Note 13 - Employee Stock Option and Retirement Plans

6 Months Ended

Feb. 28, 2015

Disclosure Text Block Supplement [Abstract]

Compensation and Employee Benefit Plans [Text Block]

13. EMPLOYEE STOCK OPTION AND RETIREMENT PLANS

Stock Option Awards

The FactSet Research Systems Inc. 2004 Stock Option and Award Plan, as Amended and Restated (the “Option Plan”) provides for the grant of share-based awards, including stock options and restricted stock awards to employees of FactSet. The expiration date of the Option Plan is December 14, 2020. Stock options granted under the Option Plan expire either seven or ten years from the date of grant and the majority vest ratably over a period of five years. 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. Options are not transferable or assignable other than by will or the laws of descent and distribution. During the grantee’s lifetime, the options may be exercised only by the grantee.

During the first six months of fiscal 2015, FactSet granted 625,510 stock options at a weighted average exercise price of $135.40 to existing employees of the Company.

As of February 28, 2015, a total of 3,540,039 stock options were outstanding at a weighted average exercise price of $91.67. Unamortized stock-based compensation of $38.6 million is expected to be recognized as stock-based compensation expense over the remaining vesting period of 3.5 years.

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, 2014		3,482		$	79.67
Granted – non-performance based		463			131.31
Exercised		(114	)		73.53
Forfeited		(33	)		98.28
Balance at November 30, 2014		3,798		$	85.98
Granted – non-performance-based		25			139.02
Granted – performance-based		138			148.52
Granted – non-employee Directors grant		14			138.48
Exercised		(403	)		61.63
Forfeited		(32	)		97.08
Balance at February 28, 2015		3,540		$	91.67

The total number of in-the-money options exercisable as of February 28, 2015 was 1.6 million with a weighted average exercise price of $73.17. As of August 31, 2014, 1.9 million in-the-money outstanding options were exercisable with a weighted average exercise price of $68.78. The aggregate intrinsic value of in-the-money stock options exercisable at February 28, 2015 and August 31, 2014 was $133.1 million and $111.3 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price of $155.55 on February 27, 2015 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 February 28, 2015 and 2014 was $32.8 million and $9.0 million, respectively. The total pre-tax intrinsic value of stock options exercised during the six months ended February 28, 2015 and 2014 was $38.8 million and $16.0 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 during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet, a percentage 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.

July 2012 Performance-based Option Grant

In July 2012, FactSet granted 241,546 performance-based employee stock options, which are eligible to vest in 20% tranches depending upon future StreetAccount user growth through August 31, 2017. During the fourth quarter of fiscal 2013, the first growth target as outlined within the terms of the grant was achieved, thus 20% or 48,314 options vested on August 31, 2013. The second 20% tranche vested on August 31, 2014 as a result of accelerated expansion of Street Account users during fiscal 2014. Due to this accelerated growth and forecasted future usage, the Company estimates that the third 20% tranche will vest by August 31, 2017. Total unamortized stock-based compensation expense as of February 28, 2015 of $0.8 million will be recognized over the remaining vesting period of 2.5 years. A change, up or down, in the actual financial performance levels achieved by StreetAccount in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense (in thousands):

Vesting Percentage	Cumulative Catch-up Adjustment*		Remaining Expense to be Recognized
Third 20%	$	0	$	774
Fourth 20%	$	948	$	1,426
Fifth 20%	$	2,274	$	1,701

* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of February 28, 2015. 

February 2015 Performance-based Option Grant

In connection with the acquisition of Code Red during the second quarter of fiscal 2015, FactSet granted 137,522 performance-based stock options. These performance-based options are eligible to vest four years from date of grant if certain Code Red ASV and operating margin targets are achieved over the measurement period. Of the total grant, 68,761 performance-based options are eligible for vesting based on achieving the growth targets over a four year measurement period ending February 28, 2019 and the remaining 68,761 options are eligible to cliff vest based on a two year measurement period ending February 28, 2017. For all Code Red options granted, the option holders must also remain employed by FactSet to be eligible to vest. As of February 28, 2015, total unamortized stock-based compensation of $2.4 million will be recognized as expense over the remaining vesting period of 3.9 years. A change, up or down, in the actual financial performance levels achieved by Code Red in future fiscal years could result in the following changes to the current estimate of the vesting percentage and related expense (in thousands):

Vesting Percentage	Cumulative Catch-up Adjustment*			Remaining Expense to be Recognized
10%	$	(38	)	$	0
40% (current expectation)	$	0		$	2,363
70%	$	66		$	4,134
100%	$	94		$	5,906

* Amounts represent the cumulative catch-up adjustment to be recorded if there was a change in the vesting percentage as of February 28, 2015. 

