a user to access data anywhere, anytime – in real-time. The third pillar of the FactSet business strategy is its dedication to client service; 97% of clients reported that they were satisfied or very satisfied with client service in fiscal 2014. Service via email, text, instant messaging, or phone is 24x7x365 and includes visits by Company personnel for hands-on personalized desktop service. To enhance support to our 54,600 users on six continents, approximately 30% of new employees hired in fiscal 2014 joined the Company as consultants.

The Company’s continued focus on executing its broad-based business strategy has allowed FactSet to become a major force within the financial information industry over the years. FactSet believes it is well-positioned to maintain its competitive position into the future for the following reasons:

The following timeline depicts FactSet’s growth within the financial industry over the past 36 years.

Building on the FactSet Business Model – A Vision for Future Growth

The Company’s vision for the future is to continue its ongoing strategic efforts while making key investments in its operations to position the business for sustainable growth. As stated in previous fiscal years, FactSet runs its strategic and product growth plans to double ASV. While the Company believes it is currently in a strong competitive position in the marketplace, FactSet expects to strengthen and grow its business by focusing on the following objectives:

Products and Services

FactSet offers workspaces designed for investment managers, investment bankers, hedge funds, quantitative research and others throughout each of the Company’s reportable segments. Each personalized solution offers standard features such as wireless connectivity, seamless integration of real-time market data, content choices from hundreds of data sets, Microsoft office integration and financial screening capabilities.

Customizable FactSet workspaces for investment managers, investment bankers and other professionals include the following:

Investment Managers

FactSet addresses the challenges unique to investment managers in its integrated platform. With FactSet, a user gains a sophisticated solution that can be customized with the exact data and analytics needed to support the firm's workflow while reducing training, technology, content, and deployment costs. The use of FactSet by an investment manager can help the manager outperform the benchmark, ensure positive investment performance, efficiently find relevant news and information, help decide what to buy, hold or sell, measure portfolio performance against the benchmark and see performance trends and assess risk. 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 their research needs with just a few mouse clicks. The following are some of the key solutions offered to investment managers by FactSet: Portfolio Analysis, Equity Analysis, Economics and Market Analysis, Quant and Risk Analysis, Fixed Income Analysis, and Research Management Solutions.

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, investment banking professionals can access 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 and present data in a multitude of formats, including customized reports and charts. Key functionality includes the ability for an investment banker to leverage FactSet’s databases to find public and private market opportunities, filings, evaluate transactions, analyze industry trends, monitor market-moving news, and value companies. Sell-side professionals can also generate new buyer lists and investment and deal ideas, gain insight into the global deal market from M&A transactions, corporate activism, governance, connections between people, and perform analyses more efficiently with industry-leading integration with Microsoft Office. The following are some of FactSet’s key product offerings to sell-side professionals: Models and Presentations in Microsoft Office, Company and Industry Analytics, Filings, Idea Screening, Deal Analytics, People Intelligence and Wireless Access.

Other Global Professionals

FactSet’s product and service offerings are customizable 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.

Fiscal 2014 Product and Service Enhancements

During fiscal 2014, FactSet continued to improve its product and service offerings by improving the speed of computation and enhance the FactSet experience for users. The Company invested heavily in new data center technologies, as well as in its analytical applications. In the past 12 months, FactSet released FactSet MAC Risk Model, which provides clients the ability to model predictive risks in a variety of markets and assess the impact of any shock on equities, bonds, commodities, and currencies simultaneously. FactSet also enhanced its fixed income trade simulation utility via the launch of the Security Trading Utility, which now allows bond portfolio managers to simulate a trade before execution. FIAS, also released during fiscal 2014 is the Company’s newest solution in managing fixed income data. Following the acquisition of Revere Data in September 2013, FactSet introduced the Supply Chain Analytics, which is derived from the FactSet Revere database and stores comprehensive information related to corporate supply chains.

Proprietary Content Collection

Since 2000, FactSet has been investing in proprietary content that clients need, which has improved the Company’s competitive advantage and reduced its dependency on data providers. The expansion of the Company’s content collection group involved the acquisition of several data companies. Strategically, FactSet assembled a more complete database solution for clients by acquiring LionShares, Mergerstat, CallStreet, JCF, TrueCourse, europrospectus.com, a copy of the Worldscope database from Thomson, StreetAccount and the recent fiscal 2014 acquisition of Revere Data. In addition to the strategic purchase of these companies and database, FactSet created content centers for data collection in India and the Philippines. Through the hiring of thousands of new employees, leasing office space for use and setting up a data collection infrastructure laid the foundation of the FactSet content group. As of August 31, 2014, approximately 55% of employees at FactSet perform a content collection role. The critical goals for FactSet content each year are to find ways to differentiate from competitors along with increasing the timeliness, accuracy and completeness of the data and depth of coverage.

During fiscal 2014, FactSet made several key enhancements to its proprietary content. The first enhancement was the implementation of new data collection software, which improved the quality and efficiency of data as well as allowed the Company to realize cost reductions. By leveraging the new system, management was able to execute on its mission to provide clients with powerful and customized data feeds. FactSet also introduced new data sets including FactSet Economics Estimate Database and FactSet Revere. FactSet Economics Estimate Database calculates a consensus on global economic concepts by extracting estimates directly from contributor research as prepared by 286 contributors across the globe and then provides post-event statistics, covering the most critical economics series and central bank policy rates. FactSet’s Revere database offers clients access to three content sets; allowing them to analyze corporate supply-chain relationships, understand regional exposures in order to manage geopolitical and macroeconomic risks, and industry taxonomy that offers a unique way to classify companies. FactSet also enhanced several established data sets, such as StreetAccounts news, Debt Capital Structure and FactSet Sharp and Standout Estimates.

Continued proprietary database enhancements and the creation of new data sets are a testament to the Company’s commitment to increase user satisfaction and exceed client expectations. FactSet provides workflow and productivity solutions, and by expanding its proprietary data content sets, FactSet is best positioned to solve its clients problems in many areas of the market.

Third Party Data Content

FactSet aggregates third party content from more than 190 data suppliers, 90 news sources and 80 exchanges. The Company integrates content from premier providers such as Thomson Reuters, Standard & Poor’s, Axioma, Inc., Interactive Data Corporation, LLC, Dow Jones & Company Inc., Northfield Information Services, Inc., Barclays Capital, Intex Solutions, Inc., Bureau van Dijk, ProQuote Limited, MSCI Barra, SIX Financial Information USA Inc., SunGard APT Inc., Morningstar, Inc., Lipper Inc., Russell Investments, Bank of America Merrill Lynch, NYSE Euronext, London Stock Exchange, Tokyo Stock Exchange, NASDAQ OMX, Australian Securities Exchange and Toyo Keizai. FactSet combines the data from these commercial databases into its own dedicated online service which the client accesses to perform their analyses. 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 major type of financial data; however this is not possible for all types of data. Certain datasets that FactSet relies on have a limited number of suppliers, although the Company makes every effort to assure that, where reasonable, alternative sources are available, which is why FactSet is not dependent on any one third party data supplier in order to meet the needs of its clients. The Company has entered into third party content agreements with varying lengths, and in some cases can be terminated on one year’s notice at predefined dates, and in other cases on shorter notice. No single vendor or data supplier represented 10% or more of FactSet's total data expenses in any fiscal year presented.

Client Subscription Growth

Annual subscription value at any given point in time represents the forward-looking revenues for the next twelve months from all subscription services currently being supplied to clients. At August 31, 2014, ASV was $964 million, up 7% organically from a year ago. The increase in ASV during fiscal 2014 was driven by additional clients and users, broad-based growth across geographical segments, continued use of FactSet advanced applications such as Portfolio Analysis, increased usage of wealth management workflow solutions and the continued growth of proprietary content sales. During fiscal 2014, FactSet added 200 net new clients, an 85% increase over the number of clients added a year ago and the Company’s highest number of net new client additions. The number of new client additions is an important metric for FactSet because new clients typically come on with modest deployments and often experience substantial growth in subsequent years. In terms of users, a net new 3,628 users were added during fiscal 2014, the highest annual growth total in three years as FactSet saw healthy growth in the number of users at both its buy-side and sell-side clients. The second half of fiscal 2014 saw higher than expected new hire classes at sell-side clients, along with fewer cancellations, resulting in the addition of more than one thousand new sell-side users over that same six-month period compared to less than five hundred in the same period a year ago. The strong growth over the past quarters is encouraging as improvements in the IPO and M&A marketplaces have been a boost for the Company’s banking clients. The following provides a snap shot view of our ASV growth over the past 12 fiscal years.

Dedication to Client Service and Support

Client service is a key component of the Company’s business model given there were 54,596 users of FactSet spread across 2,743 clients in over 50 countries worldwide as of August 31, 2014. The Company is known throughout the financial industry for having excellent client service, and FactSet continued that track record in fiscal 2014 as 97% of its clients reported that they were satisfied or very satisfied with our client service. To support its users properly on six continents, approximately 30% of new employees hired in fiscal 2014 joined as consultants who focus their attention on client service. As a metric to define the Company’s dedication to client service, FactSet consultants went on 46,000 client visits and attended 45,000 user meetings, increases of 5% and 10%, respectively over a year ago. These client touches helped FactSet's increase its client retention rate rose to 93% at August 31, 2014, up from 92% as of the end of fiscal 2013.

Every FactSet client is assigned a consultant who becomes familiar with the user’s needs and processes, provides training, assists on projects and answers any questions the client may have. The Company also provides its clients with both live and on-line training sessions, in order to educate them on the nuances of FactSet (including the multitude of software and content offerings). During fiscal 2014, nearly 1,800 clients attended live or online FactSet training sessions; more than 4,000 investment bankers were trained on how to use FactSet; 34,000 users completed eLearning courses found within the Company’s internal online library; and clients referenced the FactSet online help and reference library nearly 700,000 times. 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.

Competition

The market for providing accurate financial information and software solutions to the global investment community is competitive. Global spend on market data and analysis recently grew 1.1% to $25.9 billion. The five-year compounded annual growth rate in the market data industry was 2.4%. This 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 largest competitors to FactSet are Bloomberg L.P., Thomson Reuters Inc. and Standard & Poor’s Capital IQ. Bloomberg’s market share grew to 31.7%, up from 31.0% a year ago while Thomson Reuters’ dipped from 30.0% to 26.9% (reflecting recent divestitures of selected business). We believe Standard & Poor’s Capital IQ market share is between 3% and 5%, comparable to that of FactSet. Other competitors and competitive products include online database suppliers and integrators and their applications, such as, MSCI Inc., Morningstar Inc., SunGard, Dealogic PLC, Interactive Data Corporation, Dow Jones & Company, Inc., BlackRock Solutions, The Yield Book, Inc., RIMES Technologies Corporation and Wilshire Associates Inc. Many of these firms offer products or services which are similar to those sold by the Company. FactSet’s development of its own robust sets of proprietary content combined with its news and quotes offering have resulted in more direct competition with the largest financial data providers.

