|
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Overview
The following overview of our financial condition and results of operations is qualified in its entirety by the more complete discussion contained in this Item 7, the risk factors set forth in Item 1A of this Form 10-K and our consolidated financial statements and the notes thereto set forth in Item 8 of this Form 10-K. Please also see the cautionary language at the beginning of Part I of this Form 10-K regarding forward-looking statements.
Business Summary
Synopsys, Inc. provides products and services used across the entire Silicon to Software spectrum, from engineers creating advanced semiconductors to product teams developing advanced electronic systems to software developers seeking to ensure the security and quality of their code. We are a global leader in supplying the electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips. We also offer semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. We provide software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. To complement these offerings, we provide technical services and support to help our customers
develop advanced chips and electronic systems. These products and services are part of our Semiconductor & System Design segment.
We are also a leading provider of software tools and services that improve the security, quality and compliance of software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and industrials. These tools and services are part of our Software Integrity segment.
Our EDA and IP customers are generally semiconductor and electronics systems companies. Our solutions help these companies overcome the challenges of developing increasingly advanced electronics products while also helping them reduce their design and manufacturing costs. While our products are an important part of our customers’ development process, our sales could be affected based on their research and development budgets, and our customers' spending decisions may be affected by their business outlook and willingness to invest in new and increasingly complex chip designs.
Our Software Integrity business delivers products and services that enable software developers to test their code - while it is being written - for known security vulnerabilities and quality defects, as well as testing for open source security vulnerabilities and license compliance. Our Software Integrity customers are software developers across many industries, including, but also well beyond, the semiconductor and systems industries. Our Software Integrity products and services form a platform that helps our customers build security into the software development lifecycle and across the entire cyber supply chain.
We have consistently grown our revenue since 2005, despite periods of global economic uncertainty. We achieved these results because of our solid execution, leading technologies and strong customer relationships, and because we recognize our revenue for software licenses over the arrangement period, which typically approximates three years. See Note 2 of Notes to Consolidated Financial Statements for discussion on our revenue recognition policy. The revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period. As a result, decreases as well as increases in customer spending do not immediately affect our revenues in a significant way.
Our growth strategy is based on maintaining and building on our leadership in our EDA products, expanding and proliferating our IP offerings, driving growth in the software security and quality market, and continuing to expand our product portfolio and our total addressable market. In addition, due to our adoption of Accounting Standard Codification 606 (ASC 606), "Revenue from Contracts with Customers", in the beginning of fiscal 2019, the way in which we are required to account for certain types of arrangements has increased the variability in our total revenue from period to period. Nevertheless, the accounting impact has not affected the cash generated from our business. Based on our leading technologies, customer relationships, business model, diligent expense management, and acquisition strategy, we believe that we will continue to execute our strategies successfully.
COVID-19 Pandemic
While the COVID-19 pandemic has changed the physical working environment of the substantial majority of our workforce to working from home, it has otherwise caused only minor disruptions to our business operations with a limited impact on our operating results thus far. Given the unpredictable nature of the COVID-19 pandemic’s impact on the global economy, our historical results may not be an indication of future performance.
The extent to which the COVID-19 pandemic impacts our business operations in future periods will depend on multiple uncertain factors, including the duration and scope of the pandemic, its overall negative impact on the global economy generally and the semiconductor and electronics industries specifically, and continued responses by governments and businesses to COVID-19. We have not identified trends that we expect will materially impact our future operating results at this time. As we recognize our revenue for software licenses over the arrangement period, any potential impact related to COVID-19 may be delayed. We have not observed any changes in the design activity of customers, but we experienced a slowdown in customer commitments in our Software Integrity segment. We have not received any significant requests from our customers to either delay payments or modify arrangements due to COVID-19. However, this situation could change in future periods and the extent that these requests may impact our business is uncertain. We have also experienced minor disruptions in our hardware supply chain, which we have been able to address with minimal impact to our business operations to date.
We will continue to consider the potential impact of the COVID-19 pandemic on our business operations. Although no material impairment or other effects have been identified to date related to the COVID-19 pandemic, there is substantial uncertainty in the nature and degree of its continued effects over time. That uncertainty affects
management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information become known.
