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:

• Executive Overview

• Results of Operations

• Foreign Currency

• Liquidity

• Capital Resources

• Off-Balance Sheet Arrangements

• Contractual Obligations

• Share Repurchase Program

• Dividends

• Critical Accounting Estimates

• New Accounting Pronouncements

• Recent Market Trends

• Forward-Looking Factors

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

Executive Overview

FactSet is a leading provider of 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 hundreds of data sets, including content regarding tens of thousands of companies and securities from major markets all over the globe, into a single online platform of information and analytics. Clients have simultaneous access to content from an array of sources, which they can combine and utilize in nearly all of our applications. We are also fully integrated with Microsoft Office applications such as Excelฎ, Word ฎ and PowerPointฎ. This integration allows our users to create extensive custom reports. Our revenues are primarily derived from month-to-month subscriptions to services, databases and financial applications. We generate 82% of our revenues from our investment management clients, while the remaining revenues are primarily from investment banking clients.

Highlights in support of our strategic objectives in fiscal 2009 include:

Investment in Proprietary Content

During fiscal 2009, we continued to increase our proprietary content collection efforts in order to meet the needs of our clients. All of our proprietary data sets, across the entire spectrum of content, have been fully integrated into the new FactSet application. With FactSet content, we leverage years of experience managing financial data to provide high-quality, global databases for key content categories as well as providing users with the scope and coverage they need for in-depth analysis.

FactSet Fundamentals

• FactSet Fundamentals database is a preeminent global financial database with coverage of over 50,000 companies and history back to 1980 and is now integrated across all of our applications.

• Our acquisition of a copy of the Thomson Fundamentals database was completed in the fourth quarter of fiscal 2008. Our investment diluted earnings per share by $0.09 in fiscal 2009. More importantly, FactSet Fundamentals is now breakeven on a run-rate basis.

• Revenues from FactSet Fundamentals were $4.6 million in fiscal 2009.

• Annual third-party royalty payments were reduced by $7.7 million in fiscal 2009 due to the deployment of our own proprietary content over the FactSet platform.

• The build-out of our content collection operations continue ahead of schedule. We opened FactSet Hyderabad in January 2009 as our major data collection center. As of August 31, 2009, there are approximately 900 employees in Hyderabad, many of whom collect fundamental data.

• We also opened FactSet Manila in July 2009, which will be a secondary collection center, focusing on harvesting data from non-English sources.

FactSet Estimates and FactSet Research Connect

• We have continued to expand our proprietary content through FactSet Estimates and FactSet Research Connect, our repository of sell-side research reports. FactSet Estimates is our preeminent global broker estimates database that provides our users with insight into an industry where consistency and transparency are at a premium.

• FactSet Estimates covers approximately 24,500 companies globally with 600 contributors providing comprehensive consensus-level estimates and statistics with daily updates and history.

• FactSet Research Connect makes available hundreds of full text research reports from an estimated 600 contributors. These firms include not only the largest investment banks but also the leading regional and independent research providers.

• Continuous updates of premium global estimates, actual data and research reports from leading investment banks and research firms give clients real-time access to the most recent estimate data available.

Other Proprietary Content

We successfully launched the following proprietary contents sets, all of which are integrated into the new FactSet workstation:

• Debt Capital Structure - a proprietary content database that provides a standardized breakout of a public or private company's bank loan and/or corporate bond financing activity at a specific financial reporting point-in-time.

• Global Private Equity & Venture Capital - a complete survey of any substantial Private Equity and Venture Capital firms, including portfolio companies, transactions, and partners.

• FactSet People - a database comprised of more than 500,000 people, including executives of global public and private companies.

• FactSet Market Aggregates - a data set that combines FactSet Fundamentals, FactSet Estimates and FactSet Pricing content to derive key ratios and per share values for global equity market indexes and commercial benchmark vendors, allowing for complex analysis of a company versus a basket of securities.

Products

• On September 14, 2009, we announced the release of our newest financial software platform. The new FactSet consolidates data and analytics, previously spread across multiple applications, onto one comprehensive, intuitive interface. The new FactSet is faster, more intuitive, and easier to customize. New features include the ability to share workspaces with colleagues for improved collaboration and type ahead technology that helps users find securities more quickly. Visually, the platform has been redesigned from top to bottom with a sleek, modern look. An upgrade to the new FactSet will provide users with improved features and functionality within virtually every report and chart on FactSet.

• We introduced the latest version of our real-time news and quotes application. Usage of our global news and quotes application continues to be strong. Its deployment is expanding with user growth of 27% since the beginning of the year. Users increased during every month during fiscal 2009. Since our real-time offering is relied upon on a daily basis, we believe this statistic indicates that overall engagement level from existing users is increasing. The fact that real-time users increased during a shrinking environment also leads us to believe the market place recognizes a compelling value proposition of our real-time offering.