Despite competing market data products and services, FactSet believes it can offer clients a much more complete solution because it has one of the broadest sets of functionalities. FactSet provides in-depth analytics and superior client service, while offering complete content solutions through a desktop user interface or a data feed. FactSet enjoys high barriers to entry and believes it would be difficult for another vendor to quickly replicate the extensive databases the Company currently offers. In addition, FactSet's applications, supported by its client support and service offerings, are entrenched in the workflow of many financial professionals given the downloading functions and portfolio analysis/screening capabilities they offer. As a result, the Company's products have become central to investment analysis and decision-making for clients. During fiscal 2014, FactSet experienced double-digit growth in client wins against its competitors, which underscores the power of the Company’s product offering and dedication to client service, as well as strengthened FactSet’s position within its industry.

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. These reportable segments are aligned with how the Company, including its chief operating decision maker, manages the business and the demographic markets in which FactSet serves. Financial information, including revenues, operating income and long-lived assets related to the Company’s operations in each geographic area are presented in Note 7, Segment Information, in the Notes to the Company’s Consolidated Financial Statements included in Item 8 below. FactSet believes this alignment helps it better manage the business and view the markets the Company serves, which are centered on providing integrated global financial and economic information. Sales, consulting, data collection and software engineering are the primary functional groups within the U.S., Europe and Asia Pacific segments that provide global financial and economic information to investment managers, investment banks and other financial services professionals. The U.S. segment services finance professionals including financial institutions throughout the Americas, while the European and Asia Pacific segments service investment professionals located throughout Europe and Asia, respectively.

The European segment is headquartered in London, England and maintains office locations in France, Germany, the Netherlands, Latvia, Dubai and Italy. The Asia Pacific segment is headquartered in Tokyo, Japan with office locations in Hong Kong, Singapore, Sydney, Australia and Mumbai, India. Segment revenues reflect direct sales to clients based in their respective geographic locations. There are no intersegment or intercompany sales of the FactSet service. Each segment records compensation, including stock-based compensation, amortization of intangible assets, depreciation of furniture and fixtures, amortization of leasehold improvements, communication costs, professional fees, rent expense, travel, marketing, office and other direct expenses. Expenditures associated with the Company’s data centers, third party data costs and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the other segments. The content collection centers located in India and the Philippines benefit all of the Company’s operating segments and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenues.

The following charts depict revenues related to each of the three Company’s reportable segments.

The Employee Base

FactSet continues to invest aggressively 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. One of FactSet’s top priorities is to maintain competitive compensation, benefits, equity participation and work environment practices and policies in order to attract and retain qualified personnel. FactSet believes that it has been successful in recruiting qualified employees. Approximately 80% of hiring in fiscal 2014 came from on-campus college recruiting and none of the Company’s employees are represented by a collective bargaining arrangement.

During fiscal 2014 FactSet increased its investment in employee education, as the Company believes that more well-rounded employees who understand the intricacies of the business and its clients will raise the bar company-wide. FactSetters, as the employee base calls themselves, are proud of the spirit of teamwork and innovation that has been cultivated. As a testament to work-life balance, FactSet’s U.S., France, and UK locations have repeatedly been recognized as a Great Place to Work.

As of August 31, 2014, employee headcount was 6,639, up 6% from a year ago. Of this total, 2,067 employees were located in the U.S., 708 in Europe and 3,864 in Asia Pacific. Fiscal 2014 employee growth was broad-based as FactSet welcomed new classes of software engineers and consultants. FactSet continued to refine and enhance its content collection operations in India and Philippines during fiscal 2014, as evidenced by the migration to SuperFast, which replaced the software previously purchased from Thomson Reuters. In just the past 12 months, FactSet added 70 net new consultants and 202 net new engineering and product development employees, as the Company continues to focus on servicing its existing client base, improving its applications and expanding its content. Approximately 55% of the Company’s employees are involved with content collection, 23% work in product development, software and systems engineering, another 19% conduct sales and consulting services and the remaining 3% provide administrative support.

FactSet received the following accolades during fiscal 2014:

Data Centers

FactSet’s business is dependent on its ability to process substantial volumes of data and transactions rapidly and efficiently on its 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. 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 technological infrastructure that allows the Company to support its growing business.

FactSet launched its multi-phase project, Project NextGen, a few years ago with the objective of evolving away from large mainframe computers to a more distributed environment powered by a vast array of smaller, faster, and more cost-effective machines. During fiscal 2014, FactSet converted several of its front-end products and major subsystems to its new technology platform, improving the speed and ease of use for both clients and development and engineering teams.

The Company operates fully redundant data centers in Virginia and New Jersey. These data centers handle FactSet’s entire client capacity. In addition, FactSet maintains a vast private wide area network that provides a high-speed direct link between the client’s local network and the data content and powerful applications found on the Company’s mainframe machines.

Research and Product Development Costs

A key aspect of the Company’s growth strategy is to enhance its existing products and applications by making them faster and the data within them more reliable. FactSet strives to adopt new technology rapidly that can improve its products and services. Research and product development costs relate to the salary and benefits for the Company’s product development and software engineering technical support staff. These research and product development costs are expensed when incurred within cost of services as employee compensation. The Company expects to allocate a similar percentage of its workforce in future years in order to continue to develop new products and enhancements, respond quickly to market changes and to meet the needs of its clients efficiently.

Intellectual Property and other Proprietary Rights 

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 enters into confidentiality agreements with its employees, clients, data suppliers and vendors. 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 is subject to reporting requirements, disclosure obligations and other recordkeeping requirements per the Securities and Exchange Commission (“SEC”) and the various local authorities that regulate each location in which FactSet operates in. 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)(i).

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.

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 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 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, 2014:

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.

Philip Snow, President. Mr. Snow was named President of FactSet, effective July 1, 2014, and is responsible for the oversight and management of the Company’s Sales and Operations Teams. Mr. Snow joined FactSet in 1996 as a Consultant followed by a transfer to the Tokyo and Sydney offices in order to lead the Company’s Asia Pacific Consulting Services. Following his move back to the U.S. in 2000, Mr. Snow held various sales leadership roles prior to assuming the role of Senior Vice President, Director of U.S. Investment Management Sales in 2013. Mr. Snow received a B.A. in Chemistry from the University of California at Berkeley and a Masters of International Management from the Thunderbird School of Global Management. He has earned the right to use the Chartered Financial Analyst designation.

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 has earned the right to use the Chartered Financial Analyst designation.

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 with the Company. 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 with FactSet 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.

Maurizio Nicolelli, Senior Vice President, Chief Financial Officer. Mr. Nicolelli joined the Company in 1996 as the Senior Accountant and held the position of Chief Accountant from 1999 to 2001. From 2002 to 2009, he served as Vice President and Comptroller of the Company. From October 2009 to 2013, he occupied the position of Senior Vice President, Principal Financial Officer and later named Chief Financial Officer in fiscal 2014. 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.

Rachel R. Stern, Senior Vice President, Strategic Resources, General Counsel and Secretary. Ms. Stern joined the Company in 2001 as General Counsel. On October 1, 2009, Ms. Stern was appointed to her current position as Senior Vice President, Strategic Resources, General Counsel and Secretary. Prior to joining FactSet, Ms. Stern was associated with Cravath, Swaine & Moore. Ms. Stern is admitted to practice in New York and Washington, D.C., and as House Counsel in Connecticut. She received her law degree from the University of Pennsylvania, graduated summa cum laude from Yale University and received a master’s degree with distinction from the University of London.

Additional Information

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

ITEM 1A. RISK FACTORS

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.

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:

FactSet must continue to introduce new products and enhancements to maintain its 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 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 enhancements on a timely and cost effective basis, and the Company’s new products and 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 enhancements.

FactSet must ensure the protection and privacy of client data

Many of FactSet’s products, 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, their 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 Company 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 brand and reputation.

Competition in FactSet’s industry 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 2014 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 recent years, FactSet has seen 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. 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 needs 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 adversely affected.

Volatility in the financial markets may delay the spending pattern of clients and reduce future ASV growth

Sales cycles for FactSet can fluctuate and be extended in times where the financial markets are volatile. The decision to purchase the FactSet service often requires management-level sponsorship. As a result, FactSet often engages in relatively lengthy sales efforts. Purchases (and incremental ASV) may therefore be delayed because uncertainties in the financial markets can cause clients to remain cautious about capital and data content expenditures, particularly in uncertain economic environments. The cycle associated with the purchase of the Company’s service offerings depends upon the size of the client.

Uncertainty, consolidation, and business failures in the global investment banking industry may cause FactSet to lose additional clients and users

FactSet’s sell-side clients that perform M&A advisory work, capital markets services and equity research, account for approximately 17.4% of its revenues. A significant portion of these revenues relate to services deployed by large, bulge bracket banks. While improvements have been observed in the current fiscal year, the global investment banking industry continues to experience uncertainty, consolidation and business failures, which directly impacts the number of prospective clients and users within the investment banking sector. A lack of available credit would impact many of the large banking clients due to the amount of leverage deployed in past operations. Clients could encounter similar problems. A lack of confidence in the global banking system could cause declines in merger and acquisitions funded by debt. Uncertainty, consolidation and business failures in the global investment banking sector could adversely affect the Company’s financial results and future growth.

A decline in equity returns and/or fixed income may impact the buying power of investment management clients

Approximately 82.6% 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.

Increased accessibility to free or relatively inexpensive information sources may reduce demand for FactSet

In recent years, more free or relatively inexpensive information has become available, particularly through the Internet, and this trend may continue. The availability of free or relatively inexpensive information may reduce demand for FactSet. While the Company believes its service offering is distinguished by such factors as customization, timeliness, accuracy, ease-of-use, completeness and other added value factors, if users choose to obtain the information they need from public or other sources, FactSet’s business, financial condition, and results of operations could be adversely affected.

FactSet must hire and retain key qualified personnel

The Company’s business is based on successfully attracting and retaining talented employees. Competition for talent, including engineering personnel, in the industry in which the Company competes is strong. 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. FactSet’s failure to attract and retain talented employees could have a material adverse effect on 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 69% of FactSet’s employees and 45% 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 expenses denominated in British Pound Sterling, Euros, Japanese Yen, Indian Rupee and Philippines Peso. This exposure has increased over the past 12 months primarily because the Company’s international employee base has risen 5% since August 31, 2013. FactSet’s non-U.S. dollar denominated revenues expected to be recognized over the next twelve months are estimated to be $28 million while its non-U.S. dollar denominated expenses are $196 million, which translates into a net foreign currency exposure of $168 million. Although FactSet believes that its foreign exchange hedging policies are reasonable and prudent under the circumstances, the Company’s attempt to hedge against these risks may not be successful, resulting in an adverse impact on its results of operations.

The negotiation of contract terms supporting new and existing datasets or products

FactSet is a provider of global financial and economic information on companies worldwide. 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. FactSet aggregates third party content from more than 190 data suppliers, 90 news sources and 80 exchanges. The Company has entered into third party content agreements with varying lengths. The agreements in some cases can be terminated on one year’s notice at predefined dates, in other cases on shorter notice.

