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Employee Benefit Plans
12 Months Ended
Oct. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Employee Benefit Plans
Employee Benefit Plans
Employee Stock Purchase Plan
Under the Company’s Employee Stock Purchase Plan (ESPP), employees are granted the right to purchase shares of common stock at a price per share that is 85% of the lesser of the fair market value of the shares at (1) the beginning of a rolling two year offering period or (2) the end of each semi-annual purchase period, subject to a plan limit on the number of shares that may be purchased in a purchase period.
On March 29, 2016, the Company’s stockholders approved an amendment to the ESPP to increase the number of shares of common stock authorized for issuance under the plan by 5.0 million shares. During fiscal 2017, 2016 and 2015, the Company issued 1.6 million, 1.6 million, and 1.7 million shares, respectively, under the ESPP at average per share prices of $40.85, $37.77 and $31.55, respectively. As of October 31, 2017, 7.1 million shares of common stock were reserved for future issuance under the ESPP.
Equity Compensation Plans
2006 Employee Equity Incentive Plan. On April 25, 2006, the Company’s stockholders approved the 2006 Employee Equity Incentive Plan (2006 Employee Plan), which provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and other forms of equity compensation, including performance stock awards and performance cash awards, as determined by the plan administrator. The terms and conditions of each type of award are set forth in the 2006 Employee Plan. Options granted under this plan have a contractual term of seven years and generally vest over four years. On April 6, 2017, the Company's stockholders approved an amendment to increase the number of shares of common stock reserved for future issuance under the 2006 Employee Plan by 5.0 million shares. As of October 31, 2017, an aggregate of 6.1 million stock options and 3.8 million restricted stock units were outstanding, and 12.6 million shares were available for future issuance under the 2006 Employee Plan.
2005 and 2017 Non-Employee Directors Equity Incentive Plans. On April 6, 2017, the Company’s stockholders approved the 2017 Non-Employee Directors Equity Incentive Plan (2017 Directors Plan). In connection with stockholder approval of the 2017 Directors Plan, the 2005 Non-Employee Directors Equity Incentive Plan (2005 Directors Plan) was terminated as of April 6, 2017, and no awards can be granted under the 2005 Directors Plan after that date.
Under the 2005 Directors Plan, the Company granted options to purchase 188,709 shares of common stock, which vest over a period of three to four years, with an aggregate grant date fair value of $6.7 million, to non-employee directors during fiscal 2007, fiscal 2011, fiscal 2015, and fiscal 2017. As of October 31, 2017, 18,354 shares of restricted stock were unvested and 107,207 stock options were outstanding under the 2005 Directors Plan.
The 2017 Directors Plan provides for equity awards to non-employee directors in the form of stock options, restricted stock units, restricted stock or a combination thereof. The Company’s stockholders have approved an aggregate of 0.45 million shares of common stock reserved under the 2017 Directors Plan.
As of October 31, 2017, the Company has issued an aggregate of 19,624 shares of restricted stock awards with an aggregate grant date fair value of approximately $1.4 million under the 2017 Directors Plan. Restricted stock awards vest over a period of three years. As of October 31, 2017, 19,624 shares of restricted stock were unvested and no stock options were outstanding, and a total of 430,376 shares of common stock were reserved for future grant under the 2017 Directors Plan.
Other Assumed Stock Plans through Acquisitions. In connection with the Company’s acquisitions in fiscal 2008, fiscal 2010, fiscal 2012, fiscal 2014, fiscal 2015, and fiscal 2017, the Company assumed certain outstanding stock awards of acquired companies. If these assumed equity awards are canceled, forfeited or expire unexercised, the underlying shares do not become available for future grant. As of October 31, 2017, 0.4 million shares of the Company’s common stock remained subject to such outstanding assumed equity awards.
Restricted Stock Units. Since fiscal 2007, restricted stock units are granted under the 2006 Employee Plan as part of the Company’s new hire and annual incentive compensation program. Restricted stock units are valued based on the closing price of the Company’s common stock on the grant date. In general, restricted stock units vest over three to four years and are subject to the employee's continuing service with the Company. For each restricted stock unit granted under the 2006 Employee Plan, a share reserve ratio is applied for the purpose of determining the remaining number of shares reserved for future grants under the plan. On April 3, 2012, the Company's stockholders approved an amendment of the 2006 Employee Plan to prospectively change the share reserve ratio from 1.25 to 1.50. On April 2, 2015, the stockholders approved amending the share reserve ratio from 1.50 to 1.60. On March 29, 2016, the stockholders approved amending the share reserve ratio from 1.60 to 1.70.
The following table contains information concerning activities related to restricted stock units:
 
Restricted
Stock Units
 
Weighted 
Average
Grant Date
Fair Value
 
Weighted
Average
Remaining
Contractual
Life (In Years)
 
Aggregate
Fair
Value
 
(in thousands, except per share and life amounts)
Balance at October 31, 2014
3,947

 
$
35.29

 
1.53
 
 
Granted
1,707

 
$
48.13

 
 
 
 
Vested(1)
(1,522
)
 
