Executive Overview

FactSet is a leading provider of integrated global financial and economic information, including fundamental financial data on tens of thousands of companies worldwide. Our applications support and make more efficient workflows for buy and sell-side professionals. These professionals include portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers and fixed income professionals. Our applications provide users access to company analysis, multicompany comparisons, industry analysis, company screening, portfolio analysis, predictive risk measurements, alphatesting, portfolio optimization and simulation, real-time news and quotes and tools to value and analyze fixed income securities and portfolios.

We combine more than 500 data sets, including content regarding tens of thousands of companies and securities from major markets all over the globe, into a single online platform of information and analytics. Clients have simultaneous access to content from more than 85 data suppliers and over 100 exchanges and news sources, which they can combine and utilize in nearly all of our applications. We are also fully integrated with Microsoft Office applications such as Excel, Word and PowerPoint. This integration allows our users to create extensive custom reports. Our revenues are derived from month-to-month subscriptions to services, databases and financial applications. Our investment management clients represent 81% of our total annual subscription value ("ASV"), while the remaining ASV is derived from investment banking clients.

Services may be paid for using commissions on securities transactions introduced and cleared on a fully disclosed basis through a designated clearing broker. Clients may also direct commissions to unrelated third party brokers and request that payment be transmitted to FactSet to pay for its services. Services paid in commissions represented 22% of total revenues during the three months ended May 31, 2009 and 2008.

Employee count at May 31, 2009 was 2,550, up 400 employees over the past three months and up 40% from a year ago and 32% since August 31, 2008. The increase in headcount is driven by the expansion of our proprietary content operation including the FactSet Fundamentals collection team. Approximately 30% of the Company's employees conduct sales and consulting services, another 30% are involved in product development, software and systems engineering and the remaining 40% of employees are involved with content collection or provide administrative support.

Results of Operations

For an understanding of the significant factors that influenced our performance
during the three and nine months ended May 31, 2009 and 2008, respectively, the
following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements
presented in this Quarterly Report on Form 10-Q.



                                                      Three Months Ended                  Nine Months Ended
                                                           May 31,                             May 31,
(In thousands, except per share data)             2009        2008      Change        2009        2008      Change
Revenues                                        $ 154,387   $ 147,399      4.7 %    $ 466,561   $ 421,812     10.6 %
Cost of services                                   50,847      48,134      5.6        156,717     140,555     11.5
Selling, general and administrative                50,234      51,346     (2.2 )      153,173     147,601      3.8
Operating income                                   53,306      47,919     11.2        156,671     133,656     17.2
Net income                                         38,536      32,542     18.4        108,675      91,433     18.9
Diluted earnings per common share               $    0.79   $    0.65     21.5 %    $    2.23   $    1.82     22.5 %
Diluted weighted average common shares             48,836      49,821                  48,773      50,218

Revenues

Revenues - Revenues for the three months ended May 31, 2009 advanced 5% to $154.4 million from $147.4 million for the same period a year ago and included $1.3 million from FactSet Fundamentals. Revenue growth of 5% in the third quarter of fiscal 2009 was driven by incremental subscriptions to FactSet Estimates and Fundamentals and our real time news and quotes capabilities included in the FactSet workstation. Sales of proprietary content continue to be a growing source of revenue. Both new and existing clients continue to deploy FactSet Fundamentals. In addition, our investment to expand coverage globally and add textual research from sell-side firms has led to growth in the demand for FactSet Estimates.

Real time news and quotes is a product that services the needs of a global investor and continues to be a source of revenue growth for us. Deployment of real time news and quotes has been strong over the past four quarters, with a 39% increase in

user count year over year. This increase is meaningful to us because news and quotes is often used everyday, deepening a user's engagement with FactSet. The fact that news and quotes users are increasing in this contracting environment leads us to believe our product is improving its competitive position.

For the first nine months of fiscal 2009, revenues increased 11% to $466.6 million from $421.8 million in the prior year period. Revenue growth was driven by expanded deployment of FactSet proprietary data across all geographies, growth of our real time news and quotes product, our ability to consolidate multiple services through the FactSet platform and clients continuing to license our advanced applications such as Portfolio Analytics ("PA"). Approximately 647 clients consisting of 5,600 users subscribed to PA as of May 31, 2009. Although the number of PA users declined by 180 during the third quarter of fiscal 2009, we believe that the fact that our PA client count was positive since September 2008, indicates to us that the economic downturn forced this outcome rather than competitive pressures.

