Note 13. Employee Stock Option and Retirement Plans

3 Months Ended

Nov. 30, 2012

Employee Stock Option And Retirement Plans [Text Block]

13. EMPLOYEE STOCK OPTION AND RETIREMENT PLANS

Stock Option Awards

Options granted without performance conditions under the Company’s stock option plans expire either seven or ten years from the date of grant and the majority vest at a rate of 20% after the first year and 1.67% per month thereafter for years two through five. Options become vested and exercisable provided the employee continues employment with the Company through the applicable vesting date and remain exercisable until expiration or cancellation. The majority of the options granted with performance conditions expire either seven or ten years from the date of grant and vest at a rate of 40% after the first two years and 1.67% per month thereafter for years three through five. Options are not transferable or assignable other than by will or the laws of descent and distribution. During the grantee’s lifetime, they may be exercised only by the grantee.

During the first three months of fiscal 2013, FactSet granted 1,646,818 stock option awards at an exercise price of $92.22 to existing employees of the Company.

A summary of stock option activity is as follows (in thousands, except per share data):

	Number Outstanding			Weighted Average Exercise Price Per Share
Balance at August 31, 2012		6,083		$	64.76
Granted – non performance-based		635			92.22
Granted – performance-based		1,012			92.22
Exercised		(253	)		46.79
Forfeited		(12	)		85.28
Balance at November 30, 2012		7,465		$	71.39

The total number of in-the-money options exercisable as of November 30, 2012 was 2.7 million with a weighted average exercise price of $49.10. As of August 31, 2012, 2.8 million in-the-money outstanding options were exercisable with a weighted average exercise price of $48.17. The aggregate intrinsic value of in-the-money stock options exercisable at November 30, 2012 and August 31, 2012 was $117.6 million and $125.4 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price of $92.39 at November 30, 2012 and the exercise price multiplied by the number of options exercisable as of that date. The total pre-tax intrinsic value of stock options exercised during the three months ended November 30, 2012 and 2011 was $11.7 million and $11.3 million, respectively.

Performance-based Stock Options

Performance-based stock options require management to make assumptions regarding the likelihood of achieving Company performance targets. The number of performance-based options that vest will be predicated on the Company achieving performance levels for both organic ASV and diluted earnings per share during the two fiscal years subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet during the two subsequent fiscal years, 0%, 20%, 60% or 100% of the performance-based stock options will vest to the grantees of those stock options. However, there is no current guarantee that such options will vest in whole or in part.

November 2011 Annual Employee Performance-based Option Grant Review

In November 2011, FactSet granted 665,551 performance-based employee stock options. The number of performance-based options that vest is based on the Company achieving performance levels for both organic ASV and diluted earnings per share during the two fiscal years ended August 31, 2013. At November 30, 2012, the Company believed that it was not probable FactSet would achieve the required ASV and diluted earnings per share growth as ASV growth rate remained at 7%. As such, the Company estimated that none (0%) of the performance-based stock options will vest. However, a change in the actual financial performance levels achieved over the next 9 months could result in the following changes to the Company’s current estimate of the vesting percentage and related expense (in thousands):

Vesting Percentage	Total Unamortized Stock-based Compensation Expense at Nov 30, 2012		Cumulative Catch-up Adjustment*		Average Remaining Quarterly Expense to be Recognized
0%	$	0	$	0	$	0
20%	$	2,452	$	1,188	$	157
60%	$	7,356	$	3,564	$	471
100%	$	12,260	$	5,940	$	785

* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of November 30, 2012.

November 2012 Annual Employee Performance-based Option Grant Review

In November 2012, FactSet granted 1,011,510 performance-based employee stock options. The number of performance-based options that vest is based on the Company achieving performance levels for both organic ASV and diluted earnings per share during the two fiscal years ended August 31, 2014. At November 30, 2012, the Company estimated that 20% or 202,302 of the performance-based stock options would vest which results in unamortized stock-based compensation expense of $4.6 million to be recognized over the remaining vesting period. However, a change in the actual financial performance levels achieved over the next 7 quarters could result in the following changes to the Company’s current estimate of the vesting percentage and related expense (in thousands):

Vesting Percentage	Total Unamortized Stock-based Compensation Expense at Nov 30, 2012		Cumulative Catch-up Adjustment*			Average Remaining Quarterly Expense to be Recognized
0%	$	0	$	(119	)	$	0
20%	$	4,628	$	0		$	235
60%	$	13,884	$	238		$	705
100%	$	23,140	$	476		$	1,175

* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of November 30, 2012.

July 2012 Performance-based Option Grant Review

In July 2012, FactSet granted 241,546 performance-based employee stock options. The number of performance-based options that vest is dependent upon future StreetAccount user growth through August 31, 2017. The five year performance measurement period is based on growing usage of FactSet and StreetAccount. At November 30, 2012, FactSet estimated that 20% or 48,309 of the performance-based stock options will vest based on forecasted StreetAccount user growth, which results in unamortized stock-based compensation expense of $1.4 million to be recognized over the remaining vesting period of approximately 2.8 years. A change in the actual financial performance levels achieved by StreetAccount in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense (in thousands):

Vesting Percentage	Cumulative Catch-up Adjustment*			Remaining Expense to be Recognized
0%	$	(211	)	$	-
20%	$	0		$	1,389
40%	$	129		$	2,860
60%	$	289		$	4,300
80%	$	432		$	5,758
100%	$	614		$	7,176

* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of November 30, 2012.