$
33.05

 
 
 
$
73,677

Forfeited
(204
)
 
$
37.68

 
 
 
 
Balance at October 31, 2015
3,928

 
$
41.61

 
1.54
 
 
Granted
1,765

 
$
49.59

 
 
 
 
Vested(1)
(1,547
)
 
$
38.33

 
 
 
$
79,558

Forfeited
(111
)
 
$
43.12

 
 
 
 
Balance at October 31, 2016
4,035

 
$
46.37

 
1.56
 
 
Granted
1,584

 
$
70.49

 
 
 
 
Vested(1)
(1,536
)
 
$
43.53

 
 
 
$
110,103

Forfeited
(240
)
 
$
49.36

 
 
 
 
Balance at October 31, 2017
3,843

 
$
57.26

 
1.54
 
 
(1)
The number of vested restricted stock units includes shares that were withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements.
The following table contains additional information concerning activities related to stock options and restricted stock units under all equity plans, other than shares available for grant under the 2017 Directors Plan:
 
Available for
Grant(3)
 
Options(2)
 
Options
Outstanding
 
Weighted-
Average Exercise
Price per Share
 
Weighted-
Average
Remaining
Contractual
Life (In Years)
 
Aggregate
Intrinsic
Value
 
(in thousands, except per share and life amounts)
Balance at October 31, 2014
12,155

 
7,750

 
$
29.81

 
4.66
 
$
86,537

Options granted
(1,908
)
 
1,942

 
$
45.14

 
 
 
 
Options assumed(2)
 
 
133

 
$
38.97

 
 
 
 
Options exercised
 
 
(2,125
)
 
$
26.06

 
 
 
 
Options canceled/forfeited/expired
230

 
(411
)
 
$
33.51

 
 
 
 
Restricted stock units granted(1)
(2,707
)
 
 
 
 
 
 
 
 
Restricted stock units forfeited(1)
313

 
 
 
 
 
 
 
 
Additional shares reserved
3,800

 
 
 
 
 
 
 
 
Balance at October 31, 2015
11,883

 
7,289

 
$
34.94

 
4.67
 
$
109,627

Options granted
(1,685
)
 
1,685

 
$
47.39

 
 
 
 
Options exercised
 
 
(2,154
)
 
$
30.06

 
 
 
 
Options canceled/forfeited/expired
33

 
(65
)
 
$
35.31

 
 
 
 
Restricted stock units granted(1)
(2,967
)
 
 
 
 
 
 
 
 
Restricted stock units forfeited(1)
180

 
 
 
 
 
 
 
 
Additional shares reserved
3,800

 
 
 
 
 
 
 
 
Balance at October 31, 2016
11,244

 
6,755

 
$
39.59

 
4.65
 
$
126,850

Options granted
(1,505
)
 
1,536

 
$
68.18

 
 
 
 
Options assumed(2)
 
 
154

 
$
34.52

 
 
 
 
Options exercised
 
 
(1,770
)
 
$
34.56

 
 
 
 
Options canceled/forfeited/expired
129

 
(145
)
 
$
47.17

 
 
 
 
Restricted stock units granted(1)
(2,694
)
 
 
 
 
 
 
 
 
Restricted stock units forfeited(1)
409

 
 
 
 
 
 
 
 
Additional shares reserved
5,000

 
 
 
 
 
 
 
 
Balance at October 31, 2017
12,583

 
6,530

 
$
46.83

 
4.60
 
$
263,555

Vested and expected to vest as of October 31, 2017
 
 
6,530

 
$
46.83

 
4.60
 
$
263,555

Exercisable at October 31, 2017
 
 
3,252

 
$
39.72

 
3.64
 
$
154,357

 
(1)
These amounts do not reflect the actual number of restricted stock units granted or forfeited but rather the effect on the total remaining shares available for future grants after the application of the share reserve ratio. For more information about the share reserve ratio, please see Restricted Stock Units above.
(2)
The Company assumed options outstanding under various plans through acquisitions.
(3)
Excluding shares reserved for future issuance under the 2017 Directors Plan.
The aggregate intrinsic value in the preceding table represents the pretax intrinsic value based on stock options with an exercise price less than the Company’s closing stock price of $87.19 as of October 31, 2017. The pretax intrinsic value of options exercised and their average exercise prices were:
 
Year Ended October 31,
 
2017
 
2016
 
2015
 
(in thousands, except per share price)
Intrinsic value
$
67,089

 
$
51,408

 
$
44,104

Average exercise price per share
$
34.56

 
$
30.06

 
$
26.06


Restricted stock award activities during fiscal 2017 under the 2005 Directors Plan and 2017 Directors Plan are summarized as follows:
 
Restricted
Shares
 
Weighted-Average
Grant Date Fair Value
 
(in thousands, except per share)
Unvested at October 31, 2016
43

 
$
45.97

Granted
20

 
$
71.34

Vested
(22
)
 
$
44.33

Forfeited
(3
)
 