Certain datasets that FactSet relies on have a limited number of suppliers, although the Company makes every effort to assure that, where reasonable, alternative sources are available. These datasets include, without limitation, (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. However, FactSet is not dependent on any one third party data supplier in order to meet the needs of its clients. The Company combines data from commercial databases into its own dedicated single online service, which the client accesses to perform their analysis. The failure of FactSet to be able to maintain these relationships or the failure of its suppliers to deliver accurate data and in a timely manner could adversely affect the Company’s business.

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 or vendors under contractual provisions of 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 incurring expenditures to acquire the use of technology and intellectual property rights as part of its strategy to manage this risk.

A prolonged or recurring outage at 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, a loss of the Company’s services may induce its clients to seek alternative data suppliers and 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.

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 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 income 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 the Company’s results of operations, including its provision for income taxes.

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

FactSet is party to lawsuits in the normal course of 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 legal matters, see Item 3, Legal Proceedings, contained in Part I of this report.

Changes in securities laws and regulations may increase expenses or may harm demand

Many of FactSet’s clients operate within a highly regulated environment. In light of the recent conditions in the U.S. financial markets and economy, the U.S. Congress and Federal regulators have increased their focus on the regulation of the financial services industry. The information provided by, or resident in, the service FactSet provides to its clients could be deemed relevant to a regulatory investigation or other governmental or private legal proceeding involving its clients, which could result in requests for information from FactSet that could be expensive and time consuming. In addition, clients subject to investigations or legal proceedings may be adversely impacted possibly leading to their liquidation, bankruptcy, receivership, reductions in assets under management, or diminished operations that would adversely affect the Company’s revenues.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At August 31, 2014 the Company leases approximately 193,000 square feet of office space at its headquarters in Norwalk, Connecticut. In addition, FactSet leases office space for its U.S. reportable segment in New York, New York; Boston, Massachusetts; Chicago, Illinois; San Francisco, California; Austin, Texas; Jackson, Wyoming; Atlanta, Georgia; Tuscaloosa, Alabama; Newark, Ridgewood and Piscataway, New Jersey; Manchester, New Hampshire; Reston, Virginia, Youngstown, Ohio; and Toronto, Canada. The Company’s European segment operates in leased office space in London, England; Paris and Avon, France; Amsterdam, the Netherlands; Frankfurt, Germany; Dubai, United Arab Emirates; Milan, Italy; Stockholm, Sweden; and Riga, Latvia. Office space in Tokyo, Japan; Hong Kong; Singapore; Mumbai, India; and Sydney, Australia are leased by FactSet for its Asia Pacific operating segment. The data content collection centers located in Hyderabad, India and Manila, the Philippines benefit all of the Companies operating segments. The leases expire on various dates through 2031. Total minimum rental payments associated with the leases are recorded as rent expense (a component of selling, general and administrative expenses) on a straight-line basis over the periods of the respective non-cancelable lease terms.

Including new lease agreements executed during fiscal 2014, the Company’s worldwide leased office space increased to approximately 837,000 square feet at August 31, 2014, up 28,000 square feet or 3% from August 31, 2013. The increase in office space includes approximately 11,000 square feet of office space assumed in connection with the recent acquisitions of Revere and Matrix. The Company believes the amount of leased office space as of August 31, 2014 is adequate for its current needs and that additional space is available for lease to meet any future needs.

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

Included in the future minimum rental payments outlined above are $93.7 million in future rent payments related to a 15-year lease agreement executed in February 2014 to maintain and support the Company’s New York operations into calendar year 2031.

ITEM 3. LEGAL PROCEEDINGS

From time to time, FactSet is subject to legal proceedings, claims and litigation arising in the ordinary course of business, including intellectual property litigation. Based on currently available information, FactSet’s management does not believe that the ultimate outcome of these unresolved matters against the Company, individually or in the aggregate, is likely to have a material adverse effect on the Company's consolidated financial position, its annual results of operations or its annual cash flows. However, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

Part II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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, for each fiscal period indicated, the high and low sales prices per share of the Company’s common stock as reported on the New York Stock Exchange.

Holders of Record - As of October 20, 2014, there were approximately 116,028 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 20, 2014 was $124.07 per share as reported on the New York Stock Exchange.

Dividends - In fiscal 2014, the Company’s Board of Directors declared the following dividends: 

* On May 5, 2014, FactSet’s Board of Directors approved an 11% increase in the regular quarterly dividend, beginning with the Company’s dividend payment on June 17, 2014 of $0.39 per share, or $1.56 per share per annum.

All of the above cash dividends were paid from existing cash resources. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Company and is subject to final determination by the Company’s Board of Directors.

There were no sales of unregistered equity securities in fiscal 2014.

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, 2014 (in thousands, except per share data):

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 filed on October 30, 2014 for its 2014 Annual Meeting of Stockholders.

Stock Performance Graph

The annual changes for the five-year period shown in the graph below are based on the assumption that $100 had been invested in FactSet common stock, the Standard & Poor’s 500 Index, the NYSE Composite Index and the Dow Jones U.S. Financial Services Index on August 31, 2009, 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, 2014. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.

The information contained in the above graph shall not been deemed to be soliciting material or filed or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that FactSet specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.

ITEM 6. SELECTED FINANCIAL DATA

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.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 provider of integrated financial information and analytical applications to the global investment community. We combine content regarding companies and securities from major markets all over the globe into a single online platform of information and analytics. By consolidating content from hundreds of databases with powerful analytics, FactSet supports the investment process from initial research to published results for buy and sell-side professionals. These professionals include portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers and fixed income professionals. 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. With Microsoft Office integration, wireless access and customizable options, we offer a complete financial workflow solution. Our revenues are derived from month-to-month subscriptions to services, databases and financial applications. Investment management clients account for 82.6% of our annual subscription value (“ASV”), with the remainder from investment banking firms that perform M&A advisory work, capital markets services and equity research. 

Fiscal 2014 was a successful year for FactSet and represented our 36th year of operation, our 34th consecutive year of positive revenue growth and our 18th consecutive year of positive earnings growth as a public company. By almost any measure, the second half of fiscal 2014 was one of our strongest six months in the past decade as our key financial and operating metrics rose across the board. Our record financial results were driven by relentless investment in our unique suite of products and services, including our innovative financial applications, proprietary content, and industry-leading client-service business model. Revenues rose to $920 million, while diluted earnings per share grew 11% to $4.92. We added 200 net new clients during fiscal 2014, our highest annual growth total ever. We generated high levels of free cash flow with our fiscal 2014 totaling $247 million, comparable to $251 million generated a year ago. We also continued to invest heavily in our people, which is a major component of operating expenses and the foundation of FactSet’s dedication to its clients. In the last 12 months, we hired 381 net new employees for a total headcount of 6,639 employees as of August 31, 2014, an increase of 6% from a year ago. Our annual client retention rate was greater than 95% of ASV and rose to 93% in terms of the number of actual clients, up from 92% last year, again highlighting our continued focus on providing valuable workflow solutions for our clients. We have been successful in expanding our market share against both internal client built systems and competitor products.

2014 Year in Review

Growth during fiscal 2014 was driven by delivering workflow solutions to our clients, improvements in the functionality of our product line including portfolio analytics, expansion of our proprietary data, persistent focus on client service, stabilization of our sell-side business and enhancements to our technological infrastructure. As a result, each of our key operating metrics experienced growth over the past 12 months. Organic ASV grew 7.3% as we added 200 net new clients and 3,628 users since August 31, 2013. We continued to hire around the world, welcoming a total of 381 employees to our workforce and increased our regular quarterly dividend by 11% to $0.39 per share. Aggregating dividends with share repurchases, we returned $341 million to stockholders during fiscal 2014.

We also successfully changed FactSet’s leadership structure to position us well for future success. Philip Snow was named President, effective July 1, 2014 and will be leading our sales and operations teams. The expected result is to generate more collaboration between these two teams and expand on our competitive position in the financial information industry.

Fiscal 2014 also included the acquisition of two privately held companies. In September 2013, we acquired Revere Data LLC, a leading provider of industry classification and supply chain data, analytics, and index solutions. We are selling this information as a data feed and have also incorporated the supply chain data into our online offerings. We also acquired Matrix Solutions in the second quarter of fiscal 2014, which offers mutual fund market share for the UK fund distribution industry and complements our Market Metrics offering. Both acquisitions have served to enhance legacy products with unique data sets which have been well received by our clients.

Growth across all Geographies and Key Metrics

Fiscal 2014 marks another successful year, with the second half of fiscal 2014 representing one of our strongest six month periods within the past decade, as many of our financial and operating metrics experienced solid growth across the board. Our just completed fourth quarter produced our best quarter in terms of net client additions as we added more clients on a net basis then we have ever done before. During fiscal 2014, we added a total of 200 net new clients, an increase of 85% over the number of net new client added a year ago.

Growth in Key Metrics

U.S. Operations

European Operations

Asia Pacific Operations

Returning Value to Stockholders

Capital Expenditures

Awards, Accolades and Job Creation 

Product Developments to Enhance our Workflow Solutions

At FactSet, we are dedicated to building tools to support the workflows of our traditional Asset Management and Investment Banking base, as well as to extend our core competency to encompass Wealth Managers, Sales & Trading, Private Equity, and Hedge Funds. In order to achieve this goal, we set aggressive goals for fiscal 2014 that involved improving the ease of use and speed of our entire product line. We invested heavily in new data center technologies, as well as our mobile platforms, including FactSet for the iPad and the iPhone. Our goal is to make FactSet a critical component of the daily workflow for all user classes, from the most data-intensive quantitative analyst to C-level executives at our clients.

Our major fiscal 2014 product developments are highlighted as follows:

Another key development in our continual quest to enhance the FactSet workstation was created through a new agreement we entered into with QUICK Corporation, a Japan-based financial information services company in the Nikkei Inc. Group. Together, FactSet and QUICK will work to integrate the Nikkei Group’s high-quality content with our own global content and workflow solutions in order to provide a premium FactSet service for redistribution within our Asia segment.

Faster Technology

During fiscal 2014, we made great strides in the execution of Project NexGen. NextGen is our ongoing assessment of the technologies we use to build, support, and deploy FactSet product. We continued our mission to evolve away from large mainframe computers to a more distributed environment powered by a vast array of smaller, faster, and more cost-effective machines. Throughout the year, we converted several front-end products and major subsystems to make use of our new technology platform, in many cases with dramatic improvements in computational speed and ease of use. We also continued our investment in the state-of-the-art grid of servers and software systems that support our industry-leading fixed income analytics platform, Fixed Income Analytical Services (“FIAS”). Our new FIAS service allows our clients to outsource a significant portion of their Fixed Income data validation and reconciliation process to FactSet, helping to improve the quality of our Fixed Income Portfolio Analysis product line.

Refinement of our Proprietary Content

As our database product lines mature, we are no longer focused on hiring massive numbers of collection specialists. We now have the opportunity to refine our collection processes. The net effect of collecting data more efficiently is improved timeliness, accuracy, and coverage; all of which have translated into increased usage of our proprietary content.