Other Performance-based Option Grants

In connection with the acquisition of the Market Metrics business, FactSet granted 746,415 performance-based employee stock options. These options vest only if accelerated revenue targets are achieved related to the Market Metrics business and option holders remain employed by FactSet. If it becomes probable that these options will vest based on achieving the revenue targets, stock-based compensation expense equal to $15.3 million would be recorded. The pre-tax stock-based compensation charge of $15.3 million is equal to the grant-date fair value of the stock options awarded at the time of the acquisition and would represent a one-time cumulative adjustment from a change in the vesting based on achieving the accelerated revenue targets. Vesting of the performance based options was deemed to be not probable at November 30, 2012.

FactSet granted 204,508 performance-based employee stock options between June 2010 and July 2011 that vest based on achieving certain ASV targets. Of this total, 133,958 vested during the fourth quarter of fiscal 2012, an additional 46,644 vested during the first quarter of fiscal 2013 and 9,301 were forfeited due to employee terminations. At November 30, 2012, the Company estimated that the remaining 14,605 performance-based stock options will vest based on forecasted ASV growth, resulting in unamortized stock-based compensation expense of $0.2 million to be recognized.

Restricted Stock and Stock Unit Awards

The Company’s option plan permits the issuance of restricted stock and restricted stock units. Restricted stock awards are subject to continued employment over a specified period. There were no restricted stock awards granted during the first three months of fiscal 2013 and 2012.

A summary of restricted stock award activity is as follows (in thousands, except per award data):

	Number Outstanding			Weighted Average Grant Date Fair Value Per Award
Balance at August 31, 2012		383			$	71.34
Granted (restricted stock and stock units)		-			$	-
Vested*		(93	)		$	63.23
Canceled/forfeited		(1	)		$	77.38
Balance at November 30, 2012		289			$	73.92

* Of the total 92,715 restricted stock awards that vested during the first quarter of fiscal 2013, 87,758 related to awards granted on October 23, 2009 at the grant date price of $66.46. These restricted stock awards cliff vest 60% after three years (on October 23, 2012) and the remaining 40% after five years (October 23, 2014). The awards are amortized to expense over the vesting period using the straight-line attribution method. As of November 30, 2012, unamortized stock-based compensation expense of $3.2 million is to be amortized to compensation expense over the remaining vesting period of 1.9 years. The remaining 4,957 restricted stock awards that vested during the first quarter of fiscal 2013 were previously granted between June 2010 and July 2011. These restricted stock units were performance-based and cliff vest 25% when certain ASV targets are met. Of the total units originally granted, 14,258 units vested during the fourth quarter of fiscal 2012 and the remaining 4,957 vested during the first quarter of fiscal 2013 because FactSet achieved all four ASV growth targets. As of November 30, 2012, there is no remaining unamortized stock-based compensation expense as all units vested.

Share-based Awards Available for Grant

A summary of share-based awards available for grant is as follows (in thousands):

	Share-based Awards Available for Grant under the Employee Option Plan			Share-based Awards Available for Grant under the Non-Employee Directors Plan
Balance at August 31, 2012		4,340			126
Granted – non performance-based options		(635	)		0
Granted – performance-based options		(1,012	)		0
Share-based awards canceled/forfeited*		13			0
Balance at November 30, 2012		2,706			126

* Under the Company’s option plan, for each restricted stock award canceled/forfeited, an equivalent of 2.5 shares is added back to the available share-based awards balance.

Employee Stock Purchase Plan

On December 16, 2008, the Company’s stockholders ratified the adoption of the FactSet Research Systems Inc. 2008 Employee Stock Purchase Plan (the “Purchase Plan”). A total of 500,000 shares have been reserved for issuance under the Purchase Plan. There is no expiration date for the Purchase Plan. Shares of FactSet common stock may be purchased by eligible employees under the Purchase Plan in three-month intervals at a purchase price equal to at least 85% of the lesser of the fair market value of the Company’s common stock on either the first day or the last day of each three-month offering period. Employee purchases may not exceed 10% of their gross compensation during an offering period.

During the three months ended November 30, 2012, employees purchased 18,102 shares at a weighted average price of $78.53 as compared to 23,166 shares at a weighted average price of $73.66 in the same period a year ago. At November 30, 2012, 176,949 shares were reserved for future issuance under the Purchase Plan.

401(k) Plan

The Company established a 401(k) Plan (the “401(k) Plan”) in fiscal 1993. The 401(k) Plan is a defined contribution plan covering all full-time, U.S. employees of the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986. Each year, participants may contribute up to 60% of their eligible annual compensation, subject to annual limitations established by the Internal Revenue Code. The Company matches up to 4% of employees’ earnings, capped at the IRS annual maximum. Company matching contributions are subject to a five year graduated vesting schedule. All full-time, U.S. employees are eligible for the matching contribution by the Company. The Company contributed $1.8 million and $1.4 million in matching contributions to employee 401(k) accounts during the three months ended November 30, 2012 and 2011, respectively.