. STOCK-BASED COMPENSATION

The Company recognized total stock-based compensation expense of

$7.9

million and

$15.4

million during the

three

and

six

months ended

February 28, 2018,

respectively. Similarly, the Company recognized total stock-based compensation expense of

$7.2

million and

$13.6

million during the

three

and

six

months ended

February 28, 2017,

respectively. As of

February 28, 2018,

$85.9

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

3.4

years. There was

stock-based compensation capitalized as of

February 28, 2018

August 31, 2017,

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.

Q1 2018	553,942 nonperformance-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 nonperformance-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.
Q1 2017	671,263 non performance-based employee stock options and 22,460 performance-based employee stock options were granted at a weighted average exercise price of $152.51 and a weighted average estimated fair value of $39.60 per share.
Q2 2017	61,744 performance-based employee stock options were granted at a weighted average exercise price of $169.16 and a weighted average estimated fair value of $43.81 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,	2018				2017
Term structure of risk-free interest rate		1.28%	-	2.41%		0.49%	-	1.89%
Expected life (years)				7.4				7.4
Term structure of volatility		19%	-	29%		21%	-	29%
Dividend yield				1.32%				1.18%
Weighted average estimated fair value				$48.82				$43.81
Weighted average exercise price				$192.11				$169.16
Fair value as a percentage of exercise price				25.4%				25.9%

Six months ended February 28,	2018				2017
Term structure of risk-free interest rate		1.28%	-	2.41%		0.07%	-	2.09%
Expected life (years)				7.4				7.4
Term structure of volatility		19%	-	29%		21%	-	30%
Dividend yield				1.32%				1.18%
Weighted average estimated fair value				$48.29				$39.95
Weighted average exercise price				$190.04				$153.87
Fair value as a percentage of exercise price				25.4%				26.0%

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 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

December 19, 2017,

the Company’s stockholders approved the Director Plan. The Director Plan provides for the grant of share-based awards, including stock options, to non-employee directors of FactSet. As part of the stockholder approval, the expiration date of the Director Plan was extended to

December 19, 2027

and the number of shares reserved for issuance under the Director Plan was increased by

250,000.

As of

February 28, 2018,

shares available for future grant was

273,222.

The Company utilizes the Black-Scholes model to estimate the fair value of 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

201

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	%

Fiscal

2017

January 13, 2017,

FactSet granted

23,846

stock options to the Company’s non-employee Directors, including

one

-time new Director grants of

2,104

stock options each for Malcolm Frank and Sheila B. Jordan, who were elected to FactSet’s Board of Directors on

December 20, 2016.

All of the options granted on

January 13, 2017

have a weighted average estimated fair value of

$35.65

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

Risk-free interest rate	1.95	%
Expected life (years)	5.4
Expected volatility	22.7	%
Dividend yield	1.24	%

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

2018,

there were

961

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

$182.17.

During the

first

six

months of fiscal

2017,

there were

12,927

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

$157.50.

Employee Stock Purchase Plan Fair Value Determinations

During the

three

months ended

February 28, 2018,

employees purchased

14,805

shares at a weighted average price of

$171.23

as compared to

20,744

shares at a weighted average price of

$135.48

for the

three

months ended

February 28, 2017.

During the

six

months ended

February 28, 2018,

employees purchased

34,394

shares at a weighted average price of

$150.25

as compared to

37,240

shares at a weighted average price of

$135.77

for the

six

months ended

February 28, 2017.

Stock-based compensation expense recorded during the

three

months ended

February 28, 2018

and

2017,

relating to the ESPP, was

$0.5

million and

$0.6

million, respectively. Stock-based compensation expense recorded for the

six

months ended

February 28, 2018

and

2017,

relating to the ESPP, was

$1.1

million and

$1.0

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,	2018			2017
Risk-free interest rate		1.45	%		0.51	%
Expected life (months)		3			3
Expected volatility		13.9	%		7.8	%
Dividend yield		1.11	%		1.25	%
Weighted average estimated fair value	$	35.02		$	25.88

Six months ended February 28,	2018			2017
Risk-free interest rate		1.26	%		0.44	%
Expected life (months)		3			3
Expected volatility		10.52	%		8.9	%
Dividend yield		1.29	%		1.19	%
Weighted average estimated fair value	$	29.76		$	27.85

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

vesting or hedging restrictions and are fully transferable.