Fiscal 2014 enhancements to our proprietary content are highlighted as follows:

Continued Focus on Client Service

Client service is a key component of our business model. We support our software with a team of financial data and modeling experts. Client service is performed each and every day via email, text, instant messaging, or phone. Client touches are a key metric by which we measure the success of our service. According to our fiscal 2014 global client satisfaction survey, 97% of respondents were satisfied or very satisfied with FactSet’s support. The depth of our software, the data behind the models, and the complex mathematics behind the answers each create an opportunity for us to forge close working relationships with our user community.

Our reward for investing in a consulting group comprised of several hundred professionals is client loyalty, as evidenced by an annual client retention rate of greater than 95% of ASV for several years in a row. Our consulting teams have been trained to listen to our clients’ needs and transfer this knowledge directly to the product development teams, helping us transform suggestions into new or enhanced product offerings. Educating our clients is also an important component of our service. Not only do we teach our users the nuances of our software and content offerings, but FactSet personnel are often thought-leaders in a particular area of financial modeling in our rapidly evolving industry. As a result, clients look to FactSet as a trusted partner to stay on the cutting edge of financial modeling and analysis. During fiscal 2014, nearly 1,800 clients attended live or online FactSet training sessions; more than 4,000 investment bankers were trained on how to use our systems; clients completed 34,000 eLearning courses in our online library; and clients referenced our online help and reference library nearly 700,000 times.

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 on Form 10-K.

Revenues

Fiscal 2014 compared to Fiscal 2013

Revenues in fiscal 2014 were $920.3 million, up 7.3% compared to fiscal 2013. Our revenue growth drivers during fiscal 2014 were increases in clients and users, continued growth in our Portfolio Analytics suite of products, rising sales of our wealth management workflow solution, expansion of proprietary content, stabilization within sell-side client base and incremental revenues from the recent acquisitions of Revere and Matrix.

Growth in the Number of Clients and Users of FactSet

During fiscal 2014 we added 200 net new clients as compared to 108 added during 2013, bringing our total client count to 2,743 as of August 31, 2014. This growth represents an 85% increase in net client additions during the last twelve months as compared to the same period one year ago. Included in our August 31, 2014 client count are 43 clients acquired from the recent Revere and Matrix acquisitions. During the just completed fourth quarter, our total client count expanded by 81 compared to 60 in the same period a year ago. The addition of new clients is important to us as we anticipate that it lays the groundwork for the ability to provide additional services in the future, consistent with our strategy of increasing sales of workstations, applications and content at our existing clients. Our client growth during the fourth quarter of fiscal 2014 marked the highest number of client additions that we have ever obtained within a single quarter. Annual client retention as of August 31, 2014 was greater than 95% of ASV and 93% when expressed as a percentage of clients, an increase from 92% as of the end of fiscal 2013 and our first increase in that metric since August 2011. We believe these statistics underscore the power of our business model, as the large majority of our clients maintain their subscriptions to FactSet throughout each year. At August 31, 2014, our largest individual client accounted for 2% of total subscriptions and annual subscriptions from our ten largest clients did not surpass 15% of total client subscriptions, consistent with prior fiscal years.

At August 31, 2014, there were 54,596 professionals using FactSet, an increase of 3,628 users from a year ago. During the last twelve months, our investment management clients added 3,449 net new users, while our investment banking clients added 179 net new users. Our user count within the fourth quarter of fiscal 2014 alone increased by 2,113 users compared to 1,409 in the year ago fourth quarter, marking this our largest quarterly increase in over three years, with significant additions coming from both our investment management and banking clients. We observed higher than expected new hire classes at our banking clients as new users increased by 179 compared to a contraction of 35 users during fiscal 2013. We believe this increase is due to observed improvements in the IPO and M&A marketplaces coupled with benefits realized from the reinvestment in our wealth management and portfolio analytics suite of products in order to enhance value for our sell-side clients. As of August 31, 2014, our sell-side clients represent 17.4% of our ASV.

Increased Subscriptions in our Portfolio Analytics (“PA”) Suite of Products

Our Portfolio Analytics suite of products, including our Fixed Income in PA product, continues to be well received within our client base and was a source of revenue growth for fiscal 2014. The PA suite covers a wide range of workflows around portfolios. During fiscal 2014, we saw increased demand from our clients for tools to assist them with multi-asset risk modeling, which we addressed through the 2014 release of our MAC risk model, in addition to enhancements to our equity and fixed-income analytics reporting and attribution products. We have experienced success in marketing workstations to our users interested in investing in equities and corporate debt, requiring a focus on credit analysis. Addressing this need, we introduced several improvements to our suite of reports covering debt and liquidity analysis during fiscal 2014.

In addition to the enhancements to our PA products, the total number of clients and users subscribing to this suite of products continued to grow. We believe this steady growth indicates that our suite remains comprehensive and has highly desired applications for portfolio attribution, risk, quantitative analysis, portfolio publishing and returns based, style analysis. We continue to see existing clients expand their use of our PA and buy more services that integrate within the portfolio analytics suite.

Continued Sales of our Wealth Management Workflow Solution

Wealth management continued to be a growing area for us during fiscal 2014, as our wealth management clients and users benefit from the ability to tailor our workstations to accommodate their needs and improve their competitive position. In the past fiscal year, we have focused product suite and sales teams to address the workflows of these particular clients. Aiming to deliver the value-added service and comprehensive, easy to generate reports, our wealth management clients continue to express interest in products which are not included within the standard wealth management packages we offer. We have found that our clients are using more of our PA suite of products in a manner similar to institutional investors. This usage has helped continue our trend of increasing wealth management users for the past five years.

Expansion of our Proprietary Content

We continue to be successful in licensing our proprietary FactSet data, especially FactSet Fundamentals and FactSet Estimates as our global content sales team pursues expanding the distribution of our content. This type of data is licensed in feed form and includes Ownership, Transcripts, M&A and Corporate Hierarchy data. Data feeds are consumed by a wide-range of clients, including existing large FactSet clients and some outside of our core client base that do not manage money or provide sell-side services. Expansion of our data feed business has created new revenue opportunities for us and with the improvement in our database technology and faster networks, many clients have a desire to import and analyze data on their own. As a result, we have created the technology and content infrastructure to deliver standard or highly customized data feeds for our clients.

In addition, StreetAccount, our condensed news product, sells strongly across all FactSet user types and continues to be in demand due to the ability of our clients to receive up-to-the-minute news offered both through and outside the FactSet workstation. Another source of growth within our content set is FactSet Revere. Revere’s classification, hierarchy, and supply chain data is now available in the FactSet workstation. By leveraging this data, clients can help better identify investment opportunities and measure risk exposure. Lastly, in May 2014, we signed an agreement with QUICK Corp. to develop a premium FactSet service for redistribution in Asia by combining our industry-leading global content and workflow solutions with the Nikkei Group’s high-quality content.

Stabilization within Sell-Side Client Base

ASV from our investment banking clients increased 1.6% during fiscal 2014 as we observed improvements in the IPO and M&A marketplaces coupled with benefits realized from the reinvestment in our wealth management and portfolio analytics suite of products in order to enhance value for our sell-side clients. As of August 31, 2014, our sell-side clients represented 17.4% of our ASV. In addition, we experience some seasonality with our investment banking side clients, with our fourth quarter typically a strong quarter for new banking hires. We saw this trend in the just completed fourth quarter as user count at our investment banking clients increased by 1,252 professionals during the past three months.

Incremental Revenue from the Acquisitions of Revere and Matrix

In September 2013 we acquired the assets of Revere Data, whose taxonomy and supply chain relationship data complements our commitment to provide our clients with unique and insightful content sets. At the time of the acquisition, Revere had annual subscriptions of $5 million. During the second quarter of fiscal 2014, we acquired Matrix Solutions, whose primary line of business is to provide intelligence to the UK financial services industry and complements our Market Metrics business. At the time of the acquisition, Matrix had annual subscriptions of $7 million. The acquisitions of Revere and Matrix increased our global revenue growth rate by 145 basis points during fiscal 2014.

Fiscal 2013 compared to Fiscal 2012

Revenues in fiscal 2013 were $858.1 million, up 6.5% compared to fiscal 2012. Revenue growth drivers during fiscal 2013 were the use of our advanced applications such as PA, growth in our client count and total users, incremental revenue from the acquisition of StreetAccount in June 2012, the expansion of our Market Metrics business, growth of our proprietary content sales and increased usage of our wealth management workflow solutions.

Revenues by Geographic Region

Fiscal 2014 compared to Fiscal 2013

Revenues from our U.S. segment increased 6.4% to $624.6 million in fiscal 2014 compared to $586.9 million a year ago. Revenue growth was driven by the addition of users and clients, sales of our PA suite of products, growth in our wealth management solutions, increased demand for our proprietary content, and increment revenue from the Revere acquisition, which increased our U.S. growth rate by 80 basis points. Revenue growth was partially offset by a contraction in the Market Metrics business during fiscal 2014, which lowered our U.S. growth rate by 60 basis points.

International revenues increased 9.0% to $295.7 million during fiscal 2014. Excluding foreign currency effects and the Matrix acquisition, the year over year international revenue growth rate was 6.7%, comprised of 5.0% for Europe and 12.2% for Asia Pacific. Revenues from international operations accounted for 32.1% of our consolidated revenues during fiscal 2014, up from 31.6% a year ago primarily as a result of incremental revenues from the Matrix acquisition.

European revenues advanced 8.9% year over year due to sales of our advanced applications, additional users and clients and incremental revenue from the Matrix acquisition, which increased the European growth rate by 360 basis points. The Asia Pacific revenue growth rate of 9.4% was primarily due to our ability to sell our global content, expansion into new markets within Asia, selling additional services to existing clients, and new client and user growth partially offset by a weaker Japanese Yen, which lowered the Asia Pacific revenue growth rate by 280 basis points.

Fiscal 2013 compared to Fiscal 2012

Our U.S. segment revenues increased 6.6% to $586.9 million in fiscal 2013 compared to fiscal 2012. Our revenue growth rate in the U.S. was the result of increased sales of advanced applications such as PA, growth in client count and total users, expansion of the Market Metrics business, growth in wealth management workflow solutions and incremental revenues from the acquisition of StreetAccount in June 2012. International revenues rose 6.2% from fiscal 2012 due to a broad selection of global proprietary content, clients licensing advanced applications and increases in user and client counts. The impact from foreign currency decreased international revenues in fiscal 2013 by 80 basis points. European revenues advanced 5.8% to $208.8 million while Asia Pacific revenues grew 7.8% to $62.4 million. Holding currencies constant, the Asia Pacific revenue growth in fiscal 2013 was 11.3%.

Annual Subscription Value (ASV)

As of August 31, 2014, ASV was $964 million, up 7.3% organically from fiscal 2013. ASV at a given point in time represents the forward-looking revenues for the next 12 months from all subscription services being supplied to our clients. With proper notice to us, our clients are able to add to, delete portions of, or terminate service at any time, subject to certain contractual limitations.

ASV from our U.S. operations was $651.2 million, up 6.7% organically from a year ago. International ASV totaled $312.4 million as of August 31, 2014, up 8.3% organically from a year ago and represented 32.4% of our Company-wide total. The percentage of our total ASV derived from buy-side clients increased from 81.6% a year ago to 82.6% at August 31, 2014. Organic ASV growth rates from buy and sell-side clients rose to 8.5% and 1.6%, respectively.

The 7.3% increase in organic ASV during fiscal 2014 was driven by the addition of 200 new clients and 3,628 users, which included the effects of higher than expected new hire classes at our banking clients, growth in sales to our wealth management clients, increased demand for our PA products and expanded sales of our proprietary content. Organic ASV growth of 7.3% excludes $12 million of ASV acquired from Revere and Matrix during fiscal 2014 and a $0.5 million detriment from foreign currency.

Fiscal 2013 growth in organic ASV of $49 million, or 5.9%, excludes the impact from foreign currency, primarily due to the strengthening of the U.S. dollar versus the Japanese Yen. The rise in ASV in 2013 was driven by continued growth of PA, the addition of 108 net new clients and 1,425 new users, the expansion of our Market Metrics business, a rise in proprietary content sales and increased usage of our wealth management workflow solutions.

We believe that our ASV growth of 7.3% in fiscal 2014 and 5.9% in fiscal 2013 highlight the stability and strength of our subscription business model. We continue to focus on expanding the business by providing superior analytical applications, premier global content and unparalleled client service. 

Operating Expenses

* SG&A expenses in fiscal 2013 include an incremental $16.4 million from the vesting of performance-based stock options granted in connection with the acquisition of Market Metrics and StreetAccount.

Cost of Services

Fiscal 2014 compared to Fiscal 2013

Cost of services increased 15.4% to $353.7 million as compared to the same period a year ago. Expressed as a percentage of revenues, cost of services was 38.4% in fiscal 2014, an increase of 270 basis points from a year ago. The increase was driven by higher employee compensation, additional third party data costs and incremental costs from the Revere and Matrix acquisitions, partially offset by lower computer-related expenses, including depreciation.

Employee compensation, including stock-based compensation, expressed as a percentage of revenues, increased 300 basis points during fiscal 2014. Excluding compensation attributable to the acquired Revere and Matrix workforces, the increase in employee compensation was 250 basis points and due to increased employee headcount and providing annual employee base salary increases. Since September 1, 2013, we have hired 202 net new software engineers and 70 net new consultants who are dedicated to the development, enhancement and support of our products. Third party data costs when expressed as a percentage of revenues increased 10 basis points during fiscal 2014. Many of our data contracts are driven by our user and client count, so as we continue to grow in these metrics, so do our data-related costs. User count rose by 7% while clients grew 10% year over year, thus driving up our third party data costs. Expenses associated with the operations of Revere and Matrix increased cost of services, when expressed as a percentage of revenues, by 80 basis points during fiscal 2014 due to compensation paid to the acquired workforce, stock-based compensation from equity based awards granted, incremental third party data costs and amortization of acquired intangible assets.

Partially offsetting the growth in cost of services during fiscal 2014 was a reduction in computer-related expenses. Computer-related expenses, including computer depreciation and maintenance costs, decreased 30 basis points in fiscal 2014 as compared to a year ago due to the continued use of fully depreciated equipment and our transition to more efficient and cost-effective servers in our data centers.

Fiscal 2013 compared to Fiscal 2012

Cost of services increased 11.2% to $306.4 million in fiscal 2013 compared to $275.5 million in fiscal 2012. Cost of services, expressed as a percentage of revenues, was 35.7% in 2013, which was 150 basis points higher than fiscal 2012 due to higher employee compensation expense associated with new hires in consulting, engineering and content, additional StreetAccount expenses and increased stock-based compensation partially offset by lower third party data costs.

Employee compensation, including stock-based compensation, expressed as a percentage of revenues, increased 190 basis points during fiscal 2013 as compared to 2012 due to new hires in software engineering and consulting, increased headcount in our proprietary content collection operations located in India and the Philippines and salary increases year over year.  

Excluding $6.9 million of compensation attributable to the StreetAccount workforce, the increase in employee compensation was 110 basis points over fiscal 2012. During 2013, we increased headcount at our collection facilities in India and the Philippines by 408, added approximately 98 net new engineering and product development employees and 49 net new consultants. StreetAccount expenses increased cost of services by approximately 100 basis points in fiscal 2013 due to compensation paid to the acquired workforce, stock-based compensation expense from equity based awards granted to the new employees and the amortization of acquired intangible assets.

Partially offsetting the growth in cost of services during fiscal 2013 were lower levels of third party data costs. Data costs, expressed as a percentage of revenues, decreased 20 basis points in fiscal 2013 as compared to fiscal 2012 due to a slower growth rate in users, a reduction in CallStreet third party collection fees, lower variable fees payable to data vendors based on deployment of their content over the FactSet platform partially offset by incremental Market Metrics data collection costs.

Selling, General and Administrative (SG&A)

Fiscal 2014 compared to Fiscal 2013

SG&A expenses decreased 6.3% to $264.4 million during fiscal 2014 as compared to $282.3 million in 2013. Expressed as a percentage of revenues, SG&A expenses decreased 420 basis points to 28.7% for fiscal 2014 due to lower employee compensation, including stock-based compensation partially offset by higher employee travel and entertainment (“T&E”) expenses.

Employee compensation when expressed as a percentage of revenues decreased 440 basis points from fiscal 2013 due to a higher percentage of our employee base working in a cost of services capacity versus SG&A and a prior year stock-based compensation charge of $16.4 million from the vesting of Market Metrics and StreetAccount performance-based options. Of our total employee headcount increase in fiscal 2014, 79% was within our software engineering, content collection and product development teams, which are all included within cost of services. As such, SG&A employee compensation declined compared to the growth in cost of services. 

Partially offsetting the overall decrease in SG&A expenses was higher T&E expense, which rose by 20 basis points when expressed as a percentage of revenues. The primary drivers for this increase were more client visits by our salesforce, higher plane and hotel prices and increased interoffice travel due to our expanding worldwide presence. 

Fiscal 2013 compared to Fiscal 2012

SG&A expenses increased 9.7% in fiscal 2013 as compared to 2012. Expressed as a percentage of revenues, SG&A expenses increased 100 basis points to 32.9% in 2013 due to incremental stock-based compensation from the vesting of the Market Metrics and StreetAccount performance-based stock options partially offset by a decline in variable employee compensation. Due to the vesting of performance-based stock options granted in connection with the acquisition of the Market Metrics and StreetAccount businesses, an incremental $16.4 million in stock-based compensation expense was recognized in SG&A during fiscal 2013. The incremental $16.4 million of stock-based compensation increased SG&A expenses, expressed as a percentage of revenues, from 31.0% to 32.9%.

Operating Income and Operating Margin

Fiscal 2014 compared to Fiscal 2013

Operating income increased 12.2% to $302.2 million in fiscal 2014 compared to the prior year. Our operating margin for fiscal 2014 was 32.8%, up from 31.4% a year ago. The fiscal 2013 Market Metrics and StreetAccount performance-based stock option charge of $18.3 million ($1.9 million within cost of services and $16.4 million in SG&A) reduced our fiscal 2013 operating margin by 210 basis points. It is our philosophy to expand profitability over the long-term by reinvesting in the company to grow the top-line as opposed to expanding our operating margin. Our industry is highly competitive, so we must continue to invest in our services in order to maintain our position as a premium provider of financial data and analytics. The fiscal 2014 operating margin was 70 basis points lower than the prior year adjusted operating margin of 33.5% (as calculated by adding back the $18.3 million stock-based compensation charge) due to acquisitions of Revere and Matrix in fiscal 2014 which lowered our 2014 operating margin by 80 basis points, higher T&E and data costs, and incremental employee compensation within cost of services. These reductions were partially offset by a 7.3% increase in revenues, a reduction in computer-related expenses and lower SG&A employee compensation.

Fiscal 2013 compared to Fiscal 2012

Operating income declined 1.3% during fiscal 2013 as compared to 2012 due to higher performance-based stock option expense, salary increases year over year, and additional hiring within the sales, engineering and content collection teams partially offset by lower third party data costs from a slower growing user base and reduced CallStreet third party collection fees. Employee head count grew 9% during fiscal 2013 to a total of 6,258 employees at August 31, 2013. In addition, the acquisition of StreetAccount in June 2012 negatively impacted fiscal 2013 operating margin by 30 basis points due to higher employee compensation costs and the amortization of acquired intangibles. 

Operating Income by Segment

Our operating segments are aligned with how we, including our chief operating decision maker, manage the business and the demographic markets in which we operate. Our internal financial reporting structure is based on three reportable segments; U.S., Europe and Asia Pacific, which we believe helps us better manage the business and view the markets we serve. Sales, consulting, data collection and software engineering are the primary functional groups within each 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. Expenditures associated with our data centers, third party data costs and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the other segments. The content collection centers located in India and the Philippines benefit all of our segments and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenues.

Fiscal 2014 compared to Fiscal 2013

Operating income from our U.S. business increased 19.0% to $165.0 million during fiscal 2014 compared to $138.7 million a year ago. The increase in operating income is attributable to $37.8 million of incremental revenues, a decrease in computer depreciation and a fiscal 2013 pre-tax charge of $18.3 million related to vesting of performance-based stock options, which did not recur in fiscal 2014. Of the total pre-tax stock-based compensation charge of $18.3 million, $18.1 million was recorded within the U.S. segment as it related to primarily U.S.-based businesses. Operating income growth was partially offset by increases in employee compensation within cost of services, a rise in T&E expenses, incremental legal fees, and additional expenses from the Revere acquisition. U.S. revenue growth was driven by an increase in the number of clients and users of FactSet, the continued use of our advanced applications such as PA and growth in sales of wealth management. Excluding the acquired Revere workforce, U.S. employee headcount increased 6.8% over the prior year leading to higher employee compensation costs during fiscal 2014. Computer-related expenses decreased due to the transition to more efficient and cost-effective servers in our data centers in addition to the continued use of fully depreciated servers. Additional expenses from the acquisition of Revere lowered U.S. operating income by $1.0 million for fiscal 2014.

European operating income advanced 70 basis points during fiscal 2014 to $100.9 million due to revenue growth of 8.9% partially offset by increases in employee compensation and the impact of the Matrix acquisition. Additional expenses from the acquisition of Matrix lowered European operating income by $2.1 million.

Asia Pacific operating income increased 18.8% to $36.3 million compared to $30.5 million a year ago. The increase in Asia Pacific operating income is from incremental revenues of $5.9 million partially offset by higher employee compensation. The Asia Pacific revenues growth of 9.4% during fiscal 2014 was primarily due to our ability to sell our global content, expansion into new markets within Asia, selling additional services to existing clients, and new client and user growth.