See Part I, Item 1A, Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business, operations and financial condition.
Business Segments
Semiconductor & System Design. This segment includes our advanced silicon design, verification products and services, and semiconductor IP portfolio, which encompasses products and services that serve companies primarily in the semiconductor and electronics industries. EDA includes digital, custom and Field Programmable Gate Array (FPGA) IC design software, verification products, and manufacturing software products. Designers use these products to automate the highly complex IC design process and to reduce defects that could lead to expensive design or manufacturing re-spins or suboptimal end products. For IP, we are a leading provider of high-quality, silicon-proven IP solutions for system-on-chips (SoCs). This includes IP that has been optimized to address specific application requirements for the mobile, automotive, digital home, internet of things, and cloud computing markets, enabling designers to quickly develop SoCs in these areas.
Software Integrity. This segment includes a broad portfolio of products and services such as leading quality testing technologies, automated analysis, and consulting experts. Beginning in fiscal 2019, we launched the Polaris Software Integrity Platform™, an integrated cloud-based solution that unites key elements to provide an even more valuable way for developers to better develop personalized approaches for open source license compliance and detect and remediate known security vulnerabilities and quality defects early in the development process, thereby minimizing risk and maximizing productivity.
Fiscal Year End
Our fiscal year ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2018 was a 53-week year and ended on November 3, 2018. Fiscal 2020 and 2019 were 52-week years ending on October 31, 2020 and November 2, 2019, respectively. Fiscal 2021 will be a 52-week year.
For presentation purposes, this Form 10-K refers to the closest calendar month end.
Fiscal 2020 Financial Performance Summary
In fiscal 2020, compared to fiscal 2019, our financial performance reflects the following:
|
|
•
|
Revenues were $3.7 billion, an increase of $324.6 million or 10%, primarily due to our continued organic growth;
|
|
|
•
|
Total cost of revenue and operating expenses were $3.1 billion, an increase of $224.8 million or 8%, primarily due to increases in employee-related costs of $193.4 million, resulting from headcount increases through organic growth and acquisitions, partially offset by a decrease in restructuring costs of $11.1 million;
|
|
|
•
|
Operating income of $620.1 million, an increase of $99.9 million or 19%.
|
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial results under Results of Operations below are based on our audited results of operations, which we have prepared in accordance with U.S. GAAP. In preparing these financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Our actual results may differ from these estimates. See Note 2 of Notes to Consolidated Financial Statements for further information on our significant accounting policies.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, are:
|
|
•
|
Valuation of business combinations; and
|
Revenue Recognition
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. We have concluded that our EDA software licenses in Time-based Subscription License (TSL) contracts are not distinct from our obligation to provide unspecified software updates to the licensed software throughout the license term, because those promises represent inputs to a single, combined performance obligation. Where unspecified additional software product rights are part of the contract with the customer, those rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support, because such rights are provided during the same period of time and have the same time-based pattern of transfer to the customer. In reaching this conclusion, we considered the nature of our obligation to customers which is to provide an ongoing right to use the most up to date and relevant software. As EDA customers operate in a rapidly changing and competitive environment, satisfying the obligation requires providing critical updates to the existing software products, including ongoing iterative interaction with customers to make the software relevant to the customers’ ability to meet the time to go to market with advanced products.
Business Combinations
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include, but are not limited to:
|
|
•
|
future expected cash flows from software license sales, subscriptions, support agreements, consulting contracts and acquired developed technologies and patents;
|
|
|
•
|
historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
|
|
|
•
|
the expected use of the acquired assets; and
|
Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities.
Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. In addition, we are subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service (IRS) and other domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from such examinations. We believe such estimates to be reasonable; however, the final determination of any of these examinations could significantly impact the amounts provided for income taxes in our consolidated financial statements.
Effect of New Accounting Pronouncements Not Yet Adopted
See Note 16 of Notes to Consolidated Financial Statements.
Results of Operations
We adopted new revenue guidance, ASC 606, at the beginning of fiscal 2019 under the modified retrospective method which has limited the comparability of prior year results in revenue and commission expense. The comparative information for periods prior to fiscal 2019 has not been restated.
