Leases

9 Months Ended

May 31, 2020

LEASES

In February 2016, the FASB issued an accounting standard update related to accounting for leases. The update requires the recognition of ROU assets and liabilities on the balance sheet and the disclosure of qualitative and quantitative information about leasing arrangements. FactSet adopted the standard as of September 1, 2019, using a modified retrospective approach to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption.

FactSet reviews new arrangements at inception to evaluate whether the Company obtains substantially all the economic benefits of and has the right to control the use of an asset. If FactSet determines that an arrangement qualifies as a lease, a lease liability and a corresponding ROU asset are recognized on the lease commencement date which includes fixed lease payments and certain qualifying index-based variable payments.

In determining the amount of lease payments used in measuring ROU assets and lease liabilities, FactSet elected the package of practical expedients permitted under the transition guidance, which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification, and initial direct costs. FactSet did not elect the use-of-hindsight practical expedient in determining the lease term and in assessing impairment. FactSet elected the practical expedient not to separate lease components from non-lease components but, rather, to combine them into one single lease component. The Company has also elected to apply the short-term lease exception to not recognize lease liabilities and ROU assets for leases with a term of 12 months or less. FactSet will recognize these lease payments on a straight-line basis over the lease term in Occupancy costs (a component of SG&A expense).

The adoption of the lease standard primarily related to the Company’s real estate operating leases. As a result of the adoption of the standard, the Company recognized lease liabilities (initially measured at the present value of the future minimum lease payments over the remaining lease term at the commencement date) of $266.4 million as of November 30, 2019, included in Current lease liabilities and Lease liabilities on the Consolidated Balance Sheet. The Company also recognized ROU assets (initially measured as the lease liabilities, adjusted for deferred rent and lease incentives) of $217.0 million as of November 30, 2019, included in Lease right-of-use assets, net on the Consolidated Balance Sheet. As of May 31, 2020, the ROU assets balance was $254.4 million and the Lease liabilities balance was $305.2 million, classified in the same Consolidated Balance Sheet accounts used upon adoption.

Lease liabilities are measured as the present value of the future minimum lease payments over the lease term using FactSet’s incremental borrowing rate ("IBR") within the geography where the leased asset is located, as there is no rate implicit in the Company’s operating lease arrangements. As FactSet does not have any outstanding public debt, the Company estimates the IBR based on FactSet’s estimated credit rating and available market information. The IBR is determined at lease commencement, or as of September 1, 2019 for operating leases in existence upon adoption of ASC 842. The IBR is subsequently reassessed upon a modification to the lease arrangement.

As of May 31, 2020, the Company’s leases have remaining terms of less than one year to just over 15 years. The ROU assets and lease liabilities recognized did not include any renewal or termination options that were not yet reasonably certain to be exercised. FactSet’s net operating lease expense for the three and nine months ended May 31, 2020 was $11.9 million and $32.3 million, respectively. Charges related to FactSet's operating leases that are variable, and therefore not included in the measurement of the lease liabilities for the three and nine months ended May 31, 2020 were $4.0 million and $13.5 million, respectively.

The following table reconciles FactSet’s future undiscounted cash flows related to the Company’s operating leases and the reconciliation to the operating lease liability as of May 31, 2020:


(in thousands)	Minimum Lease Payments
Fiscal Years Ended August 31,
2020 (remaining three months)	$	9,684
2021	41,951
2022	39,546
2023	36,041
2024	34,238
Thereafter	216,710
Total undiscounted lease payments	378,170
Less: imputed interest	72,926
Present value of total lease payments	$	305,244

FactSet previously entered into a real estate lease in the Philippines, which was planned to commence in phases, providing FactSet with access to the underlying leased rental space during fiscal 2020. The rental space that FactSet has not taken possession of as of May 31, 2020 is not included in the table above nor included in the lease ROU assets and liabilities as of May 31, 2020. The overall lease term is approximately 10 years and the undiscounted future rent payments for the lease that has not commenced as of May 31, 2020 is approximately $18 million.

The following table summarizes the Company's lease term and discount rate assumptions related to the operating leases recorded on the Consolidated Balance Sheets as of May 31, 2020:


			As of May 31, 2020
Weighted average remaining lease term (in years)			10.3
Weighted average discount rate (IBR)			4.2%

The following table summarizes supplemental cash flow information related to the Company's operating leases:


(in thousands)			Nine Months Ended May 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities			$29.9
Operating lease ROU assets obtained in exchange for operating lease liabilities			$48.5