• FactSet Wireless Plus 4.2 was released in July 2009 and is now available to clients. FactSet Wireless Plus now synchs with your real-time news and quote feeds from the FactSet workstation and integrates seamlessly with the new FactSet.

• In January 2009, a new version of ExcelConnect was introduced to clients with enhancements to the existing functionality of ExcelConnect.

• The DealMaven suite of efficiency tools was integrated into the FactSet Microsoft office solution in fiscal 2009.

• We made significant investments in and enhancement to our Portfolio Analytics suite of products, particularly in the areas of fixed income portfolio analysis and risk. Portfolio Analysis and our suite of quantitative applications continue to make us a market leader for our investment management clients. Portfolio Analysis 2.0 was deployed by 647 clients and 5,640 users as of August 31, 2009.

Employee Growth

• We employed 2,962 employees as of August 31, 2009, an increase of 53% over the past twelve months.

• Approximately 45% of our employees are involved with content collection, 25% conduct sales and consulting services, another 25% are involved in product development, software and systems engineering and the remaining 5% of employees provide administrative support.

U.S. Operations

• U.S. revenues increased 6% to $423.9 million in fiscal 2009.

• Revenues from U.S. operations accounted for 68% and 69% of our consolidated revenues for fiscal 2009 and 2008.

• Current office space expanded in four different locations throughout the U.S., including new office space in New York and Boston, which allowed us to consolidate the Boston office locations into one during the second half of fiscal 2009.

• Employee count in the U.S. grew 6% during fiscal 2009 and represented 45% of all employees at August 31, 2009.

International Operations

• Increased international revenues 12% to $198.1 million in fiscal 2009. The impact from foreign currency reduced international revenues by $0.2 million year over year.

• Revenues from international operations accounted for 32% and 31% of our consolidated revenues for fiscal 2009 and 2008.

• We entered into new lease agreements to support operations in Hyderabad, India, Metro Manila, the Philippines and Hong Kong. The new office space expanded existing international locations by 72,000 square feet. The new space in Hyderabad and Manila was for the expansion of our proprietary content operations including the FactSet Fundamentals collection team.

• Employee count overseas grew significantly due to the FactSet content collection operations in India and the Philippines. Headcount increased by 958 since September 1, 2008 to 1,627 international employees as of August 31, 2009, representing 55% of all employees company-wide.

Significant Capital Expenditures

• $11.1 million or 52% of capital expenditures in fiscal 2009 was for computer equipment, including the purchase of additional Hewlett Packard Integrity mainframes to increase the processing speed of our data centers.

• $10.3 million or 48% of capital expenditures in fiscal 2009 was for the build-out of new space in our New York, Boston, Norwalk, Hyderabad and Manila office locations as well as additional furnishing of our London and Norwalk offices.

Achieved Records in Several Key Metrics

• Annual subscription value ("ASV") was $619 million at August 31, 2009.

• Revenues grew 8% to $622 million.

• Diluted earnings per share rose 19% to $2.97.

• Free cash flow for fiscal 2009 was $184 million, up 71% over the prior year.

• Cash and investments increased to $216 million at August 31, 2009, up 51% from the prior year.

• Accounts receivable decreased 16% over the last 12 months.

Other Highlights

• Client count was 2,045 at August 31, 2009.

• At August 31, 2009, there were 37,300 professionals using FactSet.

• For the 13th consecutive year, FactSet ranked on the Forbes' "200 Best Small Companies."

• FactSet Europe was named one of UK's 50 best places to work.

Returning Value to Stockholders

• Increased our quarterly dividend 11% from $0.18 to $0.20 per share in May 2009.

• Expanded our existing share repurchase program by an additional $100 million in March 2009.

Reduction to Annual Expense Base

• Our annual expense base was reduced by $34 million during fiscal 2009.

• Drivers of the decrease in our expense base were streamlining our operations and favorable currency rates. In the summer of 2008, we embarked on an initiative to identify operational efficiencies. More than 40 ideas were implemented resulting in a reduction in our annual expense base of $18 million per year. The savings were captured without impacting the quality of our products and services as we continue to invest in our people, projects, and technology that we hope will fuel our future growth.

• The strengthening of the U.S. dollar particularly against the British Pound Sterling and Euro reduced our international expense base by $16 million on an annualized basis. This reduction improved our profitability, since 97% of the Company's revenues are billed in U.S. dollars.

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.

