Note 5 - Derivative Instruments

12 Months Ended

Aug. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5. DERIVATIVE INSTRUMENTS

FactSet enters into foreign currency forward contracts to reduce the effects of foreign currency fluctuations. These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance. There was no discontinuance of cash flow hedges during fiscal 2013 or fiscal 2012 and as such, no corresponding gains or losses were reclassified into earnings. 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.

As of August 31, 2013, FactSet maintains foreign currency forward contracts to hedge approximately 75% of its Indian Rupee exposure through the end of the second quarter of fiscal 2016, 40% of its net British Pound exposure through the end of the second quarter of fiscal 2014 and 50% of its Philippines Peso exposure through the end of fiscal 2014. The Company is required to recognize all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheet. At August 31, 2013, the notional principal and fair value of foreign exchange contracts to purchase Indian Rupees with U.S. dollars was Rs.2.9 billion and ($7.7) million, respectively. At August 31, 2013, the notional principal and fair value of foreign exchange contracts to purchase British Pounds with U.S. dollars was £6.8 million and $0.1 million, respectively. At August 31, 2013, the notional principal and fair value of foreign exchange contracts to purchase Philippine Pesos with U.S. dollars was Php515.9 million and ($0.2) million, respectively.

The following is a summary of all hedging positions and corresponding fair values (in thousands):

	Gross Notional Value				Fair Value Asset (Liability)
Currency Hedged (in U.S. dollars)	Aug 31, 2013		Aug 31, 2012		Aug 31, 2013			Aug 31, 2012
Indian Rupee	$	47,388	$	36,286	$	(7,693	)	$	(2,434	)
British Pound		10,436		-		131			-
Philippine Peso		11,700		-		(178	)		-
Euro		-		10,160		-			60
Total	$	69,524	$	46,446	$	(7,740	)	$	(2,374	)

Counterparty Credit Risk

As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk. FactSet has incorporated counterparty risk into the fair value of its derivative assets and its own credit risk into the value of the Company’s derivative liabilities. FactSet calculates credit risk from observable data related to credit default swaps (“CDS”) as quoted by publicly available information. Counterparty risk is represented by CDS spreads related to the senior secured debt of the respective bank with whom FactSet has executed these derivative transactions. Because CDS spread information is not available for FactSet, the Company’s credit risk is determined based on using a simple average of CDS spreads for peer companies. To mitigate counterparty credit risk, FactSet enters into contracts with large financial institutions. The Company regularly reviews its credit exposure balances as well as the creditworthiness of the counterparties. The Company does not expect any losses as a result of default of its counterparties.

Fair Value of Derivative Instruments

The following tables provide a summary of the fair value amounts of derivative instruments and gains and losses on derivative instruments (in thousands):

Designation of Derivatives	Balance Sheet Location	Aug 31,  2013		Aug 31, 2012
Derivatives designated as hedging instruments	Liabilities: Foreign Currency Forward Contracts
	Accounts payable and accrued expenses	$	3,085	$	2,374
	Deferred rent and other non-current liabilities	$	4,655	$	-

All derivatives were designated as hedging instruments as of August 31, 2013 and 2012, respectively.

Derivatives in Cash Flow Hedging Relationships for the twelve months ended August 31, 2013 and 2012 (in thousands):

	Loss Recognized in AOCL on Derivatives (Effective Portion)						Location of LossReclassified from AOCL into Income	Loss Reclassifiedfrom AOCL into Income(Effective Portion)
Derivatives in Cash Flow Hedging Relationships	2013			2012			(Effective Portion)	2013			2012
Foreign currency forward contracts	$	(4,296	)	$	(3,172	)	SG&A	$	(1,000	)	$	(1,031	)

Note: No 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.

Accumulated Unrealized Loss on Cash Flow Hedges

The following table provides a summary of the activity associated with all of the Company’s designated cash flow hedges reflected in AOCL (in thousands and net of tax):

	Twelve Months Ended August 31,
	2013			2012
Beginning balance	$	(1,551	)	$	590
Changes in fair value		(4,296	)		(3,172	)
Realized loss reclassified to earnings		1,000			1,031
Ending balance	$	(4,847	)	$	(1,551	)