Revenues by Geographic Region



                            Three Months Ended                        Nine Months Ended
                                 May 31,                                   May 31,
  (In thousands)     2009           2008         Change        2009           2008         Change
  U.S.             $ 104,967      $ 101,676         3.2 %    $ 318,025      $ 292,647         8.7 %
  % of revenues         68.0 %         69.0 %                     68.2 %         69.4 %

  Europe           $  39,086      $  36,285         7.7 %    $ 117,510      $ 102,937        14.2 %
  Asia Pacific        10,334          9,438         9.5 %       31,026         26,228        18.3 %

  International    $  49,420      $  45,723         8.1 %    $ 148,536      $ 129,165        15.0 %
  % of revenues         32.0 %         31.0 %                     31.8 %         30.6 %
  Consolidated     $ 154,387      $ 147,399         4.7 %    $ 466,561      $ 421,812        10.6 %

Revenues from our U.S. business increased 3% to $105.0 million during the three months ended May 31, 2009 compared to $101.7 million in the same period a year ago. International revenues in the third quarter of fiscal 2009 were $49.4 million, an increase of 8% from $45.7 million in the prior year period. The impact from foreign currency reduced international revenues by $0.3 million year over year. European revenues advanced 8% to $39.1 million. Asia Pacific revenues grew to $10.3 million, up 9.5% from the same period a year ago. Revenues from international operations accounted for 32% of our consolidated revenues in the third quarter of fiscal 2009 and 31% in the third quarter of fiscal 2008. Our growth rates in Europe and Asia Pacific reflect our ability to sell additional services to existing clients and a reallocation of sell-side investment professionals to major non-U.S. money centers, especially in Asia.

Annual Subscription Value - ASV at a given point in time represents the forward-looking revenues for the next twelve months from all subscription services currently being supplied to our clients. With proper notice to us, our clients are generally able to add to, delete portions of, or terminate service at any time. At May 31, 2009, ASV was $615 million, up $25 million or 4% from the prior year total of $590 million. Of this total, 81% of ASV derives from buy-side clients and the remainder from the sell-side firms who perform M&A advisory work and equity research. ASV from international operations increased from $187 million at May 31, 2008 to $196 million at May 31, 2009, representing 32% of the Company-wide total.

ASV decreased $8 million during the third quarter of fiscal 2009, which included a $1.1 million benefit from foreign currency exchange. An already difficult selling environment was amplified by weakening equity markets in 2009 through mid-March. In the last calendar quarter of 2008, buy-side institutions joined sell-side firms in scaling back expenditures, emphasizing savings over spending. Cost cuts were significant due to the decline in asset values and the majority of our clients implemented expense reductions. Firms continue to trim deployment of applications that do not support a daily process or are utilized on a very frequent basis. These actions reduced the number of client subscribers during the quarter. While the ASV change for the current quarter was a negative $8 million, it represents strong relative performance to the industry in which we operate in. Since the global economic downturn began in September 2008, our ASV has been flat in a contracting market.

Users and Clients - At May 31, 2009, there were 37,100 professionals using FactSet, a decline of 1,600 users from the beginning of the quarter. Client count was 2,033 as of May 31, 2009, a net decrease of 34 clients during the quarter. At quarter-end, the average subscription per client was $302,000, up 5% from $289,000 at May 31, 2008 and up from $295,000 at August 31, 2008. Sell-side firms continue to scale back on headcount. The headcount reduction over the past three months was almost entirely sell-side driven and is the effect of several large mergers and an approach to conserve capital. The lack of available credit throughout most of the quarter adversely impacted the number of M&A transactions and the profitability of sell-side banks.

At May 31, 2009, annual client retention was greater than 95% of ASV, consistent with the same period a year ago. However, on a client basis, our annual retention rate is 88% of clients at May 31, 2009, a decrease from 91% a year ago. This decline is a result of client losses relating primarily to small firms rather than larger institutions. As of May 31, 2009, our largest individual client accounted for less than 3% of total ASV and ASV from the ten largest clients did not surpass 16% of total client subscriptions, consistent with May 31, 2008.