(in thousands, except per share data)
Years Ended August 31,                            2009        2008      Change        2008        2007      Change
Revenues                                        $ 622,023   $ 575,519      8.1 %    $ 575,519   $ 475,801     21.0 %
Cost of services                                  209,364     191,239      9.5 %      191,239     152,797     25.2 %
Selling, general and administrative               201,629     200,393      0.6 %      200,393     167,913     19.3 %
Operating income                                  211,030     183,887     14.8 %      183,887     155,091     18.6 %
Net income                                        144,950     125,017     15.9 %      125,017     109,567     14.1 %
Diluted earnings per common share               $    2.97   $    2.50     18.8 %    $    2.50   $    2.14     16.8 %
Diluted weighted average common shares             48,789      50,080                  50,080      51,284


Revenues

Fiscal 2009 compared to Fiscal 2008

Revenues in fiscal 2009 advanced 8% to $622.0 million from $575.5 million for the same period a year ago and included $4.6 million from FactSet Fundamentals. Revenue growth of 8% in fiscal 2009 was driven by expanded deployment of our proprietary data across all geographies including incremental subscriptions to FactSet Fundamentals and Estimates, our real-time news and quotes capabilities included in the FactSet workstation, clients continuing to license our advanced applications such as Portfolio Analysis ("PA") and our ability to consolidate multiple services into one through the FactSet platform enabling our clients to recognize efficiencies in many instances. Our investment management client base continues to experience strong growth across all geographies and represented 82% of our total revenues in fiscal 2009 compared to 79% of total revenues in fiscal 2008.

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 fiscal quarters, with a 27% increase in user count year over year. Our clients continue to license our advanced portfolio applications. PA 2.0 clients rose by 10 in fiscal 2009 with approximately 647 clients consisting of 5,640 users subscribed to PA as of August 31, 2009. In addition, the ability for our end users to access more than 85 premium third-party content providers and integrate their own data for use in FactSet applications continues to be a reason for revenue growth. We continue to appeal to larger institutions because of our ability to service many different user groups and our ability to deliver intensive computing power and analytics to end users.

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

Fiscal 2008 compared to Fiscal 2007

Revenues in fiscal 2008 increased 21% to $575.5 million from $475.8 million in fiscal 2007. The impact from foreign currency reduced international revenues by $2.9 million year over year. The sale of additional services to existing investment management professionals was the primary catalyst of our revenue growth. Our investment management client base experienced strong growth across all geographies and represented approximately 79% of our total ASV as of August 31, 2008. The deepening engagement of existing FactSet users in our investment management business and the ability to consolidate multiple services into one through the FactSet platform resulted in revenue growth in fiscal 2008. Real-time news and quotes, our suite of Portfolio Analysis services, IBCentral and our risk and quantitative services continued to expand across all geographies. Incremental content for non-U.S. investors helped increase demand for our services outside the U.S.

Revenues by Geographic Region



            (in thousands)
            Years Ended August 31,     2009           2008           2007
            U.S.                     $ 423,926      $ 398,317      $ 335,304
            % of revenues                 68.2 %         69.2 %         70.5 %
            Europe                   $ 156,610      $ 141,062      $ 114,335
            Asia Pacific                41,487         36,140         26,162

            International            $ 198,097      $ 177,202      $ 140,497
            % of revenues                 31.8 %         30.8 %         29.5 %
            Consolidated             $ 622,023      $ 575,519      $ 475,801

Revenues from our U.S. business increased 6% to $423.9 million in fiscal 2009 compared to $398.3 million in the same period a year ago. Revenues from our U.S. business increased 19% in fiscal 2008, up from $335.3 million in fiscal 2007.

International revenues in fiscal 2009 were $198.1 million, an increase of 12% from $177.2 million in the prior year period. The impact from foreign currency reduced international revenues by $0.2 million year over year. European revenues advanced 11% to $156.6 million, largely related to offering a broader selection of global content and the continued deployment of our portfolio analysis, risk and quantitative applications. Asia Pacific revenues grew to $41.5 million, up 15% from the same period a year ago. Revenues from international operations accounted for 32% of our consolidated revenues for fiscal 2009 and 31% in 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. International revenues increased 26% in fiscal 2008, up from $140.5 million in fiscal 2007. The impact from foreign currency increased international revenues by $2.9 million in fiscal 2008. European revenues advanced 23% to $141.1 million and Asia Pacific revenues grew to $36.1 million, up 38% from the same period a year ago.