Revenue
Our revenues are generated from two business segments: the Semiconductor & System Design segment and the Software Integrity segment. See Note 15 of the Notes to Consolidated Financial Statements for additional information about our reportable segments and revenue by geographic regions.
Further disaggregation of the revenues into various products and services within these two segments is summarized as follows:
Semiconductor & System Design Segment
This segment is comprised of the following:
|
|
•
|
EDA software includes digital, custom and Field Programmable Gate Array (FPGA) IC design software, verification products and obligations to provide unspecified updates and support services. EDA products and services are typically sold through TSL arrangements that grant customers the right to access and use all of the licensed products at the outset of an arrangement and software updates are generally made available throughout the entire term of the arrangement. The weighted-average term of the TSLs we entered into in fiscal 2020, 2019, and 2018 were approximately three years, respectively. Under ASC 606, we have concluded that the software licenses in TSL contracts are not distinct from the obligation to provide unspecified software updates to the licensed software throughout the license term, because the multiple software licenses represent inputs to a single, combined offering, and timely, relevant software updates are integral to maintaining the utility of the software licenses. We recognize revenue for the combined performance obligation under TSL contracts ratably over the term of the license.
|
|
|
•
|
IP & System Integration includes our DesignWare® IP portfolio and system-level products and services. Under ASC 606, these arrangements generally have two performance obligations which consist of transferring of the licensed IP and providing related support, which includes rights to technical support and software updates that are provided over the support term and are transferred to the customer over time. Revenue allocated to the IP licenses is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support is recognized over the support term. Royalties are recognized as revenue in the quarter in which the applicable customer sells its products that incorporate our IP. Payments for IP contracts are generally received upon delivery of the IP. Revenue related to the customization of certain IP is recognized as “Professional Services.”
|
|
|
•
|
In the case of arrangements involving the sale of Hardware products, we generally have two performance obligations. The first performance obligation is to transfer the hardware product, which includes software integral to the functionality of the hardware product. The second performance obligation is to provide maintenance on the hardware and its embedded software, which includes rights to technical support, hardware repairs and software updates that are all provided over the same term and have the same time-based pattern of transfer to the customer. The portion of the transaction price allocated to the hardware product is generally recognized as revenue at the time of shipment because the customer obtains control of the product at that point in time. We have concluded that control generally transfers at that point in time because the customer has the ability to direct the use of the asset and an obligation to pay for the hardware. The portion of the transaction price allocated to the maintenance obligation is recognized as revenue ratably over the maintenance term.
|
|
|
•
|
Revenue from Professional Service contracts is recognized over time, generally using costs incurred or hours expended to measure progress. We have a history of reasonably estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes.
|
Software Integrity Segment
|
|
•
|
We sell Software Integrity products in arrangements that provide customers the right to software licenses, maintenance updates and technical support. Over the term of these arrangements, the customer expects us to provide integral maintenance updates to the software licenses, which help customers protect their own software from new critical quality defects and potential security vulnerabilities. The licenses and maintenance updates serve together to fulfill our commitment to the customer as both work together to provide functionality to the customer and represent a combined performance obligation. We recognize revenue for the combined performance obligation over the term of the arrangement.
|
Most of our customer arrangements involve hundreds of products and various license rights, and our customers bargain with us over many aspects of these arrangements. For example, they often demand a broader portfolio of solutions, support and services and seek more favorable terms such as expanded license usage, future purchase rights and other unique rights at an overall lower total cost. No single factor typically drives our customers’ buying decisions, and we compete on all fronts to serve customers in highly competitive markets. Customers generally negotiate the total value of the arrangement rather than just unit pricing or volumes.