Operating Expenses



                                              Three Months Ended                         Nine Months Ended
                                                    May 31,                                   May 31,
(In thousands)                          2009           2008        Change         2009           2008         Change
Cost of services                      $  50,847      $ 48,134         5.6 %     $ 156,717      $ 140,555        11.5 %
Selling, general and administrative      50,234        51,346        (2.2 )%      153,173        147,601         3.8 %

Total operating expenses              $ 101,081      $ 99,480         1.6 %     $ 309,890      $ 288,156         7.5 %

Operating Margin                           34.5 %        32.5 %                      33.6 %         31.7 %

Cost of Services

Three months ended May 31, 2009 (Quarter-to-date)

For the three months ended May 31, 2009, cost of services increased 6% to $50.8 million from $48.1 million in the comparable prior year period. Cost of services expressed as a percentage of revenues increased 28 basis points to 32.9% during the third quarter of fiscal 2009 from 32.7% a year ago. Higher employee compensation, computer depreciation and computer related expenses were partially offset by a reduction in data costs.

Employee compensation, expressed as a percentage of revenues, increased 30 basis points during the three months ended May 31, 2009 due to our investment in FactSet Fundamentals which was not in operation a year ago. Computer depreciation increased 40 basis points for the three months ended May 31, 2009 as compared to the same period in fiscal 2008 because no mainframe machines became fully depreciated during the quarter. Computer related expenses as a percentage of revenues increased 35 basis points for the three months ended May 31, 2009 compared to the same period in fiscal 2008. This increase relates to last year's transition to Hewlett Packard Integrity mainframe machines in our data centers. Computer maintenance expenses rose because maintenance contracts commence one year after a mainframe is deployed due to the expiration of the warranty.

Data costs as a percentage of revenues decreased 85 basis points for the three months ended May 31, 2009 compared to the same period in fiscal 2008. Lower data costs were caused by a reduction in variable fees due to data vendors based on the deployment of their content over the FactSet platform.

Nine months ended May 31, 2009 (Year-to-date)

For the nine months ended May 31, 2009, cost of services advanced 11% to $156.7 million from $140.6 million in the same period a year ago. Cost of services expressed as a percentage of revenues increased 27 basis points in the first nine months of fiscal 2009 as compared to the same period a year ago due to an increase in data costs and computer related expenses partially offset by lower employee compensation.

Data costs as a percentage of revenues increased by 45 basis points for the nine months ended May 31, 2009 compared to the same period in fiscal 2008, driven by a full quarter of operations for FactSet Fundamentals, which was not in operation last year. In addition, higher levels of proprietary data content collection drove data costs higher year over year. Computer related expenses as a percentage of revenues increased 24 basis points for the nine months ended May 31, 2009 compared to the same period in fiscal 2008. The increase in computer related expenses relates to last year's transition to Hewlett Packard Integrity mainframe machines in our data centers. Computer maintenance expenses rose because maintenance commences one year after a mainframe is deployed due to the expiration of the warranty.

Employee compensation partially offset the increases in data costs and computer related expenses. Employee compensation expressed as a percentage of revenues decreased 40 basis points during the first nine months of fiscal compared to the same periods a year ago due to favorable currency rates and stable headcount in the U.S. and Europe. The U.S. dollar strengthened during fiscal 2009 as compared to the year ago period, especially against the Euro and British Pound Sterling, reducing our overall expense base.

Selling, General and Administrative

Three months ended May 31, 2009 (Quarter-to-date)

For the three months ended May 31, 2009, selling, general, and administrative ("SG&A") expenses decreased 2% to $50.2 million from $51.3 million in the third quarter of fiscal 2008. SG&A expenses expressed as a percentage of revenues declined 230 basis points to 32.5% during the third quarter of fiscal 2009 from 34.8% a year ago. The decrease was driven by lower employee compensation and travel and entertainment ("T&E") costs, partially offset by an increase in rent expense.

Employee compensation expressed as a percentage of revenues decreased 100 basis points during the three months ended May 31, 2009 compared to the same period a year ago due to favorable currency rates and stable headcount in the U.S. and Europe. As mentioned earlier, the U.S. dollar strengthened during fiscal 2009, reducing our international employee compensation base. The decrease in T&E costs as a percentage of revenues by 185 basis points for the three months ended May 31, 2009 compared to the same period in fiscal 2008 was primarily due to three factors: a decrease in the cost per trip; a more prudent approach to interoffice travel; and the occurrence of our engineering conference only in the prior year quarter.