Fiscal 2013 compared to Fiscal 2012

Operating income from our U.S. business decreased 7.5% during fiscal 2013 compared to 2012. The decline in operating income in fiscal 2013 was primarily due to the pre-tax charge of $18.3 million related to the vesting of performance-based stock options, higher employee compensation within cost of services and an increase in costs from the June 2012 acquisition of StreetAccount, partially offset by a 6.6% increase in U.S. revenues, lower third party data costs and a decline in intangible asset amortization expense. The U.S. revenue growth was driven by the continued use of our advanced applications such as PA, growth in the Market Metrics suite of products, incremental revenues from StreetAccount, sales of our wealth management solution and growth in the number of clients of FactSet.

European operating income increased 5.0% to $100.2 million during fiscal 2013 compared to 2012. The increase in European operating income was due to an $11.4 million increase in revenues, lower employee variable compensation expense, a reduction in T&E spending and lower amortization expense as previously acquired intangible assets became fully amortized. European revenues advanced 5.8% in fiscal 2013 to $208.8 million due to the broader selection of global proprietary content and increases in user and client counts and clients licensing advanced applications.

Asia Pacific operating income increased 10.6% to $30.5 million during fiscal 2013 compared to 2012. The increase in Asia Pacific operating income was from $4.5 million of incremental revenues and lower operating expenses due to the impact of foreign currency. Asia Pacific revenue growth year of 7.8% was due to growth in the global content offering, the expansion of our real-time news and quotes, and new client and user growth. 

Income Taxes, Net Income and Diluted Earnings per Share  

* Included in the fiscal 2013 provision for income taxes were income tax benefits of $7.2 million primarily from the reenactment of the U.S. Federal R&D tax credit in January 2013 and the finalization of the fiscal 2012 tax return.

Income Taxes

Fiscal 2014 compared to Fiscal 2013

The fiscal 2014 provision for income taxes was $91.9 million, up $19.6 million or 27.2% from $72.3 million a year ago. This increase was due to a 12.0% increase in pre-tax income and the expiration of the U.S. Federal R&D tax credit on December 31, 2013, which limited our ability to realize income tax benefits from the R&D credit to only four out of twelve months during fiscal 2014. If the U.S. Federal R&D tax credit had been re-enacted by August 31, 2014, the fiscal 2014 annual effective tax rate would have been 28.7%. For comparative purposes, excluding the $7.2 million of income tax benefits in 2013, the annual effective tax rate for fiscal 2013 would have been 29.3%. The adjusted annual effective tax rate for fiscal 2014 of 28.7%, including a hypothetical full year of R&D benefits, is 60 basis points lower than the adjusted rate for 2013 due to incremental foreign income taxed at rates lower than the U.S., which lowered the rate by 40 basis points.

Fiscal 2013 compared to Fiscal 2012

In fiscal 2013, our provision for income taxes was $72.3 million, down 15.9% from 2012 due to income tax benefits of $7.2 million primarily from the reenactment of the U.S. Federal R&D tax credit in January 2013 and the finalization of the fiscal 2012 tax return. Our effective tax rate is based on current enacted tax laws and as such, prior to the second quarter of fiscal 2013, it did not reflect the R&D tax credit in any months of 2012 as the R&D credit expired on December 31, 2011. The reenactment of the R&D tax credit was retroactive to January 1, 2012 and resulted in an actual effective tax rate of 26.7% for the full fiscal 2013 year.

Net Income and Diluted Earnings per Share

Fiscal 2014 compared to Fiscal 2013

Net income increased 6.5% to $211.5 million and diluted earnings per share increased 10.6% to $4.92 during fiscal 2014 as compared to fiscal 2013. Drivers for the increase include incremental revenues of $62.2 million or 7.3%, lower stock-based compensation as a result of the $12.9 million in after-tax charge recorded in fiscal 2013 and a 3.7% decrease in diluted shares outstanding from share repurchases in the last 12 months. The increases in net income and diluted earnings per share in fiscal 2014 were partially offset by a higher annual effective tax rate from the expiration of the U.S. Federal R&D tax credit, incremental employee compensation within cost of services due to the hiring of 202 net new software engineers and 70 net new consultants, a rise in third party data costs from additional users and clients added during the last 12 months and higher employee T&E.

Fiscal 2013 compared to Fiscal 2012

Net income rose 5.2% to $198.6 million and diluted earnings per share increased 8.0% to $4.45 during fiscal 2013 compared to 2012. Included in fiscal 2013 were income tax benefits of $0.16 per diluted share from the reenactment of the U.S. Federal R&D tax credit and the finalization of the fiscal 2012 tax return partially offset by the after-tax charge of $12.9 million or $0.29 per diluted share related to the vesting of performance-based stock options. Drivers of net income and diluted earnings per share growth in fiscal 2013 over fiscal 2012 were higher levels of revenue, lower third party data costs, a decline in the amortization of intangible assets and a reduction in the diluted weighted average shares outstanding partially offset by higher compensation costs.

Liquidity

The table below, for the periods indicated, provides selected cash flow information (in thousands):

Fiscal 2014 compared to Fiscal 2013

Cash and cash equivalents aggregated to $116.4 million or 18% of our total assets at August 31, 2014, compared with $196.6 million or 28% of our total assets August 31, 2013. All of our operating and capital expense requirements were financed entirely from cash generated from our operations. Our cash and cash equivalents decreased $80.2 million during fiscal 2014 due to $46.9 million in cash used to acquire Revere and Matrix, $279.8 million in share repurchases, dividend payments of $61.0 million, capital expenditures of $17.7 million, and purchases of investments, net of proceeds, of $6.1 million. These cash outflows are partially offset by cash provided by operations of $265.0 million, $52.2 million in proceeds from the exercise of employee stock options, $12.0 million in tax benefits from share-based payment arrangements and $2.2 million from the effects of foreign currency.

Free cash flow for fiscal 2014 was $247.3 million, exceeding net income by 17%. Free cash flow generated during fiscal 2014 was attributable to $211.5 million of net income, $9.2 million of positive working capital changes and $44.3 million in non-cash expenses less $17.7 million in capital expenditures. Working capital improvements were derived from lower income tax payments partially offset by a rise in accounts receivable compared to the prior year. Employee stock option exercises, which reduced our tax payments, improved current year working capital. However, our days sales outstanding (“DSO”) as of August 31, 2014 rose to 34 days, up from a record low of 30 days a year ago primarily due to timing of large client payments in the prior year period.

Net cash used in investing activities of $70.7 million, an increase of $50.3 million over fiscal 2013, is due to the acquisitions of Revere and Matrix for $46.9 million and a $4.8 million increase in cash utilized to purchase additional short-term certificates of deposit.

Net cash used in financing activities was $276.7 million during fiscal 2014. Of this total, $275.4 million related to the repurchase of 2.5 million shares under the existing share repurchase program and $61.0 million was for the payment of quarterly dividends. Partially offsetting the use of cash were proceeds received from employee stock plans totaling $52.2 million and related tax benefits of $12.0 million. Net cash used in financing activities was $38.3 million higher in the current year because of an $85.7 million reduction in proceeds from employee stock option exercises and an incremental $5.0 million in dividend repayments due to the 11% increase in our regular quarterly dividend. These increases were partially offset by a decrease in share repurchases of $52.3 million. Proceeds from employee stock exercises and its related income tax benefits were lower in the current year because the number of employee stock options exercised decreased by 1.5 million shares.

We expect that for at least the next 12 months, our operating expenses will continue to constitute a significant use of our cash. Furthermore, we expect existing domestic (U.S.) cash to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities for at least the next 12 months. As of August 31, 2014, our total cash and cash equivalents worldwide was $116.4 million with no outstanding borrowings. Approximately $11.9 million of our total available cash and cash equivalents is held in bank accounts located within the U.S., $79.2 million in Europe (predominantly within the UK and France) and the remaining $25.3 million is held in Asia Pacific. We believe our liquidity (including cash on hand, cash from operating activities and other cash flows that we expect to generate) within each geographic segment will be sufficient to meet our short-term and longer-term operating requirements, as they occur, including working capital needs, capital expenditures, dividend payments, stock repurchases and financing activities. In addition, we expect existing foreign cash, cash equivalent and cash flows from operations to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

Fiscal 2013 compared to Fiscal 2012

Our cash and cash equivalents increased $7.6 million during fiscal 2013 due to cash provided by operations of $269.8 million, $124.5 million from the exercise of employee stock options and $25.2 million of tax benefits from share-based payment arrangements partially offset by $332.2 million in stock repurchases, dividend payments of $56.0 million, capital expenditures of $18.5 million, $1.2 million in purchases of investments (time deposits) and $3.4 million from the effect of exchange rate changes on foreign cash balances.

Free cash flow generated in fiscal 2013 was $251.3 million, up 20% over fiscal 2012 and exceeded net income by 27%. Free cash flow generated during fiscal 2013 was attributable to $198.6 million in net income, $17.5 million of positive working capital changes and $53.7 million in non-cash expenses less $18.5 in capital expenditures. Working capital improvements of $17.5 million were derived from stronger accounts receivable collections as DSO improved from 32 to 30 days, a reduction in tax payments due to stock option exercises and increased accounts payable and accrued expenses.

Net cash used in investing activities was $20.4 million during fiscal 2013 due to capital expenditures of $18.5 million, $1.2 million in purchases of investments and the final working capital payment of $0.7 million related to the acquisition of StreetAccount in June 2012. Net cash used in investing activities was $38.4 million lower in fiscal 2013 compared to fiscal 2012 due to the acquisition of StreetAccount in June 2012, the purchase of $15 million in time deposits in fiscal 2012 and a $4.0 million decrease in capital expenditures.

Net cash used in financing activities was $238.4 million in fiscal 2013 due to $332.2 million in share repurchases and $56.0 million in dividend payments partially offset by $149.8 million in proceeds from employee stock plans and related tax benefits. Net cash used in financing activities was $79.7 million higher in fiscal 2013 as compared to fiscal 2012 due to an increase in share repurchases of $178.5 million and $6.0 million more in dividends paid during fiscal 2013 partially offset by an incremental $104.9 million in proceeds from employee stock plans and incremental tax benefits from share-based payment arrangements. In fiscal 2013, we repurchased 3.4 million shares under the existing share repurchase program for $327.3 million, while in fiscal 2012 we repurchased 1.6 million shares for $152.7 million. Dividend payments increased by $6.0 million in fiscal 2013 due to a 13% increase in the regular quarterly dividend beginning with the Company’s dividend payment in June 2013. Proceeds from employee stock exercises and related income tax benefits increased by $104.9 million in fiscal 2013 because the number of stock options exercised increased by 1.6 million.

Capital Resources

Capital Expenditures

Capital expenditures were $17.7 million during fiscal 2014, down from $18.5 million a year ago. Approximately $13.8 million or 78% of capital expenditures during fiscal 2014 related to the purchase of computer equipment  including more servers for our existing data centers, purchasing laptop computers and peripherals for employees, upgrading existing computer systems in our data collection centers in India and the Philippines and improving telecommunication equipment. The remaining 22% of capital expenditures was used primarily to build out our new San Francisco office during fiscal 2014.