Total Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Semiconductor & System Design Segment
|
$
|
3,327.2
|
|
|
$
|
3,026.1
|
|
|
$
|
2,840.6
|
|
|
$
|
301.1
|
|
|
10
|
%
|
|
$
|
185.5
|
|
|
7
|
%
|
Software Integrity Segment
|
358.1
|
|
|
334.6
|
|
|
280.5
|
|
|
23.5
|
|
|
7
|
%
|
|
54.1
|
|
|
19
|
%
|
Total
|
$
|
3,685.3
|
|
|
$
|
3,360.7
|
|
|
$
|
3,121.1
|
|
|
$
|
324.6
|
|
|
10
|
%
|
|
$
|
239.6
|
|
|
8
|
%
|
The overall growth of our business has been the primary driver of the increase in our revenue. Our revenues are subject to fluctuations, primarily due to customer requirements including the timing and value of contract renewals. For example, we experience fluctuations in our revenue due to factors such as the timing of IP product sales, consulting projects, Flexible Spending Account (FSA) drawdowns, royalties, and hardware sales. As revenue from IP products sales and hardware sales are recognized upfront, customer demand and timing requirements for such IP products and hardware have resulted in increased variability of our total revenue.
The increase in total revenue for fiscal 2020 compared to fiscal 2019 was primarily attributable to the continued organic growth of the business in time-based and upfront IP license products, and higher maintenance and service revenue.
The increase in total revenue for fiscal 2019 compared to fiscal 2018 was primarily attributable to the continued business growth in all product categories, and higher revenue of $102.5 million recognized under new revenue standard ASC 606 compared with revenue recognized under old revenue standard ASC 605. The increase was partially offset by approximately $46.0 million of additional revenue due to one extra week in fiscal 2018.
For a discussion of revenue by geographic areas, see Note 15 of Notes to Consolidated Financial Statements.
Time-Based Products Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
|
$
|
2,365.2
|
|
|
$
|
2,198.0
|
|
|
$
|
2,303.3
|
|
|
$
|
167.2
|
|
|
8
|
%
|
|
$
|
(105.3
|
)
|
|
(5
|
)%
|
Percentage of total revenue
|
64
|
%
|
|
65
|
%
|
|
74
|
%
|
|
|
|
|
|
|
|
|
The increase in time-based products revenue for fiscal 2020 compared to fiscal 2019 was primarily attributable to an increase in TSL license revenue from arrangements booked in prior periods.
The decrease in time-based products revenue for fiscal 2019 compared to fiscal 2018 was primarily attributable to the impact of lower revenue recognized under ASC 606 of $206.9 million offset by an increase in TSL license revenue from arrangements booked in prior periods.
Upfront Products Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
|
$
|
735.6
|
|
|
$
|
619.8
|
|
|
$
|
357.7
|
|
|
$
|
115.8
|
|
|
19
|
%
|
|
$
|
262.1
|
|
|
73
|
%
|
Percentage of total revenue
|
20
|
%
|
|
18
|
%
|
|
11
|
%
|
|
|
|
|
|
|
|
|
Changes in upfront products revenue are generally attributable to normal fluctuations in the extent and timing of customer requirements, which can drive the amount of upfront orders and revenue in any particular period.
The increase in upfront products revenue for fiscal 2020 compared to fiscal 2019 was primarily due to an increase in the sale of IP products driven by higher demand from customers.
The increase in upfront products revenue for fiscal 2019 compared to fiscal 2018 was primarily due to an increase in the sale of IP products driven by higher demand from customers and higher IP revenue recognized upfront under ASC 606 of $235.4 million.
Upfront products revenue as a percentage of total revenue will likely fluctuate based on the timing of IP products and hardware sales. Such fluctuations will continue to be impacted by the timing of shipments due to customer requirements.
Maintenance and Service Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Maintenance revenue
|
$
|
177.4
|
|
|
$
|
179.0
|
|
|
$
|
100.4
|
|
|
$
|
(1.6
|
)
|
|
(1
|
)%
|
|
$
|
78.6
|
|
|
78
|
%
|
Professional service and other revenue
|
407.1
|
|
|
363.9
|
|
|
359.6
|
|
|
43.2
|
|
|
12
|
%
|
|
4.3
|
|
|
1
|
%
|
Total
|
$
|
584.5
|
|
|
$
|
542.9
|
|
|
$
|
460.0
|
|
|
$
|
41.6
|
|
|
8
|
%
|
|
$
|
82.9
|
|
|
18
|
%
|
Percentage of total revenue
|
16
|
%
|
|
17
|
%
|
|
15
|
%
|
|
|
|
|
|
|
|
|
Maintenance revenue for fiscal 2020 remained relatively flat compared to fiscal 2019, primarily due to a decrease in the volume and type of arrangements that include maintenance.
