. STOCK-BASED COMPENSATION

During the

three

months ended

February 28, 2019

and

2018,

the Company recognized total stock-based compensation expense of

$7.7

million and

$7.9

million, respectively. During the

six

months ended

February 28, 2019

and

2018,

the Company recognized total stock-based compensation expense of

$16.1

million and

$15.4

million, respectively. As of

February 28, 2019,

$87.2

million of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a weighted average period of

3.3

years. There was

stock-based compensation capitalized for the

three

and

six

months ended

February 28, 2019

August 31, 2018,

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 several 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.

Q1 2019	454,598 non-performance-based employee stock options were granted at a weighted average exercise price of $221.93 and a weighted average estimated fair value of $56.77 per share.

Q2 2019	6,115 non-performance-based employee stock options were granted at a weighted average exercise price of $207.84 and a weighted average estimated fair value of $53.18 per share.

Q1 2018	553,942 non-performance-based employee stock options were granted at a weighted average exercise price of $189.98 and a weighted average estimated fair value of $48.27 per share.

Q2 2018	15,363 non-performance-based employee stock options were granted at a weighted average exercise price of $192.11 and a weighted average estimated fair value of $48.82 per share.

The weighted average estimated fair value of employee stock options granted was determined using the binomial model with the following weighted average assumptions:

Three months ended February 28,	2019					2018
Term structure of risk-free interest rate		2.48%	-	3.14	%		1.28%	-	2.41	%
Expected life (years)				7.1					7.4
Term structure of volatility		18%	-	25	%		19%	-	29	%
Dividend yield				1.15	%				1.32	%
Weighted average estimated fair value	$	53.18				$	48.82
Weighted average exercise price	$	207.84				$	192.11
Fair value as a percentage of exercise price				25.6	%				25.4	%

Six months ended February 28,	2019					2018
Term structure of risk-free interest rate		1.28%	-	3.14	%		1.28%	-	2.41	%
Expected life (years)				7.1					7.4
Term structure of volatility		18%	-	29	%		19%	-	29	%
Dividend yield				1.16	%				1.32	%
Weighted average estimated fair value	$	56.72				$	48.29
Weighted average exercise price	$	221.74				$	190.04
Fair value as a percentage of exercise price				25.6	%				25.4	%

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 terminations 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 employee exercise behavior 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 Non-Employee Directors’ Stock Option and Award Plan, as Amended and Restated (the “Director Plan”), provides for the grant of share-based awards, including stock options, to non-employee directors of FactSet. As of

February 28, 2019,

shares available for future grant under the Director Plan was

263,956.

The expiration date of the Director Plan is

December 19, 2027.

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 several 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

201

January 15, 2019,

FactSet granted

20,576

stock options to the Company’s non-employee Directors. These options have a weighted average estimated fair value of

$42.77

per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	2.51	%
Expected life (years)	5.4
Expected volatility	20.5	%
Dividend yield	1.17	%

Fiscal

2018

January 12, 2018,

FactSet granted

18,963

stock options to the Company’s non-employee Directors. These options have a weighted average estimated fair value of

$38.76

per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	2.34	%
Expected life (years)	5.4
Expected volatility	19.7	%
Dividend yield	1.16	%

Restricted Stock

Fair Value Determinations

Restricted stock granted to employees entitles 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 is 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. During the

first

six

months of fiscal

2019,

there were

41,153

restricted stock awards granted, with a weighted average grant date fair value of

$212.66.

During the

first

six

months of fiscal

2018,

FactSet granted

961

restricted stock awards at a weighted average grant date fair value of

$182.17.

Employee Stock Purchase Plan Fair Value Determinations

During the

three

months ended

February 28, 2019,

employees purchased

12,624

shares at a weighted average price of

$199.36

as compared to

14,805

shares at a weighted average price of

$171.23

for the

three

months ended

February 28, 2018.

During the

six

months ended

February 28, 2019,

employees purchased

25,719

shares at a weighted average price of

$198.33

as compared to

34,394

shares at a weighted average price of

$150.25

for the

six

months ended

February 28, 2018.

Stock-based compensation expense relating to the ESPP was

$0.5

million for both the

three

months ended

February 28, 2019

and

2018.

Stock-based compensation expense related to the ESPP for the

six

months ended

February 28, 2019

and

2018

was

$1.0

million and

$1.1

million, respectively.

The weighted average estimated fair value for the shares repurchased under the ESPP was calculated using the Black-Scholes model with the following assumptions:

Three months ended February 28,	2019			2018
Risk-free interest rate		2.42	%		1.45	%
Expected life (months)		3			3
Expected volatility		12.47	%		13.9	%
Dividend yield		1.09	%		1.11	%
Weighted average estimated fair value	$	40.45		$	35.02

Six months ended February 28,	2019			2018
Risk-free interest rate		2.35	%		1.26	%
Expected life (months)		3			3
Expected volatility		10.68	%		10.52	%
Dividend yield		1.10	%		1.29	%
Weighted average estimated fair value	$	39.52		$	29.76

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 several 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

vesting or hedging restrictions and are fully transferable.