Other Performance-based Option Grants

In connection with the acquisitions of Matrix and Revere, FactSet granted 165,949 and 36,695 performance-based stock options, respectively, during fiscal 2014. The performance-based options granted in connection with the acquisition of Matrix will vest only if ASV and operating margin targets related to the Matrix business are met during a five year measurement period ending December 23, 2018, and the option holders remain employed by FactSet. As of February 28, 2015 FactSet does not believe these targets are probable of being achieved, and as such, no stock-based compensation expense is expected to be realized in connection with these options. Of the 36,695 performance-based stock options granted in connection with the Revere acquisition, FactSet currently estimates that 18,553 options will vest based upon the achievement of certain ASV and operating margins during the measurement period ending August 31, 2015. This results in unamortized stock-based compensation expense of $0.4 million to be recognized over the remaining vesting period of 3.5 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. During the first six months of fiscal 2015, FactSet granted 48,313 restricted stock awards to employees of the Company at a weighted average grant date fair value of $135.66. These restricted stock awards vest over a weighted average period of 3.9 years from grant date.

As of February 28, 2015, a total of 357,321 shares of restricted stock and restricted stock units were unvested and outstanding, which results in unamortized stock-based compensation of $24.8 million to be recognized as stock-based compensation expense over the remaining vesting period of 3.4 years.

A summary of restricted stock award activity is as follows (in thousands, except per award data):

	Number Outstanding			Weighted Average Grant Date Fair Value Per Award
Balance at August 31, 2014		368		$	89.77
Granted		10		$	127.58
Vested*		(53	)	$	62.85
Canceled/forfeited		(1	)	$	93.76
Balance at November 30, 2014		324		$	95.40
Granted		38		$	137.83
Canceled/forfeited		(5	)	$	95.43
Balance at February 28, 2015		357		$	99.85

* All of the 53,495 restricted stock awards that vested during the first quarter of fiscal 2015 related to awards granted on October 23, 2009. These restricted stock awards cliff vested 100% after five years on October 23, 2014 and were amortized to expense over the vesting period using the straight-line attribution method.

Performance-based Restricted Stock Units

Performance-based restricted stock units require management to make assumptions regarding the likelihood of achieving Company performance targets. The number of performance-based units that vest will be predicated on the Company achieving performance levels during the measurement period subsequent to the date of grant. Dependent on the financial performance levels attained by FactSet, a percentage of the performance-based units will vest to the grantees. However, there is no current guarantee that such restricted stock will vest in whole or in part.

September 2013 Grant of Restricted Stock Units

In connection with the acquisition of Revere in the first quarter of fiscal 2014, FactSet granted 7,744 performance-based restricted stock units on September 17, 2013. Of the 7,744 performance-based restricted stock units granted, 3,872 are estimated to vest based upon the Company’s belief that certain ASV and operating margin targets will be achieved during the measurement period ending August 31, 2017. As of February 28, 2015, unamortized stock-based compensation of $0.3 million will be amortized to compensation expense over the remaining vesting period of 3.5 years. The remaining 3,872 performance-based restricted stock units are expected to be forfeited.

February 2015 Grant of Restricted Stock Units

In connection with the acquisition of Code Red during the second quarter of fiscal 2015, FactSet granted 1,724 performance-based restricted stock units. Of the 1,724 performance-based restricted stock units granted, 690 are estimated to vest based upon the Company’s belief that certain Code Red ASV and operating margin targets will be achieved during the measurement period ending February 28, 2017. As of February 28, 2015, unamortized stock-based compensation of $0.1 million will be amortized to compensation expense over the remaining vesting period of 2.0 years. The remaining 1,034 performance-based restricted stock units are expected to be forfeited.

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, 2014		3,222			102
Granted – non performance-based options		(463	)		0
Granted – performance-based options		0			0
Restricted stock awards granted*		(26	)		0
Share-based awards canceled/forfeited*		35			0
Balance at November 30, 2014		2,768			102
Granted – non performance-based options		(25	)		(14	)
Granted – performance-based options		(138	)		0
Restricted stock awards granted*		(95	)		0
Share-based awards canceled/forfeited*		44			0
Balance at February 28, 2015		2,554			88

* Under the Company’s option plan, for each restricted stock award canceled/forfeited, an equivalent of 2.5 shares is added back to the available share-based awards balance.

Employee Stock Purchase Plan

At the 2014 Annual Meeting of Stockholders of FactSet held on December 16, 2014, the stockholders of FactSet voted on and approved the Amended and Restated FactSet Research Systems Inc. 2008 Employee Stock Purchase Plan (the “Purchase Plan”), including the reservation of an additional 500,000 shares of common stock for issuance thereunder. The amendment and restatement of the Purchase Plan was approved by FactSet’s Board of Directors on October 23, 2014, subject to the approval of the Company’s stockholders, and became effective with such stockholder approval on December 16, 2014. As a result of such stockholder approval, the Purchase Plan was amended and modified to increase the maximum number of shares of common stock authorized for issuance over the term of the Purchase Plan by 500,000 shares. 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.

During the three months ended February 28, 2015, employees purchased 17,811 shares at a weighted average price of $116.95 as compared to 20,166 shares at a weighted average price of $89.50 in the same period a year ago. During the six months ended February 28, 2015, employees purchased 33,208 shares at a weighted average price of $113.12 as compared to 36,529 shares at a weighted average price of $88.22 in the same period a year ago. At February 28, 2015, 511,673 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 $4.0 million and $3.7 million in matching contributions to employee 401(k) accounts during the six months ended February 28, 2015 and 2014, respectively.