The increase in maintenance revenue for fiscal 2019 compared to fiscal 2018 was primarily due to higher revenue under ASC 606 of $74.0 million and an increase in the volume of arrangements that include maintenance.
The increase in professional services and other revenue for fiscal 2020 compared to fiscal 2019 was primarily due to an increase in the volume of IP consulting projects and the timing of IP consulting projects.
The increase in professional services and other revenue for fiscal 2019 compared to fiscal 2018 was primarily due to the timing of IP consulting projects. The increase was offset by the impact of the extra week in fiscal 2018.
Cost of Revenue and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Cost of revenue
|
$
|
794.7
|
|
|
$
|
752.9
|
|
|
$
|
735.9
|
|
|
$
|
41.8
|
|
|
6
|
%
|
|
$
|
17.0
|
|
|
2
|
%
|
Operating expenses
|
2,270.5
|
|
|
2,087.5
|
|
|
2,024.9
|
|
|
183.0
|
|
|
9
|
%
|
|
62.6
|
|
|
3
|
%
|
Total
|
$
|
3,065.2
|
|
|
$
|
2,840.4
|
|
|
$
|
2,760.8
|
|
|
$
|
224.8
|
|
|
8
|
%
|
|
$
|
79.6
|
|
|
3
|
%
|
Total expenses as a percentage of total revenue
|
83
|
%
|
|
85
|
%
|
|
88
|
%
|
|
|
|
|
Our expenses are generally impacted by changes in personnel-related costs including salaries, benefits, stock-based compensation and variable compensation; changes in amortization; changes in hardware related direct costs; and changes in selling and marketing expenses. The increase in our expenses compared to prior fiscal years was primarily due to an increase in personnel-related costs, driven by increased headcount from our overall growth, and fixed charges including information technology (IT) and facilities.
Foreign currency fluctuations, net of hedging, did not have a significant impact on expenses during fiscal 2020 as compared to fiscal 2019, or fiscal 2019 as compared to fiscal 2018. See Note 6 of Notes to Consolidated Financial Statements for details on our foreign exchange hedging programs.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Cost of products revenue
|
$
|
487.3
|
|
|
$
|
459.1
|
|
|
$
|
448.4
|
|
|
$
|
28.2
|
|
|
6
|
%
|
|
$
|
10.7
|
|
|
2
|
%
|
Cost of maintenance and service revenue
|
254.9
|
|
|
234.2
|
|
|
203.5
|
|
|
20.7
|
|
|
9
|
%
|
|
30.7
|
|
|
15
|
%
|
Amortization of intangible assets
|
52.5
|
|
|
59.6
|
|
|
84.0
|
|
|
(7.1
|
)
|
|
(12
|
)%
|
|
(24.4
|
)
|
|
(29
|
)%
|
Total
|
$
|
794.7
|
|
|
$
|
752.9
|
|
|
$
|
735.9
|
|
|
$
|
41.8
|
|
|
6
|
%
|
|
$
|
17.0
|
|
|
2
|
%
|
Percentage of total revenue
|
22
|
%
|
|
22
|
%
|
|
24
|
%
|
|
|
|
|
|
|
|
|
We divide cost of revenue into three categories: cost of products revenue, cost of maintenance and service revenue, and amortization of intangible assets. We segregate expenses directly associated with consulting and training services from cost of products revenue associated with internal functions providing license delivery and post-customer contract support services. We then allocate these group costs between cost of products revenue and cost of maintenance and service revenue based on products and maintenance and service revenue reported.
Cost of products revenue. Cost of products revenue includes costs related to products sold and software licensed, hardware related direct costs, allocated operating costs related to product support and distribution costs, royalties paid to third-party vendors, and the amortization of capitalized research and development costs associated with software products that had reached technological feasibility.