Capital expenditures were $18.5 million during fiscal 2013, down from $22.5 million in fiscal 2012. Approximately $12.2 million or 66% of capital expenditures during 2013 was for computer equipment and the remaining 34% was for additional furniture for existing space in Boston and Norwalk, the relocation and fit-out of our new Hong Kong office during October 2012 and office expansions, including new space in the Philippines and the build out of our new office in San Francisco.

Capital Needs

We currently have no outstanding indebtedness, other than the letters of credit issued in the ordinary course of business. Approximately $1.8 million of standby letters of credit have been issued in connection with our current leased office space as of August 31, 2014. These standby letters of credit contain covenants that, among other things, require us to maintain minimum levels of consolidated net worth and certain leverage and fixed charge ratios. As of August 31, 2014 and 2013, we maintained a zero debt balance and were in compliance with all covenants contained in the standby letters of credit.

Foreign Currency

Certain wholly owned subsidiaries within the European and Asia Pacific segments operate under a functional currency different from the U.S. dollar. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenues and expenses of foreign operations are recorded in accumulated other comprehensive loss as a component of stockholders’ equity.

Our non-U.S. dollar denominated revenues expected to be recognized over the next twelve months are estimated to be $28 million while our non-U.S. dollar denominated expenses are $196 million, which translates into a net foreign currency exposure of $168 million. Our foreign currency exchange exposure is related to our operating expense base in countries outside the U.S., where approximately 69% of our employees are located as of August 31, 2014. During fiscal 2014, foreign currency movements decreased operating income by $1.7 million as compared to a $0.6 million increase to operating income during fiscal 2013.

As of August 31, 2014, we maintained foreign currency forward contracts to hedge approximately 75% of our Indian Rupee exposure through the fourth quarter of fiscal 2016, and approximately 50% of our Philippines Peso exposure through the second quarter of fiscal 2015. As of August 31, 2014, the notional principal and fair value of foreign exchange contracts to purchase Indian Rupees with U.S. dollars was Rs.2.5 billion and $0.7 million, respectively. As of August 31, 2014, the notional principal and fair value of foreign exchange contracts to purchase Philippine Pesos with U.S. dollars was Php288.6 million and $0.1 million, respectively. There were no other outstanding foreign exchange forward contracts at August 31, 2014. A loss on derivatives of $0.3 million was recorded into operating income during fiscal 2014, compared to a loss of $1.0 million during both fiscal 2013 and 2012.

Off-Balance Sheet Arrangements

At August 31, 2014 and 2013, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually limited purposes.

Share Repurchase Program

During fiscal 2014, we repurchased 2.5 million shares for $275.4 million under the existing share repurchase program as compared to 3.4 million shares for $327.3 million during fiscal 2013. On December 16, 2013, our Board of Directors approved a $300 million expansion of the existing share repurchase program. Including the expansion, $87.0 million remains authorized for future share repurchases at August 31, 2014. Repurchases may be made from time to time in the open market and privately negotiated transactions, subject to market conditions. No minimum number of shares to be repurchased has been fixed. There is no timeframe to complete the repurchase program and it is expected that share repurchases will be paid using existing and future cash generated by operations.

Contractual Obligations

Fluctuations in our operating results, the degree of success of our accounts receivable collection efforts, the timing of tax and other payments as well as necessary capital expenditures to support growth of our operations will impact our liquidity and cash flows in future periods. The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here.

The following table summarizes our significant contractual obligations as of August 31, 2014 and the corresponding effect that these obligations will have on our liquidity and cash flows in future periods (in thousands):

Purchase orders do not necessarily reflect a binding commitment but are merely indicative of authorizations and intention to conclude purchases in the future. For the purpose of this tabular disclosure, purchase obligations for goods and services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. It is expected that all the contractual obligations noted in the table will be funded from existing cash and cash flows from operations. Expected timing pertaining to the contractual obligations included in the table above has been estimated based on information currently available. The amounts paid and timing of those payments may differ based on when the goods and services provided by our vendors to whom we are contractually obligated are actually received as well as due to changes to agreed upon amounts for any of our obligations.

Dividends

On May 5, 2014, our Board of Directors approved an 11% increase in our regular quarterly dividend, beginning with the dividend payment in June 2014 of $0.39 per share, or $1.56 per share per annum. This is the ninth consecutive year that our annual dividend has been increased by more than 10%, resulting in a five year annual dividend growth rate of 14%. With our dividends and share repurchases, in the aggregate, we have returned $341 million to shareholders over the past 12 months.

During fiscal years 2014 and 2013, our Board of Directors declared the following dividends: 

All of the above cash dividends were paid from existing cash resources. Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and is subject to final determination by our Board of Directors.

Significant Accounting Policies

We describe our significant accounting policies in Note 3, Summary of Significant Accounting Policies, of the Notes to our Consolidated Financial Statements included in Item 8 below.

Critical Accounting Estimates

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. In addition, there are other items within our consolidated financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.

Accrued Compensation

We make significant estimates in determining our accrued compensation. Approximately 15% of our total employee compensation is variable and discretionary. We conduct a final review of Company and departmental individual performance each year end to determine the amount of discretionary employee compensation. We also review compensation throughout the year to determine how overall performance tracks against management’s expectations. Management takes these and other factors, including historical performance, into account in reviewing accrued compensation estimates quarterly and adjusting accrual rates as appropriate. The amount of the variable employee compensation recorded within accrued compensation as of August 31, 2014 was $37.3 million compared $35.2 million as of August 31, 2013.

Business Combinations

We record acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies and contingent consideration are recognized at their fair value on the acquisition date. The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. Our estimates are based on historical experience, information obtained from the management of the acquired companies and when appropriate, includes assistance from independent third party appraisal firms. Our significant assumptions and estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.

Estimated Tax Provision and Tax Contingencies

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our tax provision is an estimate based on our understanding of laws in Federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business including ours. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. Our effective tax rates differ from the statutory rate primarily due to the impact of state taxes, foreign operations, R&D and other tax credits, tax audit settlements, incentive-stock options and domestic production activities deductions. Our annual effective tax rate was 30.3%, 26.7% and 31.3% in fiscal 2014, 2013, and 2012, respectively.

We recognize the benefit of an income tax position only if it is more likely than not that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position as of the reporting date. Otherwise, no benefit can be recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We will classify the liability for unrecognized tax benefits as current to the extent that we anticipate payment (or receipt) of cash within one year. Additionally, we accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest is classified as income tax expense in the financial statements.

As of August 31, 2014, we have gross unrecognized tax benefits totaling $5.5 million, including $1.1 million of accrued interest, recorded as non-current taxes payable in the Consolidated Balance Sheet. Unrecognized tax benefits represent tax positions taken on tax returns but not yet recognized in the consolidated financial statements. When applicable, we adjust the previously recorded tax expense to reflect examination results when the position is effectively settled. If recognized, the unrecognized tax benefits and related interest would be recorded as a benefit to tax expense on the Consolidated Statement of Income. Audits by multiple tax authorities are currently ongoing. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. For this reason, we regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

Our provision for income taxes is subject to volatility and could be adversely impacted by numerous factors such as changes in tax laws, regulations, or accounting principles, including accounting for uncertain tax positions or interpretations of them. Significant judgment is required to determine recognition and measurement. Further, as a result of certain ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could adversely affect our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition.

Performance-based Equity Awards

We have an employee stock-based compensation plan, which allows for the issuance of performance-based equity awards to employees. Accounting guidance requires the measurement and recognition of compensation expense for all performance-based equity awards made to employees based on the estimated fair values of the awards that are expected to vest. At the end of each reporting period, management must make assumptions regarding the likelihood of achieving our performance targets because the number of stock options that vest will be predicated on us achieving these levels. However, there is no current guarantee that such options will vest in whole or in part.

November 2011 Annual Employee Performance-based Option Grant Review

In November 2011, we granted 665,551 performance-based employee stock options. None of these performance-based stock options vested because we did not achieve certain performance levels for both organic ASV and diluted earnings per share during the two fiscal years ended August 31, 2013. These performance-based options were recorded as forfeitures in the fourth quarter of fiscal 2013.

November 2012 Annual Employee Performance-based Option Grant Review

In November 2012, we granted 1,011,510 performance-based employee stock options. The number of performance-based options that vest is based on us achieving performance levels for both organic ASV and diluted earnings per share during the two fiscal years ended August 31, 2014. Based upon the actual organic ASV and diluted EPS growth in the past two years, 20% or 185,014 (net of options previously forfeited) became eligible for vesting as of August 31, 2014, which results in unamortized stock-based compensation expense of $2.1 million to be recognized over the remaining vesting period of 3.1 years. The remaining 80% of performance-based options previously outstanding were recorded as forfeitures in the fourth quarter of fiscal 2014.

July 2012 Performance-based Option Grant Review

In July 2012, we granted 241,546 performance-based employee stock options, which are eligible to vest in 20% tranches depending upon future StreetAccount user growth through August 31, 2017. During the fourth quarter of fiscal 2013, the first growth target was achieved, thus 20% or 48,314 options vested as of August 31, 2013. The second 20% tranche vested on August 31, 2014 as a result of accelerated expansion of StreetAccount users. In addition, due to the accelerated 2014 growth and forecasted future usage growth, we estimated that the third 20% tranche will vest by August 31, 2017. This reflected a higher performance level than previously estimated and accordingly increased the number of options that will vest to a total of 60%. We were required to record a pre-tax stock-based compensation charge of $1.4 million in the third quarter of fiscal 2014. The change in estimate also resulted in unamortized stock-based compensation expense of $0.9 million to be recognized over the remaining vesting period of 3.0 years. A change, up or down, in the actual financial performance levels achieved by StreetAccount in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense (in thousands):

* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of August 31, 2014.

Matrix and Revere Performance-based Option Grants

In connection with the acquisitions of Matrix and Revere during fiscal 2014, FactSet granted 165,949 and 36,695 performance-based stock options, respectively. The options granted to key employees of Matrix will vest only if ASV and operating margin targets related to the Matrix business are met during a five year measurement period ending December 23, 2018, and the option holders remain employed by FactSet. As of August 31, 2014, FactSet did not believe these targets are probable of being achieved, and as such, no stock-based compensation expense has been record or is expected to be realized in connection with these options. Of the 36,695 performance-based stock options granted in connection with the Revere acquisition, FactSet currently estimates that 18,553 options will vest based upon the achievement of certain ASV and operating margins during the measurement period ending August 31, 2015. This results in unamortized stock-based compensation expense of $0.5 million to be recognized over the remaining vesting period of 4years.

Revere Restricted Stock Units

In connection with the acquisitions of Revere, FactSet granted 7,744 performance-based restricted stock units. Of the 7,744 performance-based restricted stock units granted, 3,872 are estimated to vest based upon our belief that certain ASV and operating margin targets will be achieved during the measurement period ending August 31, 2017. As of August 31, 2014, unamortized stock-based compensation of $0.3 million will be amortized to compensation expense over the remaining vesting period of 4.0 years. The remaining 3,872 performance-based restricted stock units are expected to be forfeited.

