Note 14 - Stock-Based Compensation

12 Months Ended

Aug. 31, 2013

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

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

14. STOCK-BASED COMPENSATION

The Company recognized total stock-based compensation expense of $40.0 million, $22.0 million, and $25.8 million in fiscal 2013, 2012, and 2011, respectively.

Stock-based compensation expense for the year ended August 31, 2013 includes pre-tax charges totaling $18.3 million related to the vesting of performance-based stock options granted in connection with the acquisitions of Market Metrics and StreetAccount. These performance-based options vested in the second and fourth quarters of fiscal 2013, respectively, when each acquired business accelerated to achieve stretch growth targets established on the date of grant. Included in fiscal 2011 was a pre-tax stock-based compensation charge of $7.9 million from an increase in the estimated number of performance-based options that will vest due to accelerating levels of ASV and diluted EPS than previously expected. The revised estimate reflects a higher performance level than previously estimated and accordingly, increased the number of performance-based options that will vest and be expensed.

As of August 31, 2013, $50.3 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.5 years. As of August 31, 2012, $39.2 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.1 years. There was no stock-based compensation capitalized as of August 31, 2013 and 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.

● Q2 2013 – 9,367 non performance-based employee stock options were granted at a weighted average exercise price of $92.55 and a weighted average estimated fair value of $26.69 per share.

● Q3 2013 – There were no employee stock options granted during the third quarter.

● Q4 2013 – There were no employee stock options granted during the fourth quarter.

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.

● Q2 2012 – There were no employee stock options granted during the second quarter.

● Q3 2012 – There were no employee stock options granted during the third quarter.

● Q4 2012 – 120,847 non performance-based employee stock options and 241,546 performance-based employee stock options were granted at a weighted average exercise price of $90.92 and fair value of $33.11 per share.

Fiscal 2011

● Q1 2011 – 84,811 non performance-based employee stock options and 809,239 performance-based employee stock options were granted at a weighted average exercise price of $88.40 and fair value of $24.42 per share.

● Q2 2011 – 65,224 performance-based employee stock options were granted at a weighted average exercise price of $99.78 and fair value of $29.07 per share.

● Q3 2011 – 6,408 non performance-based employee stock options were granted at a weighted average exercise price of $103.30 and fair value of $23.41 per share.

● Q4 2011 – 17,842 performance-based employee stock options were granted at a weighted average exercise price of $96.10 and a weighted average estimated fair value of $28.02 per share.

The weighted average estimated fair value of employee stock options granted during fiscal 2013, 2012 and 2011 was determined using the binomial model with the following weighted average assumptions:

	2013			2012			2011
Term structure of risk-free interest rate	0.16%	-	1.91%	0.13%	-	2.41%	0.18%	-	1.88%
Expected life (years)	7.6	-	7.8	7.6	-	9.1	4.0	-	6.5
Term structure of volatility	24%	-	33%	29%	-	36%	23%	-	35%
Dividend yield		1.30%			1.16%			1.25%
Weighted average estimated fair value		$26.87			$32.34			$24.78
Weighted average exercise price		$92.22			$93.86			$89.39
Fair value as a percentage of exercise price		29.1%			34.5%			27.7%

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.

Fiscal 2013

On January 15, 2013, FactSet granted 18,781 stock options to the Company’s non-employee Directors at a weighted average estimated fair value of $24.23 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	0.89	%
Expected life (years)	5.4
Expected volatility	32	%
Dividend yield	1.30	%

Fiscal 2012

On January 13, 2012, FactSet granted 20,976 stock options to the Company’s non-employee Directors, including a one-time new Director grant of 5,244 stock options for Robin A. Abrams, who was elected to FactSet’s Board of Directors on December 13, 2011. All of the options granted on January 13, 2012 have a weighted average estimated fair value of $24.79 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	0.94	%
Expected life (years)	5.4
Expected volatility	34	%
Dividend yield	1.11	%

Fiscal 2011

On January 14, 2011, 14,514 stock options were granted to the Company’s non-employee Directors with a weighted average estimated fair value of $26.87 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	2.13	%
Expected life (years)	5.4
Expected volatility	31	%
Dividend yield	1.18	%

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 the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercises and non-employee director terminations within the valuation model. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

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.

Fiscal 2013

● 131,702 restricted stock units granted on April 8, 2013 with a fair value of $85.80.

Fiscal 2012

● There were no restricted stocks awards granted during fiscal 2012.

Fiscal 2011

● 117,723 shares of restricted stock with a fair value of $84.38 were granted on November 8, 2010.

● 3,291 restricted stock units with a fair value of $83.49 were granted on November 8, 2010.

● 366 shares of restricted stock with a fair value of $95.24 were granted on January 27, 2011.

● 1,719 restricted stock units with a fair value of $94.50 were granted on January 27, 2011.

● 30,090 shares of restricted stock with a fair value of $99.75 were granted on April 14, 2011.

● 1,092 restricted stock units with a fair value of $91.54 were granted on July 22, 2011.

Employee Stock Purchase Plan Fair Value Determinations

During fiscal 2013, employees purchased 75,281 shares at a weighted average price of $80.77 as compared to 85,487 shares at a weighted average price of $75.20 in fiscal 2012 and 75,718 shares at a weighted average price of $75.36 in fiscal 2011. Stock-based compensation expense recorded during fiscal 2013, 2012, and 2011 relating to the employee stock purchase plan was $1.2 million, $1.3 million and $1.1 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 fiscal years 2013, 2012 and 2011 were $15.79, $16.09, and $15.99 per share, respectively, with the following weighted average assumptions:

	2013			2012			2011
Risk-free interest rate		0.07	%		0.06	%		0.10	%
Expected life (months)		3			3			3
Expected volatility		9.8	%		14.8	%		11.9	%
Dividend yield		1.38	%		1.26	%		1.04	%

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.