A reduction in employee compensation and T&E was partially offset by an increase in rent expense quarter over quarter. Rent expressed as a percentage of revenues increased 60 basis points for the three ended May 31, 2009 compared to the same period in fiscal 2008. The rent expense increase was due to a full quarter of expense from our recent office expansions in Boston, Hyderabad and Tokyo.

Nine months ended May 31, 2009 (Year-to-date)

During the first nine months of fiscal 2009, SG&A advanced 4% to $153.2 million from $147.6 million in the first nine months of fiscal 2008. SG&A expenses expressed as a percentage of revenues declined 220 basis points to 32.8% during fiscal 2009 from 35.0% a year ago. The 220 basis points decrease was driven by lower employee compensation and T&E costs partially offset by an increase in rent expense.

Operating Income and Operating Margin

Three months ended May 31, 2009 (Quarter-to-date)

Operating income advanced 11% to $53.3 million for the three months ended May 31, 2009 as compared to the prior year period. Our operating margin during the third quarter of fiscal 2009 was 34.5%, up 200 basis points from 32.5% a year ago primarily due to favorable currency rates and cost saving initiatives. The U.S. dollar strengthened over the last twelve months, reducing our expense base. Since 96% of our ASV is billed in U.S. dollars, this improved operating income by $4.1 million and our operating margin 270 basis points for the three months ended May 31, 2009.

Partially offsetting the benefit from foreign exchange was a full quarter of FactSet Fundamentals. FactSet Fundamentals expenses in fiscal 2009 were primarily compensation from new employee growth to support the fundamental collection operation and the amortization of acquired intangible assets and the prepaid daily database updates. Operating income declined $1.6 million from FactSet Fundamentals, which reduced the third quarter fiscal 2009 operating margin by 130 basis points.

Nine months ended May 31, 2009 (Year-to-date)

For the nine months ended May 31, 2009, operating income advanced 17% to $156.7 million as compared to the prior year period. Our operating margin during the first nine months of fiscal 2009 was 33.6%, up 190 basis points from 31.7% a year ago primarily due to favorable currency rates and incremental stock-based compensation in the prior year partially offset by higher proprietary data collection costs. Foreign currency reduced our operating expenses by $9.8 million and increased operating income by $9.5 million for the nine months ended May 31, 2009 due to the strengthening of the U.S. dollar year over year. While both the Euro and British Pound sterling have gained significantly on the U.S. dollar in the past 60 days, the impact on our expense base will not be immediate. Our currency risk is hedged 95% through the end of the first quarter of fiscal 2010 and 50% through the second quarter of fiscal 2010. Included in fiscal 2008 was a pre-tax charge of $2.4 million related to an increase in the estimate of the number of performance-based stock options that will vest in August 2008. The change in estimate increased operating expenses by $2.4 million in the year ago period and decreased operating margins by 60 basis points from 32.3% to 31.7%. Partially offsetting the benefit from foreign exchange and incremental stock-based compensation in the prior year was nine months of operations for FactSet Fundamentals, which drove operating income down $6.9 million in the first nine months of fiscal 2009 as compared to the same period a year ago.

Operating Income by Segment



                                      Nine Months Ended
                                           May 31,
                   (In thousands)     2009        2008      Change
                   U.S.             $  96,327   $  91,112      5.7 %
                   Europe              43,565      26,395     65.1 %
                   Asia Pacific        16,779      16,149      3.9 %

                   Consolidated     $ 156,671   $ 133,656     17.2 %

Each segment records compensation, including stock-based compensation, amortization of intangible assets, depreciation of furniture and fixtures, amortization of leasehold improvements, communication costs, professional fees, rent expense, travel, marketing, office and other direct expenses related to its employees. Expenditures associated with our data centers, product development and corporate headquarters charges are recorded by the U.S. segment and are not allocated to the European and Asia Pacific segments.

Operating income from our U.S. business increased 6% to $96.3 million during the nine months ended May 31, 2009 compared to $91.1 million in the same period a year ago primarily due to a 9% increase in revenues and lower U.S. variable data payments partially offset by higher computer related expenses. Lower data costs were caused by a reduction in variable fees charged by data vendors based on deployment of their content over the FactSet platform. As mentioned above, expenditures associated with our data centers including computer related expenses are recorded by the U.S. segment and are not allocated to the European and Asia Pacific segments. The increase in computer related expenses relates to last year's transition to Hewlett Packard Integrity mainframe machines in our data centers. Computer maintenance expenses rose because maintenance commences one year after a mainframe is deployed due to the expiration of the warranty. Computer depreciation also increased because no mainframe machines became fully depreciated during the quarter.

