Note 14 - Stock-Based Compensation

9 Months Ended

May 31, 2014

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 $6.8 million and $17.4 million during the three and nine months ended May 31, 2014, respectively. Similarly, the Company recognized total stock-based compensation expense of $5.4 million and $31.8 million during the three and nine months ended May 31, 2013. The fiscal 2014 totals include a pre-tax charge of $1.4 million related to vesting of performance-based options in connection with StreetAccount. The fiscal 2013 prior year totals include a pre-tax charge of $15.7 million related to performance-based options granted in connection with the acquisition of Market Metrics in June 2010. As of May 31, 2014, $54.4 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. There was no stock-based compensation capitalized as of May 31, 2014 or August 31, 2013.

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 2014

- Q1 2014 – 35,508 non performance-based employee stock options and 36,695 performance-based employee stock options were granted at a weighted average exercise price of $109.49 and a weighted average estimated fair value of $31.78 per share.

- Q2 2014 – 138,902 non performance-based employee stock options and 165,949 performance-based employee stock options were granted at a weighted average exercise price of $106.03 and a weighted average estimated fair value of $29.14 per share.

- Q3 2014 - There were no employee stock options granted during the three months ended May 31, 2014.

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 three months ended May 31, 2013.

The weighted average estimated fair value of employee stock options granted during fiscal 2014 and 2013 was determined using the binomial model with the following weighted average assumptions. There were no employee stock options granted during the three months ended May 31, 2014 and 2013.

	Nine Months Ended May 31,
	2014			2013
Term structure of risk-free interest rate		0.01% - 2.61	%		0.16% - 1.91	%
Expected life (in years)	7.6 – 7.8			7.6 – 7.8
Term structure of volatility		23% - 33	%		24% - 33	%
Dividend yield		1.35	%		1.30	%
Weighted average estimated fair value	$	29.64		$	26.87
Weighted average exercise price	$	106.69		$	92.22
Fair value as a percentage of exercise price		27.8	%		29.1	%

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 2014

On January 15, 2014, FactSet granted 14,424 stock options to the Company’s non-employee Directors. All of the options granted on January 15, 2014 have a weighted average estimated fair value of $27.04 per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	1.66	%
Expected life (in years)	5.4
Expected volatility	28.9	%
Dividend yield	1.35	%

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 (in years)	5.4
Expected volatility	32.3	%
Dividend yield	1.30	%

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 common stock 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.

Employee Stock Purchase Plan Fair Value Determinations

During the three months ended May 31, 2014, employees purchased 18,068 shares at a weighted average price of $88.55 as compared to 16,739 shares at a weighted average price of $82.67 in the same period a year ago. During the nine months ended May 31, 2014, employees purchased 54,597 shares at a weighted average price of $88.33 as compared to 56,230 shares at a weighted average price of $79.77 in the same period a year ago. Stock-based compensation expense recorded for the three months ended May 31, 2014 and 2013, relating to the employee stock purchase plan was $0.3 million, respectively.

The Company uses the Black-Scholes model to calculate the estimated fair value for the employee stock purchase plan. The estimated fair value of employee stock purchase plan grants during the three months ended May 31, 2014 and 2013 were $17.81 and $16.15 per share, respectively, with the following assumptions:

	Three Months Ended May 31,
	2014			2013
Risk-free interest rate		0.04	%		0.06	%
Expected life (in months)		3			3
Expected volatility		13.3	%		10.4	%
Dividend yield		1.50	%		1.44	%

The weighted average estimated fair value of employee stock purchase plan grants during the nine months ended May 31, 2014 and 2013 were $17.91 and $15.65 per share, respectively, with the following weighted average assumptions:

	Nine Months Ended May 31,
	2014			2013
Risk-free interest rate		0.04	%		0.08	%
Expected life (in months)		3			3
Expected volatility		10.8	%		9.9	%
Dividend yield		1.36	%		1.36	%

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.