$
47.65

Unvested at October 31, 2017
38

 
$
59.89


Valuation and Expense of Stock-Based Compensation. The Company estimates the fair value of stock-based awards in the form of stock options and employee stock purchase rights under employee stock purchase plans on the grant date. The value of awards expected to vest is recognized as expense over the applicable service periods. The Company uses the straight-line attribution method to recognize stock-based compensation costs over the service period of the award. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options, stock appreciation rights and employee stock purchase plan awards. The Black-Scholes option-pricing model incorporates various subjective assumptions including expected volatility, expected term and interest rates. The expected volatility for both stock options and stock purchase rights under the ESPP is estimated by a combination of implied volatility for publicly traded options of the Company’s common stock with a term of six months or longer and the historical stock price volatility over the estimated expected term of the Company’s stock-based awards. The expected term of the Company’s stock-based awards is based on historical experience.
The assumptions presented in the following table were used to estimate the fair value of stock options and employee stock purchase rights granted under the Company’s stock plans or stock plans assumed from acquisitions:
 
Year Ended October 31,
 
2017
 
2016
 
2015
Stock Options
 
 
 
 
 
Expected life (in years)
4.1
 
4.1
 
4.3
Risk-free interest rate
1.73% - 2.06%
 
1.06% - 1.63%
 
1.24% - 1.58%
Volatility
18.51% - 19.67%
 
19.21%-21.62%
 
16.92%-21.76%
Weighted average estimated fair value
$13.56
 
$8.97
 
$8.77
ESPP
 
 
 
 
 
Expected life (in years)
0.5 - 2.0
 
0.5 - 2.0
 
0.5 - 2.0
Risk-free interest rate
0.82% - 1.37%
 
0.53% - 0.86%
 
0.12% - 0.75%
Volatility
17.20% - 19.99%
 
17.03% - 25.46%
 
18.01% - 21.60%
Weighted average estimated fair value
$18.77
 
$12.75
 
$11.11

The following table presents stock-based compensation expense for fiscal 2017, 2016 and 2015, respectively:
 
Year Ended October 31,
 
2017
 
2016
 
2015
 
(in thousands)
Cost of products
$
12,553

 
$
11,006

 
$
9,162

Cost of maintenance and service
3,918

 
2,418

 
2,164

Research and development expense
52,933

 
49,511

 
43,431

Sales and marketing expense
21,001

 
19,690

 
17,744

General and administrative expense
17,889

 
14,958

 
13,899

Stock-based compensation expense before taxes
108,294

 
97,583

 
86,400

Income tax benefit
(30,950
)
 
(25,967
)
 
(20,071
)
Stock-based compensation expense after taxes
$
77,344

 
$
71,616

 
$
66,329



The Company elected to early adopt ASU 2016-09, "Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)" in the first quarter of fiscal 2017. As required by ASU 2016-09, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in the consolidated statements of cash flows and the Company has elected to apply this provision on a prospective basis. The Company also elected to account for forfeitures as they occur and recorded a one-time adoption expense of $0.4 million to retained earnings.
As of October 31, 2017, the Company had $215.5 million of total unrecognized stock-based compensation expense relating to options and restricted stock units and awards, which is expected to be recognized over a weighted average period of 2.5 years.
Deferred Compensation Plan. The Company maintains the Synopsys Deferred Compensation Plan (the Deferred Plan), which permits eligible employees to defer up to 50% of their annual cash base compensation and up to 100% of their eligible cash variable compensation. Amounts may be withdrawn from the Deferred Plan pursuant to elections made by the employees in accordance with the terms of the plan. Since the inception of the Deferred Plan, the Company has not made any matching or discretionary contributions to the Deferred Plan. There are no Deferred Plan provisions that provide for any guarantees or minimum return on investments. Undistributed amounts under the Deferred Plan are subject to the claims of the Company’s creditors. The securities held by the Deferred Plan are classified as trading securities.
Deferred Plan Assets and Liabilities are as follows:
 
As of October 31, 2017
 
As of October 31, 2016
 
(In thousands)
Plan assets recorded in other long-term assets
$
197,542

 
$
163,185

Plan liabilities recorded in other long-term liabilities(1)
$
197,542

 
$
163,185

(1)
Undistributed deferred compensation balances due to participants.
Income or loss from the change in fair value of the Deferred Plan assets is recorded in other income (expense), net. The increase or decrease in the fair value of the undistributed Deferred Plan obligation is recorded in total cost of revenue and operating expense. The following table summarizes the impact of the Deferred Plan:
 
Year Ended October 31,
 
2017
 
2016
 
2015
 
(in thousands)
Increase (reduction) to cost of revenue and operating expense
$
29,606

 
$
4,400

 
$
3,701

Other income (expense), net
29,606

 
4,400

 
3,701

Net increase (decrease) to net income
$

 
$

 
$


Other Retirement Plans. The Company sponsors various retirement plans for its eligible U.S. and non-U.S. employees. Total contributions to these plans were $57.4 million, $53.4 million and $40.0 million in fiscal 2017, 2016 and 2015, respectively. For employees in the United States and Canada, the Company matches pretax employee contributions up to a maximum of U.S. $3,000 and Canadian $4,000, respectively, per participant per year.