Long-lived Assets

Long-lived assets, comprised of property, equipment and leasehold improvements are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that may cause an impairment review include significant changes in technology that make current computer-related assets that we use in our operations obsolete or less useful and significant changes in the way we use these assets in our operations. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Using the impairment evaluation methodology described herein, there have been no long-lived asset impairment charges for each of the last three years. The carrying value of long-lived assets as of August 31, 2014, was $57.6 million.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We have not made any material changes in our impairment loss assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

Intangible Assets

Intangible assets consist of certain acquired content databases, client relationships, software technology, non-compete agreements and trade names resulting from previous acquisitions and depending on the nature of the intangible asset, are amortized on either a straight-line or an accelerated basis using estimated useful lives ranging between two and twenty years. The remaining useful lives of intangible assets subject to amortization are evaluated quarterly to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. There were no adjustments to the useful lives of intangible assets subject to amortization during any of the periods presented. These intangible assets have no assigned residual values as of August 31, 2014 and 2013. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for intangible assets that management expects to hold and use is based on the amount the carrying value exceeds the fair value of the asset. No impairment of intangible assets has been identified during any of the periods presented. The carrying value of intangible assets as of August 31, 2014 and 2013 was $41.9 million and $36.2 million, respectively. Our ongoing consideration of the recoverability could result in impairment charges in the future, which could adversely affect our results of operations.

Valuation of Goodwill

In September 2011, the FASB issued an accounting standard update intended to simplify how an entity tests goodwill for impairment. The guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This accounting standard update became effective for us beginning in the first quarter of fiscal 2013, and its adoption has not had an impact on our consolidated financial statements because we have not elected to first assess qualitative factors, but have performed the quantitative analysis instead.

We evaluate goodwill at the reporting unit level for impairment annually and whenever events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. We complete our impairment evaluation by performing internal valuation analyses and consider other publicly available market information. We determined that there were three reporting units during fiscal years 2014, 2013 and 2012, which are consistent with our operating segments because there is no discrete financial information available for the subsidiaries within each operating segment. Our reporting units evaluated for potential impairment during fiscal years 2014, 2013 and 2012 were U.S., Europe and Asia Pacific, which reflects the level of internal reporting we use to manage our business and operations. We performed our annual goodwill impairment test during the fourth quarter of fiscal years 2014, 2013 and 2012 and given the significant headroom of fair value in excess of carrying value, we determined that there were no reporting units that were deemed at risk and there had been no impairment. The carrying value of goodwill as of August 31, 2014 and 2013 was $285.6 million and $244.6 million, respectively.

We determine fair value using the discounted cash flows model. This analysis contains uncertainties because it requires management to make assumptions and to apply judgment to estimate industry economic factors including market conditions, legal and technological factors and the profitability of future business strategies. It is our policy to conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations. We have not made any material changes in our impairment loss assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for goodwill impairment losses. However, if actual results are not consistent with our estimates and assumptions, we may be exposed to an impairment charge that could be material. Future events could cause us to conclude that indicators of impairment do exist and that goodwill associated with our previous acquisitions is impaired, which could result in an impairment loss in our Consolidated Statements of Income and a write-down of the related asset.

New Accounting Pronouncements

See Note 3 to the consolidated financial statements for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include here by reference.

Market Trends

In the ordinary course of business, we are exposed to financial risks involving foreign currency and interest rate fluctuations. Major equity indices continue to experience volatility. Approximately 82.6% of our ASV is derived from our 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.

Our investment banking clients that perform M&A advisory work, provide capital markets services and equity research, account for approximately 17.4% of our ASV. A significant portion of these revenues relate to services deployed by large, bulge bracket banks. Credit continues to impact many of the large banking clients due to the amount of leverage deployed in past operations. Clients could encounter similar problems. A lack of confidence in the global banking system could cause declines in merger and acquisitions funded by debt. Additional uncertainty, consolidation and business failures in the global investment banking sector could adversely affect our financial results and future growth.

We service M&A departments, capital markets and equity research. 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 our 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. Our revenues may decline if banks including those involved in recent merger activity significantly reduce headcount in the areas of corporate M&A, capital markets and equity research to compensate for the issues created by other departments.

Forward-Looking Factors

Forward-Looking Statements

In addition to current and historical information, this Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are based on management’s current expectations, estimates, forecast and projections about the industries in which we operate and the beliefs and assumptions of our management. All statements, other than statements of historical facts, are statements that could be deemed to be forward-looking statements. These include statements about our strategy for growth, product development, market position, subscriptions and expected expenditures and financial results. Forward-looking statements may be identified by words like “expects,” “anticipates,” “plans,” “intends,” “projects,” “should,” “indicates,” “continues,” “ASV,” “subscriptions,” “believes,” “estimates,” “may” and similar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth, trends in our business and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Therefore, actual results may differ materially from what is expressed or forecasted in such forward-looking statements. We will publicly update forward-looking statements as a result of new information or future events in accordance with applicable Securities and Exchange Commission regulations.

We intend that all forward-looking statements we make will be subject to safe harbor protection of the federal securities laws as found in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part 1 Item 1A, Risk Factors of  this Annual Report on Form 10-K. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Annual Report to reflect actual results or future events or circumstances.

Business Outlook

The following forward-looking statements reflect our expectations as of September 16, 2014. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. We do not intend to update our forward-looking statements until our next quarterly results announcement, other than in publicly available statements.

First Quarter Fiscal 2015 Expectations

Dividend Payment

On August 14, 2014, we declared a regular quarterly dividend of $0.39 per share. The cash dividend of $16.2 million was paid on September 16, 2014, to common stockholders of record on August 29, 2014 using our existing cash generated by operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are exposed to foreign currency exchange risk that could impact our financial position and results of operations.

Foreign Currency Exchange Risk

We conduct business outside the U.S. in several currencies including the British Pound Sterling, Euro, Japanese Yen, Indian Rupee and Philippine Peso. The financial statements of these foreign subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average rates for the period for revenues and expenses. Our non-U.S. dollar denominated revenues expected to be recognized over the next twelve months are estimated to be $28 million while our non-U.S. dollar denominated expenses are $196 million, which translates into a net foreign currency exposure of $168 million per year. To the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase. To manage the exposures related to the effects of foreign exchange rate fluctuations, we utilize derivative instruments (foreign currency forward contracts). By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a major financial institution. Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties. Our primary objective in holding derivatives is to reduce the volatility of earnings associated with changes in foreign currency.

As of August 31, 2014, we maintained foreign currency forward contracts to hedge approximately 75% of our Indian Rupee exposure through the fourth quarter of fiscal 2016, and approximately 50% of our Philippines Peso exposure through the second quarter of fiscal 2015. We are required to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. At August 31, 2014, the notional principal and fair value of foreign exchange contracts to purchase Indian Rupees with U.S. dollars was Rs.2.5 billion and $0.7 million, respectively. At August 31, 2014, the notional principal and fair value of foreign exchange contracts to purchase Philippine Pesos with U.S. dollars was Php288.6 million and $0.1 million, respectively. A loss on derivatives of $0.3 million was recorded into operating income during fiscal 2014, as compared to a loss of $1.0 million during each of fiscal 2013 and 2012. The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into operating expenses when the hedged exposure affects earnings. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

A sensitivity analysis was performed based on the estimated fair value of all foreign currency forward contracts outstanding at August 31, 2014. If the U.S. dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by $4.6 million, which would have had an immaterial impact on our consolidated balance sheet. Such a change in fair value of our financial instruments would be substantially offset by changes in our expense base. Had we not had any hedges in place as of August 31, 2014, a hypothetical 10% weaker U.S. dollar against all foreign currencies from the quoted foreign currency exchange rates at August 31, 2014, would result in a decrease in operating income by $18.9 million over the next twelve months. A hypothetical 10% weaker U.S. dollar against all foreign currencies at August 31, 2014 would increase the fair value of total assets by $28.0 million and equity by $25.3 million.

Interest Rate Risk

The fair market value of our cash and investments at August 31, 2014 was $136.4 million. Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. Our investments consist of certificates of deposits with original maturities greater than three months, but less than one year and, as such, are classified as investments (short-term) on our consolidated balance sheet. It is anticipated that the fair market value of our cash and investments will continue to be immaterially affected by fluctuations in interest rates. Preservation of principal is the primary goal of our cash and investment policy. Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification. Our investment guidelines do not permit us to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin. Because we have a restrictive investment policy, our financial exposure to fluctuations in interest rates is expected to remain low. We do not believe that the value or liquidity of our cash and investments have been significantly impacted by current market events.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements 

Management’s Statement of Responsibility for Financial Statements

FactSet’s consolidated financial statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s estimates and judgments. All financial information in this Annual Report on Form 10-K has been presented on a basis consistent with the information included in the accompanying financial statements.

FactSet’s policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of the New York Stock Exchange, the NASDAQ Stock Market and the corporate governance requirements of the Sarbanes-Oxley Act of 2002. Management, with oversight by the Company’s Board of Directors, has established and maintains a strong ethical climate so that its affairs are conducted to the highest standards of personal and corporate conduct.

FactSet maintains accounting systems, including internal accounting controls, designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system should not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources, and the leadership and commitment of top management. In compliance with the Sarbanes-Oxley Act of 2002, FactSet assessed its internal control over financial reporting as of August 31, 2014 and issued a report (see below).

The Audit Committee of the Board of Directors, which consists solely of independent non-employee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee periodically meets with management and the independent accountants to review and evaluate their accounting, auditing and financial reporting activities and responsibilities, including management’s assessment of internal control over financial reporting. The independent registered public accounting firm has full and free access to the Audit Committee and met with the committee, with and without management present.

Management’s Report on Internal Control over Financial Reporting

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheet of FactSet Research Systems Inc. as of August 31, 2014 and the related consolidated statement of income, comprehensive income, stockholders’ equity and cash flows for the year ended August 31, 2014. Our audit also included the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FactSet Research Systems Inc. at August 31, 2014, and the consolidated results of its operations and its cash flows for the year ended August 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FactSet Research Systems Inc.’s internal control over financial reporting as of August 31, 2014, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated October 30, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Ernst & Young LLP

Stamford, Connecticut

October 30, 2014

Report of Independent Registered Public Accounting Firm

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

We have audited FactSet Research Systems Inc.’s (the “Company”) internal control over financial reporting as of August 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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

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

/s/ ERNST & YOUNG LLP

Ernst & Young LLP

Stamford, Connecticut

October 30, 2014

Report of Independent Registered Public Accounting Firm

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

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

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Stamford, Connecticut

October 30, 2013

Consolidated Statements of Income

(In thousands, except per share data)

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

Consolidated Statements of Comprehensive Income

(In thousands)

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

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

Consolidated Balance Sheets

(In thousands, except share data)