. DERIVATIVE INSTRUMENTS

Cash Flow Hedges

FactSet conducts business outside the U.S. in several currencies including the Euro, British Pound Sterling, Indian Rupee, and Philippine Peso. As such, it is exposed to movements in foreign currency exchange rates compared to the U.S. dollar. The Company utilizes derivative instruments (foreign currency forward contracts) to manage the exposures related to the effects of foreign exchange rate fluctuations and reduce the volatility of earnings and cash flows associated with changes in foreign currency. The Company does

not

enter into foreign currency forward contracts for trading or speculative purposes. See Note

17,

Commitments and Contingencies – Concentrations of Credit Risk, for further discussion on counterparty credit risk.

In designing a specific hedging approach, FactSet considered several factors, including offsetting exposures, the significance of exposures, the forecasting of risk and the potential effectiveness of the hedge. The gains and losses on foreign currency forward contracts offset the variability in operating expenses associated with currency movements. The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive loss (“AOCL”) and subsequently reclassified into operating expenses when the hedged exposure affects earnings. There was

discontinuance of cash flow hedges during the

first

six

months of fiscal

2019

and

2018,

and as such,

corresponding gains or losses related to changes in the value of the Company’s contracts were reclassified into earnings prior to settlement.

As of

February 28, 2019,

FactSet maintained the following foreign currency forward contracts to hedge its exposures:

●

Philippine Peso

– foreign currency forward contracts to hedge approximately

75%

of its Philippine Peso exposure through the

fourth

quarter of fiscal

2020.

●

Indian Rupee

– foreign currency forward contracts to hedge approximately

75%

of its Indian Rupee exposure through the

third

quarter of fiscal

2019,

50%

of its exposure from the

fourth

quarter of fiscal

2019

through the end of the

second

quarter of fiscal

2020,

and

25%

of its exposure from the

third

quarter of fiscal

2020

through the end of the

fourth

quarter of fiscal

2020.

●

Euro

– foreign currency forward contracts to hedge approximately

78%

of its Euro exposure through the

third

quarter of fiscal

2019.

●

British Pound Sterling

– foreign currency forward contracts to hedge approximately

50%

of its British Pound Sterling exposure through the

third

quarter of fiscal

2019.

The following is a summary of all hedging positions and corresponding fair values:

	Gross Notional Value				Fair Value (Liability) Asset
Currency Hedged (in thousands, in U.S. dollars)	February 28, 2019		August 31, 2018		February 28, 2019			August 31, 2018
Philippine Peso	$	39,000	$	52,000	$	680		$	(1,230	)
Indian Rupee		35,580		50,780		(1,506	)		(1,490	)
Euro		29,977		26,312		(622	)		(503	)
British Pound Sterling		6,682		18,995		(165	)		(723	)
Total	$	111,239	$	148,087	$	(1,613	)	$	(3,946	)

As of

February 28, 2019,

the gross notional value of foreign currency forward contracts to purchase Philippine Pesos with U.S. dollars was PHP

2.1

billion. The gross notional value of foreign currency forward contracts to purchase Indian Rupees with U.S. dollars was Rs.

2.5

billion. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with Euros was €

25.7

million. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with British Pound Sterling was £

4.9

million.

Fair Value of Derivative Instruments

The following table provides a summary of the fair value amounts of derivative instruments:

Designation of Derivatives (in thousands)	Balance Sheet Location	February 28, 2019		August 31, 2018
Derivatives designated as hedging instruments	Assets : Foreign Currency Forward Contracts
	Prepaid expenses and other current assets	$	533	$	90
	Other Assets	$	147	$	—

	Liabilities : Foreign Currency Forward Contracts
	Accounts payable and accrued expenses	$	2,044	$	1,731
	Deferred rent and other non-current liabilities	$	249	$	2,305

All derivatives were designated as hedging instruments as of

February 28, 2019

and

August 31, 2018.

Derivatives in Cash Flow Hedging Relationships

The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the

three

months ended

February 28, 2019

and

2018,

respectively:

(in thousands)	Gain (Loss) Recognized in AOCL on Derivatives (Effective Portion)					Location of (Loss) Gain Reclassified from AOCL into Income	(Loss) Gain Reclassified from AOCL into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	2019		2018			(Effective Portion)	2019			2018
Foreign currency forward contracts	$	321	$	(1,346	)	SG&A	$	(385	)	$	824

The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the

six

months ended

February 28, 2019

and

2018,

respectively:

(in thousands)	Gain (Loss) Recognized in AOCL on Derivatives (Effective Portion)					Location of (Loss) Gain Reclassified from AOCL into Income	(Loss) Gain Reclassified from AOCL into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	2019		2018			(Effective Portion)	2019			2018
Foreign currency forward contracts	$	2,264	$	(1,345	)	SG&A	$	(784	)	$	1,589

amount of ineffectiveness was recorded in the consolidated statements of income for these designated cash flow hedges and all components of each derivative’s gain or loss was included in the assessment of hedge effectiveness. As of

February 28, 2019,

the Company estimates that

$1.5

million of net derivative losses related to its cash flow hedges included in AOCL will be reclassified into earnings within the next

months.

Offsetting of Derivative Instruments

FactSet’s master netting and other similar arrangements with its respective counterparties allow for net settlement under certain conditions. As of

February 28, 2019,

and

August 31, 2018,

there were

material amounts recorded net on the consolidated balance sheets.