Cost of maintenance and service revenue. Cost of maintenance and service revenue includes operating costs related to maintaining the infrastructure necessary to operate our services and costs to deliver our consulting services, such as hotline and on-site support, production services and documentation of maintenance updates. We expect our cost of maintenance and service revenue to increase in future periods because of recent acquisitions, but we do not expect the impact to be material to our total cost of revenue.
Amortization of intangible assets. Amortization of intangible assets, which is recorded to cost of revenue and operating expenses, includes the amortization of core/developed technology, trademarks, trade names, customer relationships, covenants not to compete related to acquisitions and certain contract rights related to acquisitions.
The increase in cost of revenue for fiscal 2020 compared to fiscal 2019 was primarily due to increases of $25.6 million in personnel-related costs as a result of headcount increases from organic hiring and acquisitions, $16.1
million in consulting costs primarily related to servicing IP consulting arrangements, $5.1 million in depreciation and maintenance expenses, and $2.8 million in hardware related direct costs, partially offset by a decrease of $7.1 million in amortization of intangible assets.
The increase in cost of revenue for fiscal 2019 compared to fiscal 2018 was primarily due to an increase of $21.5 million in personnel-related costs as a result of headcount increases from organic hiring, $11.3 million in consulting costs primarily related to servicing IP consulting arrangements, $10.1 million in IT and facility expenses, and $5.3 million in depreciation and maintenance expenses, partially offset by a decrease of $24.4 million in amortization of intangible assets and one additional week of expenses of approximately $4.5 million in fiscal 2018.
Changes in other cost of revenue categories for the above-mentioned periods were not individually material.
Operating Expenses
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
|
$
|
1,279.0
|
|
|
$
|
1,136.9
|
|
|
$
|
1,084.8
|
|
|
$
|
142.1
|
|
|
12
|
%
|
|
$
|
52.1
|
|
|
5
|
%
|
Percentage of total revenue
|
35
|
%
|
|
34
|
%
|
|
35
|
%
|
|
|
|
|
|
|
|
|
The increase in research and development expenses for fiscal 2020 compared to fiscal 2019 was primarily due to increases of $124.5 million in personnel-related costs as a result of headcount increases, including those from acquisitions, $14.8 million in facility expenses, and $6.6 million in consultants and contractor costs, partially offset by lower deferred compensation expenses of $4.5 million.
The increase in research and development expenses for fiscal 2019 compared to fiscal 2018 was primarily due to increases of $41.5 million in personnel-related costs as a result of headcount increases, including organic hiring and those from prior year acquisitions, $22.8 million in IT and facility expenses, and $5.5 million in consultants and contractor costs, partially offset by an additional week of expenses of approximately $19.3 million in fiscal 2018.
Changes in other research and development expense categories for the above-mentioned periods were not individually material.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
|
$
|
632.0
|
|
|
$
|
632.9
|
|
|
$
|
623.0
|
|
|
$
|
(0.9
|
)
|
|
—
|
%
|
|
$
|
9.9
|
|
|
2
|
%
|
Percentage of total revenue
|
17
|
%
|
|
19
|
%
|
|
20
|
%
|
|
|
|
|
|
|
|
|
Sales and marketing expenses remained relatively flat for fiscal 2020 compared to fiscal 2019, primarily due to a decrease of $19.5 million that included reduced travel and marketing expenses as a result of COVID-19 restrictions, partially offset by an increase in personnel-related costs of $19.1 million.
The increase in sales and marketing expenses for fiscal 2019 compared to fiscal 2018 was primarily due to increases of $11.3 million in personnel-related costs as a result of headcount increases and $4.3 million in IT and facility expenses, partially offset by an additional week of expenses of approximately $5.8 million in fiscal 2018. For fiscal 2019, commission expenses were $4.1 million lower compared to commission expenses for fiscal 2018 which was accounted for under ASC 605.
Changes in other sales and marketing expense categories for the above-mentioned periods were not individually material.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
|
$
|
284.5
|
|
|
$
|
229.2
|
|
|
$
|
262.6
|
|
|
$
|
55.3
|
|
|
24
|
%
|
|
$
|
(33.4
|
)
|
|
(13
|
)%
|
Percentage of total revenue
|
8
|
%
|
|
7
|
%
|
|
8
|
%
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses for fiscal 2020 compared to fiscal 2019 was primarily due to an increase of $24.2 million in personnel-related expenses, a legal settlement of $18.3 million in our favor in the first quarter of fiscal 2019, and an increase of $13.1 million in depreciation and maintenance expenses, partially offset by a decrease of $1.6 million in professional service costs.
