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Note 16 - Stock-based Compensation
 12 Months Ended
Aug. 31, 2018
Notes to Financial Statements  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
16.
STOCK-BASED COMPENSATION
 
The Company recognized total stock-based compensation expense of
$31.5
million,
$34.2
million and
$29.8
million in fiscal
2018,
2017
and
2016,
respectively. As of
August 31, 2018,
$71.7
million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of
3.0
years. There was
no
stock-based compensation capitalized as of
August 31, 2018
and
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
201
8
 
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
201
8
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.
Q3
201
8
There were
no
employee stock options granted during the
three
-month ended
May 31, 2018.
Q4
201
8
 
5,848
non performance-based employee stock options and
16,512
performance-based employee stock options were both granted at a weighted average exercise price of
$200.20
 with a weighted average estimated fair value of
$50.87
per share.
Q1
201
7
 
671,263
non performance-based employee stock options and
22,460
performance-based employee stock options were both granted at a weighted average exercise price of
$152.51
with a weighted average estimated fair value of
$39.60
per share.
Q2
201
7
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.
Q3
201
7
11,604
non performance-based employee stock options were granted at a weighted average exercise price of
$163.05
and a weighted average estimated fair value of
$42.23
per share.
Q4
201
7
 
29,650
non performance-based employee stock options and
206,417
performance-based employee stock options were granted at a weighted average exercise price of
$165.75
and a weighted average estimated fair value of
$42.93
per share.
Q1
201
6
 
513,785
non performance-based employee stock options and
530,418
performance-based employee stock options were both granted at a weighted average exercise price of
$170.21
with a weighted average estimated fair value of
$46.62
per share.
Q2
201
6
 
4,073
non performance-based employee stock options were granted at an exercise price of
$150.81
and an estimated fair value of
$40.51
per share.
Q3
201
6
 
103,903
non performance-based employee stock options were granted at an exercise price of
$152.10
and an estimated fair value of
$40.57
per share.
Q4
201
6
 
20,911
performance-based employee stock options were granted at an exercise price of
$171.22
and an estimated fair value of
$47.82
per share.
 
The weighted average estimated fair value of employee stock options granted during fiscal
2018,
2017
and
2016
was determined using the binomial model with the following weighted average assumptions:
 
   
2018
    
2017
    
2016
  
Term structure of risk-free interest rate
    
1.28%
–
2.41%
      
0.07%
–
2.09%
      
0.07%
–
2.1%
  
Expected life (years)
    
7.4
–
7.4
      
7.4
–
8.1
      
7.3
–
8.1
  
Term structure of volatility
    
19%
–
29%
      
21%
–
30%
      
21%
–
30%
  
Dividend yield
    
 
1.32%
 
      
 
1.18%
 
      
 
1.09%
 
  
Weighted average estimated fair value
    
 
$48.39
 
      
 
$40.68
 
      
 
$46.08
 
  
Weighted average exercise price
    
 
$190.42
 
      
 
$156.77
 
      
 
$168.55
 
  
Fair value as a percentage of exercise price
    
 
25.4%
 
      
 
25.9%
 
      
 
27.3%
 
  
 
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
 
On
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
August 31, 2018,
shares available for future grant were
282,398.
 
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.
 
F
iscal
201
8
 
On
January 12, 2018,
FactSet granted
18,963
stock options to the Company’s non-employee Directors. All the options granted on
January 12, 2018,
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
 %
 
F
iscal
2017
 
On
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
for both Malcolm Frank and Sheila B. Jordan, who were elected to FactSet’s Board of Directors on
December 20, 2016.
All 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
 %
 
Fiscal
2016
 
On
January 15, 2016,
FactSet granted
22,559
stock options to the Company’s non-employee Directors, including a
one
-time new director grant of
2,417
for Laurie Siegel, who was elected to FactSet’s Board of Directors on
December 15, 2015.
All the options granted on
January 15, 2016,
have a weighted average estimated fair value of
$31.03
per share, using the Black-Scholes option-pricing model with the following weighted average assumptions:
 
Risk-free interest rate
    
1.62
 %
Expected life (years)
    
5.4
  
Expected volatility
    
23.0
 %
Dividend yield
    
1.05
 %
 
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 fiscal
2018,
there were
3,497
restricted stock awards granted with a weighted average grant date fair value of
$189.28
compared to
62,400
restricted stock awards granted with a weighted average grant date fair value of
$158.26
in fiscal
2017.
 
Q1
201
8
 
961
shares of restricted stock were granted at a weighted average estimated fair value of
$182.17
per share.
Q2
201
8
No
restricted stock granted.
Q3
201
8
No
restricted stock granted.
Q4
201
8
 
2,536
shares of restricted stock were granted at a weighted average estimated fair value of
$191.97
per share.
Q1
201
7
 
5,084
shares of restricted stock were granted at a weighted average estimated fair value of
$151.63
per share.
Q2
201
7
7,843
shares of restricted stock were granted at a weighted average estimated fair value of
$161.31
per share.
Q3
201
7
No
restricted stock granted.
Q4
201
7
 
49,473
shares of restricted stock were granted at a weighted average estimated fair value of
$158.46
per share.
Q1
201
6
 
93,120
shares of restricted stock were granted at a weighted average estimated fair value of
$159.46
per share.
Q2
201
6
 
No
restricted stock granted.
Q3
201
6
 
255
shares of restricted stock were granted at a weighted average estimated fair value of
$146.20
per share.
Q4
201
6
 
3,944
shares of restricted stock were granted at a weighted average estimated fair value of
$164.77
 per share.
 
Employee Stock Purchase Plan Fair Value Determinations
 
During fiscal
2018,
employees purchased
64,230
shares at a weighted average price of
$160.34
compared to
75,372
shares at a weighted average price of
$136.34
in fiscal
2017
and
73,072
shares at a weighted average price of
$131.14
in fiscal
2016.
Stock-based compensation expense recorded during fiscal
2018,
2017
and
2016
relating to the employee stock purchase plan was
$1.6
million,
$2.1
million and
$1.9
million, respectively.
 
The Company uses the Black-Scholes model to calculate the estimated fair value for the employee stock purchase plan. The weighted average estimated fair value of employee stock purchase plan grants during fiscal years
2018,
2017
and
2016,
was
$31.83,
$28.16
and
$26.87
per share, respectively, with the following weighted average assumptions:
 
 
   
2018
    
2017
    
2016
  
Risk-free interest rate
    
1.55
%
    
0.69
%
    
0.22
%
Expected life (months)
    
3
      
3
      
3
  
Expected volatility
    
10.19
%
    
8.6
%
    
10.7
%
Dividend yield
    
1.27
%
    
1.25
%
    
1.18
%
 
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.