Note 14. Stock-Based Compensation

3 Months Ended

Nov. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

14. STOCK-BASED COMPENSATION

Accounting guidance requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock options, restricted stock and common shares acquired under employee stock purchases based on estimated fair values of the share awards that are scheduled to vest during the period. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

The Company recognized total stock-based compensation expense of $5.2 million and $5.9 million during the three months ended November 30, 2012 and 2011, respectively. As of November 30, 2012, $53.7 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.7 years.There was no stock-based compensation capitalized as of November 30, 2012 or August 31, 2012, respectively.

Employee Stock Option Fair Value Determinations

The Company utilizes the lattice-binomial option-pricing model (“binomial model”) to estimate the fair value of new employee stock option grants. The Company’s determination of fair value of stock option awards on the date of grant using the binomial model is affected by the Company’s stock price as well as assumptions regarding a number of variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors.

Fiscal 2013

- Q1 2013 – 635,308 non performance-based employee stock options and 1,011,510 performance-based employee stock options were granted at a weighted average exercise price of $92.22 and a weighted average estimated fair value of $26.87 per share.

Fiscal 2012

- Q1 2012 – 419,593 non performance-based employee stock options and 665,551 performance-based employee stock options were granted at a weighted average exercise price of $94.84 and a weighted average estimated fair value of $32.08 per share.

The weighted average estimated fair value of employee stock options granted during the first three months of fiscal 2013 and 2012 was determined using the binomial model with the following weighted average assumptions:

	Q1 2013			Q1 2012
Term structure of risk-free interest rate	0.16%	-	1.91%	0.13%	-	2.41%
Expected life (in years)	7.6	-	7.8	7.6	-	7.8
Term structure of volatility	24%	-	33%	30%	-	36%
Dividend yield		1.30%			1.11%
Weighted average estimated fair value		$26.87			$32.08
Weighted average exercise price		$92.22			$94.84
Fair value as a percentage of exercise price		29.1%			33.8%

The risk-free interest rate assumption for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a combination of historical volatility of the Company’s stock and implied volatilities of publicly traded options to buy FactSet common stock with contractual terms closest to the expected life of options granted to employees. The approach to utilize a mix of historical and implied volatility was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that a combination of implied volatility and historical volatility is best representative of future stock price trends. The Company uses historical data to estimate option exercises and employee termination within the valuation model. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The expected life of employee stock options represents the weighted average period the stock options are expected to remain outstanding and is a derived output of the binomial model. The binomial model estimates employees exercise behavior is based on the option’s remaining vested life and the extent to which the option is in-the-money. The binomial model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations of all past option grants made by the Company.

Non-Employee Director Stock Option Fair Value Determinations

The 2008 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”) provides for the grant of share-based awards, including stock options, to non-employee directors of FactSet. A total of 250,000 shares of FactSet common stock have been reserved for issuance under the Directors’ Plan. The expiration date of the Directors’ Plan is December 1, 2018.

The Company utilizes the Black-Scholes model to estimate the fair value of new non-employee Director stock option grants. The Company’s determination of fair value of share-based payment awards on the date of grant is affected by the Company’s stock price as well as assumptions regarding a number of variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeitures and employee stock option exercise behaviors.

There were no stock options granted to the Company’s non-employee Directors during the three months ended November 30, 2012 and 2011, respectively.

Restricted Stock Fair Value Determinations

Restricted stock granted to employees entitle the holder to shares of common stock as the award vests over time, but not to dividends declared on the underlying shares while the restricted stock is unvested. The grant date fair value of restricted stock awards are measured by reducing the grant date price of FactSet’s share by the present value of the dividends expected to be paid on the underlying stock during the requisite service period, discounted at the appropriate risk-free interest rate. Restricted stock awards are amortized to expense over the vesting period.

There were no restricted stocks awards granted during the three months ended November 30, 2012 and 2011, respectively.

Employee Stock Purchase Plan Fair Value Determinations

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. Stock-based compensation expense recorded during the first quarter of fiscal 2013 and 2012 relating to the employee stock purchase plan was $0.3 million and $0.4 million, respectively.

The Company uses the Black-Scholes model to calculate the estimated fair value for the employee stock purchase plan. The weighted average estimated fair value of employee stock purchase plan grants during the three months ended November 30, 2012 and 2011 were $15.74 and $15.46 per share, respectively, with the following weighted average assumptions:

	Three Months Ended November 30,
	2012		2011
Risk-free interest rate		0.10%		0.02%
Expected life (in months)		3		3
Expected volatility		10%		18%
Dividend yield		1.32%		1.25%

Accuracy of Fair Value Estimates

The Company is responsible for determining the assumptions used in estimating the fair value of its share-based payment awards. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, interest rates, option forfeiture rates and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable.