Stock-Based Compensation | Stock-Based Compensation On May 14, 2021, our stockholders approved the ANSYS, Inc. 2021 Equity and Incentive Compensation Plan (the 2021 Plan). The 2021 Plan is a long-term incentive plan pursuant to which awards may be granted to directors, officers, other employees and certain consultants of Ansys and its subsidiaries. These awards include stock option rights, stock appreciation rights, restricted stock, restricted stock units, cash incentives, performance shares, performance units and other awards. The 2021 Plan authorizes 4.4 million shares of common stock for issuance, plus 1.6 million shares that remained available for issuance under the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan (the Predecessor Plan) as of the effective date of the 2021 Plan plus any shares relating to the outstanding awards under the Predecessor Plan or the 2021 Plan that are subsequently forfeited. As of the effective date of the 2021 Plan, grants were no longer made under the Predecessor Plan. The 2021 Plan requires a minimum vesting period or performance period of one year for most award types and a maximum period for options to be exercisable as ten years from the grant date. Upon the death or disability of a participant, performance awards are vested pro-rata, subject to any performance target requirements, and all other awards become fully vested. The Compensation Committee of the Board of Directors may, at its sole discretion, accelerate the date or dates on which an award granted under the 2021 Plan may vest in the event of a change in control or an employee's termination of employment. A change in control will result in awards either being assumed by the acquirer or the pre-existing awards becoming immediately vested and earned at target award levels. In the event an employee is terminated without cause within 18 months after the change in control, any assumed awards will become immediately vested. We currently issue shares related to exercised stock options or vested awards from our existing pool of treasury shares and have no specific policy to repurchase treasury shares as stock options are exercised or as awards vest. If the treasury pool is depleted, we will issue new shares. Total stock-based compensation expense recognized for the years ended December 31, 2021, 2020 and 2019 is as follows: Year Ended December 31, (in thousands, except per share amounts) 2021 2020 2019 Cost of sales: Maintenance and service 12,390 13,626 8,494 Operating expenses: Selling, general and administrative 91,772 73,491 60,639 Research and development 62,176 58,498 47,057 Stock-based compensation expense before taxes 166,338 145,615 116,190 Related income tax benefits (75,241) (56,485) (47,454) Stock-based compensation expense, net of taxes $ 91,097 $ 89,130 $ 68,736 Net impact on earnings per share: Basic earnings per share $ (1.05) $ (1.04) $ (0.82) Diluted earnings per share $ (1.03) $ (1.02) $ (0.80) As of December 31, 2021, total unrecognized estimated compensation expense related to awards granted prior to that date was $180.0 million, which is expected to be recognized over a weighted average period of 1.4 years. Forfeitures of awards are accounted for as they occur. Stock Options Prior to 2017, we granted stock option awards. The value of each stock option award was estimated on the date of grant, or date of acquisition for options issued in a business combination, using the Black-Scholes option pricing model (Black-Scholes model). The determination of the fair value of stock-based payment awards using an option pricing model was affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables included our stock volatility during the preceding six years, actual and projected employee stock option exercise behaviors, interest rate assumptions using the five-year U.S. Treasury Note yield on the date of grant or acquisition date, and expected dividends. The stock-based compensation expense for options was recorded ratably over the requisite service period. As of December 31, 2021, there is no unrecognized estimated compensation cost related to unvested stock options. Information regarding stock option transactions is summarized below: Year Ended December 31, 2021 2020 2019 (options in thousands) Options Weighted- Options Weighted- Options Weighted- Outstanding, beginning of year 648 $ 74.26 984 $ 67.49 1,484 $ 62.80 Granted — $ — — $ — — $ — Exercised (270) $ 61.42 (336) $ 54.43 (495) $ 53.53 Forfeited (3) $ 55.46 — $ — (5) $ 64.21 Outstanding, end of year 375 $ 83.67 648 $ 74.26 984 $ 67.49 Vested and Exercisable, end of year 375 $ 83.67 648 $ 74.26 924 $ 65.71 Nonvested — $ — — $ — 60 $ 94.77 2021 2020 2019 Weighted Average Remaining Contractual Term (in years) Outstanding 3.09 2.93 3.18 Vested and Exercisable 3.09 2.93 2.95 Nonvested 0.00 0.00 6.71 Aggregate Intrinsic Value (in thousands) Exercised $ 82,790 $ 78,269 $ 72,098 Outstanding $ 118,995 $ 187,679 $ 186,926 Vested and Exercisable $ 118,995 $ 187,679 $ 177,111 Nonvested $ — $ — $ 9,815 Compensation Expense - Stock Options (in thousands) $ — $ 1,030 $ 1,709 Information regarding stock options outstanding as of December 31, 2021 is summarized below: (options in thousands) Options Outstanding & Exercisable Range of Exercise Prices Options Weighted- Weighted- $12.26 - $24.42 1 1.86 $ 20.50 $67.44 146 0.86 $ 67.44 $78.56 - $94.15 19 2.84 $ 85.93 $95.09 209 4.67 $ 95.09 There were no unvested stock options as of December 31, 2021. Restricted Stock Units Under the terms of the 2021 Plan, we issue various restricted stock unit awards (RSUs). The following table summarizes the types of awards and vesting conditions: Award Vesting Period Vesting Condition Restricted stock units with a service condition only Three years Continued employment through the vesting period. One third vests annually. Restricted stock units with an operating performance and service condition Three years Operating performance metrics as defined at the beginning of each sub-performance period and subject to continued employment through the vesting period. Restricted stock units with a market and service condition Three years Our performance measured by total stockholder return relative to the Nasdaq Composite Index for the performance period and subject to continued employment through the vesting period. The fair value of RSUs with only a service condition is based on the fair market value of our stock on the date of the grant and is recognized straight-line over the vesting period. The fair value of RSUs with operating performance metrics is based on the fair market value of our stock on the date of the grant and is recognized from the grant date through the vesting period based on management's estimates concerning the probability of operating performance metric achievement. The fair values of RSUs with a market condition were estimated using a Monte Carlo simulation model and are recognized over the vesting period. The determination of the fair values of the awards was affected by the grant date and several variables, each of which has been identified in the chart below: Year Ended December 31, Assumptions used in Monte Carlo lattice pricing model 2021 2020 2019 Risk-free interest rate 0.3% 0.7% 2.5% Expected dividend yield —% —% —% Expected volatility—Ansys stock price 36% 25% 23% Expected volatility—Nasdaq Composite Index 26% 18% 16% Expected term 2.8 years 2.8 years 2.8 years Correlation factor 0.84 0.77 0.71 Weighted average fair value per share $238.87 $245.08 $238.99 Total compensation expense for employee RSU awards recorded for the years ended December 31, 2021, 2020 and 2019 was $160.2 million, $138.3 million and $109.9 million, respectively. Information regarding all employee RSU transactions is summarized below: Year Ended December 31, 2021 2020 2019 (RSUs in thousands) RSUs Weighted- RSUs Weighted- RSUs Weighted- Nonvested, beginning of year 1,323 $ 201.98 1,618 $ 165.26 1,522 $ 129.96 Granted (1) 501 $ 333.50 501 $ 256.47 843 $ 192.37 Performance adjustment - awards with market condition (2) 17 $ 238.99 18 $ 191.76 12 $ 120.96 Performance adjustment - awards with performance condition (2) 63 $ 376.48 (10) $ 279.08 62 $ 176.89 Vested (793) $ 194.50 (742) $ 158.13 (704) $ 125.84 Forfeited (43) $ 263.13 (62) $ 193.28 (117) $ 140.43 Nonvested, end of year 1,068 $ 277.71 1,323 $ 201.98 1,618 $ 165.26 (1) Includes all RSUs granted during the year. RSUs with operating performance conditions are issued annually and have one performance cycle or three sub-performance cycles. Performance conditions are assigned near the beginning of each performance cycle or sub-performance cycle, as applicable, and awards are reflected as grants at the target number of units at that time. (2) RSUs with a market or performance condition are granted at target and vest based on achievement of the market or operating performance and service conditions. The actual number of RSUs issued may be more or less than the target RSUs depending on the achievement of the market or operating performance conditions. Board of Directors Prior to 2016, we granted deferred stock awards to non-employee Directors, which are rights to receive shares of common stock upon termination of service as a Director. Associated with these awards, we established a non-qualified 409(a) deferred compensation plan with assets held under a rabbi trust to provide Directors an opportunity to diversify their vested awards. During open trading windows and at their elective option, the Directors may convert their Ansys shares into a variety of non-Ansys-stock investment options in order to diversify a portion of their holdings, subject to meeting ownership guidelines. Information regarding deferred stock awards to non-employee Directors is summarized below: Year Ended December 31, 2021 Diversified Undiversified Total Deferred Awards Outstanding, beginning of year 6,998 58,681 65,679 Shares Diversified — — — Shares Issued Upon Retirement — (1,857) (1,857) Deferred Awards Outstanding, end of year 6,998 56,824 63,822 Year Ended December 31, 2020 Diversified Undiversified Total Deferred Awards Outstanding, beginning of year 5,598 60,081 65,679 Shares Diversified 1,400 (1,400) — Deferred Awards Outstanding, end of year 6,998 58,681 65,679 Year Ended December 31, 2019 Diversified Undiversified Total Deferred Awards Outstanding, beginning of year 12,250 120,449 132,699 Shares Diversified 13,348 (13,348) — Shares Issued Upon Retirement (20,000) (47,020) (67,020) Deferred Awards Outstanding, end of year 5,598 60,081 65,679 Information regarding RSU awards to non-employee Directors is summarized below: Year Ended December 31, 2021 2020 2019 BOD RSUs Weighted- BOD RSUs Weighted- BOD RSUs Weighted- Nonvested, beginning of year 8,071 $ 253.93 9,688 $ 187.53 13,632 $ 165.71 Granted 6,576 $ 329.78 9,664 $ 253.40 11,259 $ 187.53 Vested (8,219) $ 255.06 (10,704) $ 193.35 (14,287) $ 166.71 Forfeited — $ — (577) $ 253.93 (916) $ 187.53 Nonvested, end of year 6,428 $ 330.08 8,071 $ 253.93 9,688 $ 187.53 The RSUs to non-employee Directors vest in full upon the earlier of one year from the date of grant or the date of the next regular meeting of stockholders. If a non-employee Director retires prior to the vest date, the non-employee Director receives a pro-rata portion of the RSUs. Total compensation expense associated with the awards recorded for the years ended December 31, 2021, 2020 and 2019 was $2.1 million, $2.2 million and $2.5 million, respectively. Employee Stock Purchase Plan Our 1996 Employee Stock Purchase Plan (the “Purchase Plan”) was adopted by the Board of Directors on April 19, 1996 and was subsequently approved by our stockholders. The stockholders approved an amendment to the Purchase Plan in May 2016 to increase the number of shares available for offerings to 1.8 million shares of which 0.1 million shares are available for future purchases as of December 31, 2021. The Purchase Plan is administered by the Compensation Committee. Offerings under the Purchase Plan commence on each February 1 and August 1, and have a duration of six months. An employee who owns or is deemed to own shares of stock representing in excess of 5% of the combined voting power of all classes of our stock may not participate in the Purchase Plan. During each offering, an eligible employee may purchase shares under the Purchase Plan by authorizing payroll deductions of up to 10% of his or her cash compensation during the offering period. The maximum number of shares that may be purchased by any participating employee during any offering period is limited to 3,840 shares (as adjusted by the Compensation Committee from time to time). Unless the employee has previously withdrawn from the offering, his or her accumulated payroll |