European operating income increased 65% to $43.6 million during the nine months ended May 31, 2009 compared to $26.4 million in the same period a year ago primarily due to an 14% increase in revenues, favorable currency rates that reduced expenses expressed in U.S. dollars and a decrease in T&E costs. The strengthening of the U.S. dollar during fiscal 2009 improved our European operating income by $8.2 million. The decrease in T&E costs for the European segment was primarily due to a more prudent approach to our interoffice travel and a decrease in the cost per trip.

Asia Pacific operating income increased 4% to $16.8 million during the nine months ended May 31, 2009 compared to $16.1 million in the same period a year ago primarily due to an 18% increase in revenues and favorable currency rates that increased revenues expressed in U.S. dollars partially offset by nine months of operations for FactSet Fundamentals and increased rent expense for our office expansion in Japan, India and the Philippines. The strengthening of the Japanese Yen compared to the U.S. dollar increased Asia Pacific operating income by $1.3 million during the first nine months of fiscal 2009 as compared to the same period a year ago.

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



                                                Three Months Ended                        Nine Months Ended
                                                     May 31,                                   May 31,
(In thousands, except per share data)     2009          2008        Change         2009           2008        Change
Other income                            $    181      $    852       (78.8 )%    $     996      $  4,325       (77.0 )%
Provision for income taxes              $ 14,951      $ 16,229        (7.9 )%    $  48,992      $ 46,548         5.3 %
Net income                              $ 38,536      $ 32,542        18.4 %     $ 108,675      $ 91,433        18.9 %
Diluted earnings per common share       $   0.79      $   0.65        21.5 %     $    2.23      $   1.82        22.5 %

Other Income

During the three months ended May 31, 2009, other income decreased $0.7 million or 79%, year over year. Other income declined $3.3 million or 77% during the first nine months of fiscal 2009 as compared to the same period a year ago. The decline in other income was a result of the Federal Reserve lowering U.S. interest rates by 200 basis points over the last twelve months, which lowered returns on our investments in U.S. treasuries and U.S. government agency securities. At no time during fiscal 2009 did a component of our investment portfolio experience a decline in value due to a ratings change, default or increase in counterparty credit risk.

Income Taxes

For the three months ended May 31, 2009, the provision for income taxes decreased to $15.0 million from $16.2 million in the comparable prior year period. For the first nine months of fiscal 2009, the provision for income taxes increased to $49.0 million from $46.5 million in the same period a year ago. The effective tax rate for the third quarter of fiscal 2009 was 28.0% as compared to 33.3% a year ago. The components of the effective tax rate are 33.6% for the full fiscal 2009 year partially offset by income tax benefits of 5.6%. Included in the just completed quarter were income tax benefits of $3.0 million, as we finalized our prior year tax returns, recognized a tax credit for repatriating foreign earnings to the U.S. and adjusted certain reserves to reflect the lapse of statute of limitations.

Net Income and Earnings per Share

Net income rose 18% to $38.5 million and diluted earnings per share increased 22% to $0.79 for the three months ended May 31, 2009. During the first nine months of fiscal 2009, net income advanced 19% to $108.7 million and diluted earnings per share increased 23% to $2.23 as compared to same period a year ago. Included in this quarter's diluted earnings per share was an income tax benefit of $0.06 per share related to finalizing prior years' tax returns and repatriating foreign earnings to the U.S. Included in the first nine months of fiscal 2009 was a $0.03 per share benefit from the reenactment of the U.S. Federal R&D credit in October 2008, a $0.06 per share related to finalizing prior years' tax returns and repatriating foreign earnings to the U.S., a $0.13 per share benefit from foreign currency exchange and a $0.03 per share benefit from incremental stock-based compensation in the prior year related to performance-based options partially offset by a $0.08 reduction in diluted earnings per share from FactSet Fundamentals. FactSet Fundamentals expenses in fiscal 2009 were primarily compensation from new employee growth to support the fundamental collection operation and the amortization of acquired intangible assets and the prepaid daily database updates.

Foreign Currency

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