Employee Stock Option and Retirement Plans

9 Months Ended

May 31, 2011

Employee Stock Option and Retirement Plans

Employee Stock Option and Retirement Plans

13. EMPLOYEE STOCK OPTION AND RETIREMENT PLANS

At the Company's annual meeting of stockholders held on December 14, 2010, the stockholders of FactSet voted on and approved the Amended and Restated FactSet Research Systems Inc. 2004 Stock Option and Award Plan (the "Plan"), including the reservation of an additional 4,000,000 shares of common stock for issuance thereunder. The terms and conditions of the Plan are more fully described in FactSet's revised proxy statement filed December 6, 2010.

Stock Options

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 seven 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 generally 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.

General Stock Option Activity

In the first nine months of fiscal 2011, FactSet granted 965,682 stock options at a weighted average exercise price of $89.27 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, 2010		6,451		$	47.73
Granted – non performance-based		85			88.40
Granted – performance-based		809			88.40
Exercised		(605	)		31.54
Forfeited		(22	)		60.07
Balance at November 30, 2010		6,718		$	54.56
Granted – non performance-based		0			0
Granted – performance-based		65			99.78
Granted – non-employee Directors grant		15			95.05
Exercised		(283	)		31.15
Forfeited		(36	)		65.91
Balance at February 28, 2011		6,479		$	56.07
Granted – non performance-based		6			103.30
Exercised		(224	)		36.46
Forfeited		(27	)		70.75
Balance at May 31, 2011		6,234			56.76

The total number of in-the-money options exercisable as of May 31, 2011 was 2.6 million with a weighted average exercise price of $37.99. As of August 31, 2010, 3.3 million in-the-money outstanding options were exercisable with a weighted average exercise price of $34.49. The aggregate intrinsic value of in-the-money stock options exercisable at May 31, 2011 and August 31, 2010 was $190.4 million and $130.1 million, respectively. Aggregate intrinsic value represents the difference between the Company's closing stock price of $110.86 at May 31, 2011 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 May 31, 2011 and 2010 was $15.5 million and $12.4 million, respectively. The total pre-tax intrinsic value of stock options exercised during the nine months ended May 31, 2011 and 2010 was $65.0 million and $74.2 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.

October 2009 Annual Employee Performance-based Option Grant Review

In October 2009, the Company granted 900,665 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, 2011. At May 31, 2011, FactSet estimated that it was probable the Company would achieve ASV and diluted earnings per share growth of between 8% - 10% on a compounded annual basis for the two years ended August 31, 2011. As such, at May 31, 2011, the Company has estimated that 60% or 540,399 of the performance-based stock options will vest.

However, a change from the current expected outcome of the October 2009 performance-based stock options due to accelerating ASV and diluted EPS growth rates during the fourth quarter of fiscal 2011 would require the Company to record an incremental $3.4 million of stock-based compensation during the fourth quarter (equal to approximately $0.05 per diluted share). A change in the expected outcome would only result if the Company's ASV and diluted EPS growth rates during the two fiscal years ended August 31, 2011 exceeded 10%. The amount of additional stock-based compensation equal to $3.4 million represents the one-time cumulative adjustment to be recorded if there had been a change in the vesting percentage from 60% to 100% as of May 31, 2011. The one-time cumulative adjustment would also increase the total unamortized stock-based compensation expense to be recognized over the remaining vesting period from $4.1 million to $6.8 million.

November 2010 Annual Employee Performance-based Option Grant Review

In November 2010, the Company granted 734,334 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, 2012. At May 31, 2011, the Company estimated that 20% or 146,867 of the performance-based stock options will vest which results in unamortized stock-based compensation expense of $2.5 million to be recognized over the remaining vesting period.