Annual Subscription Value - ASV at a given point in time represents the forward-looking revenues for the next twelve months from all subscription services being supplied to our clients. With proper notice to us, our clients are generally able to add to, delete portions of, or terminate service at any time. At August 31, 2009, ASV was $619 million, up $4 million or 1% from the prior year total of $615 million. Of this total, 82% of ASV derives from buy-side clients and the remainder from the sell-side firms who perform M&A advisory work and equity research. ASV from international operations increased from $195 million at August 31, 2008 to $200 million at August 31, 2009, representing 32% of the Company-wide total. ASV growth in fiscal 2009 was generated from our ability to license our proprietary content and an improved performance in both the U.S. and international investment management client base, which demonstrates our ability to deepen the engagement of existing FactSet users. Demand for PA and real-time news and quotes continued to be positive. PA 2.0 client count grew to 647 over the last 12 months while real-time news and quotes experienced a 27% increase in user count year over year. Success with these applications partially offset the reduction of our ASV due to a difficult operating environment for investment banks. An already difficult selling environment was amplified by weakening equity markets in fiscal 2009. In the last calendar quarter of 2008, sell-side firms scaled back expenditures, emphasizing savings over spending. Cost cuts were significant due to the decline in asset values and the majority of our clients implemented expense reductions. These actions reduced our user growth in fiscal 2009 as compared to fiscal 2008. The performance of portfolio analytics, including FactSet Fundamentals and Estimates, enhanced our ASV growth.

ASV at the end of fiscal 2008 was up $98 million or 19% from the prior year total of $517 million. Excluding currency and ASV acquired from the acquisitions of DealMaven and Thomson Fundamentals, ASV increased $93 million in fiscal 2008 due to our ability to license our proprietary content, including events and transcripts, deal data and ownership data, net addition of new clients, growth in our PA suite of products, incremental subscriptions to our services by existing clients and increased users and the deployment of solutions to service the global needs of large institutions.

Users and Clients - At August 31, 2009, professionals using FactSet decreased to 37,300, down 2,800 users from the beginning of the year. Client count was 2,045 as of August 31, 2009, a net decrease of 40 clients during fiscal 2009. At August 31, 2009, the average ASV per client was $302,000, up from $295,000 at August 31, 2008 and $265,000 at August 31, 2007. Sell-side firms continue to scale back on headcount. The headcount reduction over the past 12 months was almost entirely sell-side driven and is the effect of several large mergers and industry-wide employee reductions. The lack of available credit throughout most of the fiscal year adversely impacted the number of M&A transactions and the profitability of sell-side banks.

At August 31, 2008, client count was 2,085, a net increase of 132 clients or 7% over the prior 12 months. The combination of advanced FactSet applications including real-time news and quotes with a vast array of data supported by FactSet client service contributed to our user growth in fiscal 2008. While the overall franchise value of large investment banks declined significantly in fiscal 2008, our investment banking user base grew 16% during fiscal 2008.

At August 31, 2009, annual client retention was greater than 95% of ASV, consistent with the same period a year ago. On a client basis our annual retention rate was 87% of clients at August 31, 2009, a decrease from 92% a year ago. This decline is a result of client losses relating primarily to small firms rather than larger institutions. As of August 31, 2009, our largest individual client accounted for less than 2% of total ASV and ASV from the ten largest clients did not surpass 16% of total client subscriptions, down from 17% as of August 31, 2008.

Operating Expenses



      (in thousands)
      Years Ended August 31,                  2009           2008           2007
      Cost of services                      $ 209,364      $ 191,239      $ 152,797
      Selling, general and administrative     201,629        200,393        167,913

      Total operating expenses              $ 410,993      $ 391,632      $ 320,710
      Operating income                      $ 211,030      $ 183,887      $ 155,091
      Operating Margin                           33.9 %         32.0 %         32.6 %


Cost of Services

Fiscal 2009 compared to Fiscal 2008

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

Employee compensation, expressed as a percentage of revenues, increased 20 basis points during fiscal 2009 due to expanding the number of employees, primarily for our investment in FactSet Fundamentals which was not in operation before August 2008. The first quarter of fiscal 2009 marked the first full quarter of operations for FactSet Fundamentals. Employee count as of August 31, 2009 was 2,962, up 53% over the prior year and was driven by the expansion of FactSet's proprietary content operation including the FactSet Fundamentals collection team. We discontinued a business process outsourcing ("BPO") relationship in May 2009. Computer related expenses, including computer maintenance costs, rose 30 basis points in fiscal 2009 as compared to the same period a year ago primarily due to last year's transition to Hewlett Packard Integrity mainframe machines in our data centers. Computer maintenance contracts on the new mainframe machines commenced one year after deployment, as each were covered under warranty during fiscal 2008. Computer depreciation increased 20 basis points in fiscal 2009 as compared to the same period in fiscal 2008 because no mainframe machines became fully depreciated during in fiscal 2009.

A reduction in data costs partially offset the overall increase to cost of services in fiscal 2009. Data costs, as a percentage of revenues, decreased 20 . . .