A change in the actual financial performance levels achieved by FactSet 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 May 31, 2011		One-time Adjustment*			Average Remaining Quarterly Expense to be Recognized
0%	$	0	$	(532	)	$	0
20%	$	2,495	$	0		$	141
60%	$	7,487	$	1,064		$	423
100%	$	12,478	$	2,128		$	705

* Amounts represent the one-time cumulative adjustment to be recorded if there had been a change in the vesting percentage as of May 31, 2011. The one-time cumulative adjustment increments each quarter by approximately the amount stated in the average remaining quarterly expense to be recognized column.

Other Performance-based Option Grants

Between June 2010 and January 2011, the Company granted 960,331 performance-based employee stock options that vest based on FactSet achieving certain ASV targets over a six year period. At May 31, 2011, the Company estimated that 194,306 of the performance-based stock options will vest which results in unamortized stock-based compensation expense of $3.4 million to be recognized over the remaining vesting period.

A change from the current expected outcome of these performance-based stock options due to accelerating ASV growth rates during the fourth quarter of fiscal 2011 would require the Company to record an incremental $1.3 million of stock-based compensation during the fourth quarter (equal to approximately $0.02 per diluted share). The amount of additional stock-based compensation represents the one-time cumulative adjustment to be recorded if there had been a change in the vesting period based on achieving ASV targets earlier than estimated. If 100% of the 960,331 performance-based stock options granted between June 2010 and January 2011 were to vest, the Company would incur an incremental $16.0 million of stock-based compensation over the vesting period of six years.

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. A summary of restricted stock award activity is as follows (in thousands, except per award data): During the first six months of fiscal 2011, the following restricted stock awards were granted.

	Number Outstanding			Weighted Average Grant Date  Fair Value Per Award
Balance at August 31, 2010		261		$	61.65
Granted (restricted stock and stock units)		121		$	84.36
Vested		0		$	0
Canceled/forfeited		(1	)	$	67.04
Balance at November 30, 2010		381		$	68.85
Granted (restricted stock and stock units)		2		$	94.63
Vested		0		$	0
Canceled/forfeited		(2	)	$	69.51
Balance at February 28, 2011		381		$	69.00
Granted (restricted stock and stock units)		30		$	99.75
Vested		0		$	0
Canceled/forfeited		(2	)	$	73.01
Balance at May 31, 2011		409		$	71.24

November 2010 Employee Restricted Stock Award

In November 2010, the Company granted 117,723 restricted stock awards which entitle the holder to shares of common stock as the awards vest over time. The Company's restricted stock awards cliff vest 60% after three years and the remaining 40% after five years. Restricted stock grants are amortized to expense over the vesting period using the straight-line attribution method. Employees granted restricted stock awards in November 2010 are not entitled to dividends declared on the underlying shares while the restricted stock is unvested. As such, the grant date fair value of the award was 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 shares during the requisite service period, discounted at the appropriate risk-free interest rate. The closing price of FactSet common stock on the grant date of $88.40 was reduced to reflect the loss of future dividends (non-dividend protection right). The resulting fair value of the restricted stock awards granted on November 8, 2010 was $84.38. As of May 31, 2011, unamortized stock-based compensation expense of $7.3 million is to be amortized to compensation expense over the remaining vesting period.

April 2011 Employee Restricted Stock Award

On April 14, 2011, the Company granted 30,090 restricted stock awards to employees which entitle the holder to shares of common stock as the award vests over time, but are not entitled to dividends declared on the underlying shares while the restricted stock is unvested. The restricted stock awards cliff vest 100% after three years and are amortized to expense over the vesting period using the straight-line attribution method. The grant date fair value of the awards were 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 shares during the requisite service period, discounted at the appropriate risk-free interest rate. As such, the closing price of FactSet common stock on the grant date of $103.30 was reduced to reflect the loss of future dividends (non-dividend protection right). The resulting weighted average fair value of the restricted stock awards granted on April 14, 2011 was $99.75. As of May 31, 2011, unamortized stock-based compensation expense of $2.9 million is to be amortized to compensation expense over the remaining vesting period.

January 2011 Employee Restricted Stock Award

In January 2011, the Company granted 366 shares of restricted stock with a fair value of $95.24, which entitle the holder to shares of common stock as the awards vest over time. The Company's restricted stock awards cliff vest 60% after three years and the remaining 40% after five years. Restricted stock grants are amortized to expense over the vesting period using the straight-line attribution method. And are not entitled to dividends declared on the underlying shares while the restricted stock is unvested. As of May 31, 2011, unamortized stock-based compensation expense of less than $0.1 million is to be amortized ratably to compensation expense over the remaining vesting period.

Other Employee Restricted Stock Units Granted (Performance-based)

Between June 2010 and January 2011, the Company granted 20,010 restricted stock units which entitle the holder to shares of common stock as the awards vest over time. A restricted stock unit is a promise to deliver shares to the employee at a future date if certain vesting conditions are met. The primary difference between a restricted stock unit and restricted stock is the timing of the delivery of the underlying shares. FactSet is not required to deliver the shares to the employees until the vesting conditions are met. The Company's restricted stock units are performance-based and cliff vest 25% when serviced ASV targets are achieved during a six year period. Restricted stock units are amortized to expense based on a graded-vesting attribution approach over the vesting period. The closing price of FactSet common stock on the grant date was reduced to reflect the loss of future dividends with the resulting fair value of $68.69. As of May 31, 2011, unamortized stock-based compensation expense of $1.0 million is to be amortized to compensation expense over the remaining vesting period.

A change from the current expected outcome of these performance-based restricted stock units due to accelerating ASV growth rates during the fourth quarter of fiscal 2011 would require the Company to record an incremental $0.4 million of stock-based compensation during the fourth quarter (equal to approximately $0.01 per diluted share). The amount of additional stock-based compensation represents the one-time cumulative adjustment to be recorded if there had been a change in the vesting period based on achieving ASV targets earlier than estimated.

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, 2010		2,216			162
Granted – non performance-based options		(85	)		0
Granted – performance-based options		(809	)		0
Restricted stock awards granted*		(303	)		0
Share-based awards canceled/forfeited		25			0
Share-based awards expired		0			0
Balance at November 30, 2010		1,044			162
Amendment to the 2004 Stock Option and Award Plan to increase the number of shares available for issuance**		4,000			0
Granted – non performance-based options		0			0
Granted – performance-based options		(65	)		0
Granted – non-employee Directors grant		0			(15	)
Restricted stock awards granted*		(5	)		0
Share-based awards canceled/forfeited		41			0
Share-based awards expired		0			0
Balance at February 28, 2011		5,015			147
Granted – non performance-based options		(6	)		0
Granted – performance-based options		0			0
Restricted stock awards granted*		(75	)		0
Share-based awards canceled/forfeited		32			0
Share-based awards expired		0			0
Balance at May 31, 2011		4,966			147

* As reflected in the preceding table, for each share awarded as restricted stock under the Company's option plan, an equivalent of 2.5 shares were deducted from the available share-based awards balance.

** As of November 30, 2010, 1.0 million shares remained available for future grant of share-based awards under the Company's 2004 Stock Option and Award Plan, a number that the Company believed to be insufficient to meet its anticipated needs over the next 12 to 18 months. Therefore, the Company's Board of Directors approved, subject to stockholder approval, an amendment to increase the maximum number of shares of FactSet common stock issuable under the 2004 Stock Option and Award Plan by 4,000,000 shares. The stockholders of FactSet voted on and approved the Amended and Restated 2004 Stock Option and Award Plan at the Company's annual meeting held on December 14, 2010, including the reservation of an additional 4,000,000 shares of common stock for issuance thereunder.

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.

Employees purchased 56,659 shares at a price of $75.58 during the first nine months of fiscal 2011. During the three months ended May 31, 2011, employees purchased 18,053 shares at a weighted average price of $87.02 as compared to 22,510 shares at a weighted average price of $57.46 in the same period a year ago. At May 31, 2011, 299,597 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 $4.3 million and $3.8 million in matching contributions to employee 401(k) accounts during the nine months ended May 31, 2011 and 2010, respectively.