The decrease in general and administrative expenses for fiscal 2019 compared to fiscal 2018 was primarily due to a $26.0 million litigation settlement in the third quarter of fiscal 2018, a legal settlement of $18.3 million in our favor in the first quarter of fiscal 2019, and an additional week of expenses of approximately $4.1 million in fiscal 2018. The decreases were partially offset by a $7.1 million increase in personnel-related costs.
Changes in other general and administrative expense categories for the above-mentioned periods were not individually material.
Change in Fair Value of Deferred Compensation
The income or loss arising from the change in fair value of our non-qualified deferred compensation plan obligation is recorded in cost of sales and each functional operating expense, with the offsetting change in the fair value of the related assets recorded in other income (expense), net. These assets are classified as trading securities. There is no impact to our net income from the fair value changes in our deferred compensation plan obligation and asset.
Amortization of Intangible Assets
Amortization of intangible assets includes the amortization of contract rights and the amortization of core/developed technology, trademarks, trade names, customer relationships, and in-process research and development related to acquisitions completed in prior years. Amortization expense is included in the consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Included in cost of revenue
|
$
|
52.5
|
|
|
$
|
59.6
|
|
|
$
|
84.0
|
|
|
$
|
(7.1
|
)
|
|
(12
|
)%
|
|
$
|
(24.4
|
)
|
|
(29
|
)%
|
Included in operating expenses
|
38.8
|
|
|
41.3
|
|
|
41.6
|
|
|
(2.5
|
)
|
|
(6
|
)%
|
|
(0.3
|
)
|
|
(1
|
)%
|
Total
|
$
|
91.3
|
|
|
$
|
100.9
|
|
|
$
|
125.6
|
|
|
$
|
(9.6
|
)
|
|
(10
|
)%
|
|
$
|
(24.7
|
)
|
|
(20
|
)%
|
Percentage of total revenue
|
2
|
%
|
|
3
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
The decrease in amortization of intangible assets for fiscal 2020 compared to fiscal 2019 was primarily due to intangible assets that were fully amortized, partially offset by additions of acquired intangible assets in fiscal 2020.
The decrease in amortization of intangible assets for fiscal 2019 compared to fiscal 2018 was primarily due to intangible assets that were fully amortized, partially offset by additions of acquired intangible assets in fiscal 2019.
Restructuring Charges
In the second quarter of fiscal 2019, our management approved, committed and initiated a restructuring plan (the Plan) as part of a business reorganization. Total charges under the Plan consisted primarily of severance, termination, and retirement benefits under the 2019 Voluntary Retirement Program (VRP).
The following is a summary of our restructuring activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Balance at Beginning of Period
|
|
Costs Incurred
|
|
Cash Payments
|
|
Balance at End of Period
|
|
(in millions)
|
2020
|
$
|
22.6
|
|
|
$
|
36.1
|
|
|
$
|
(57.4
|
)
|
|
$
|
1.3
|
|
2019
|
$
|
8.1
|
|
|
$
|
47.2
|
|
|
$
|
(32.7
|
)
|
|
$
|
22.6
|
|
2018
|
$
|
17.5
|
|
|
$
|
12.7
|
|
|
$
|
(22.1
|
)
|
|
$
|
8.1
|
|
See Note 2 of Notes to Consolidated Financial Statements for additional information.
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Interest income
|
$
|
3.6
|
|
|
$
|
6.9
|
|
|
$
|
5.3
|
|
|
$
|
(3.3
|
)
|
|
(48
|
)%
|
|
$
|
1.6
|
|
|
30
|
%
|
Interest expense
|
(5.1
|
)
|
|
(11.7
|
)
|
|
(15.6
|
)
|
|
6.6
|
|
|
(56
|
)%
|
|
3.9
|
|
|
(25
|
)%
|
Gain (loss) on assets related to executive deferred compensation plan
|
21.5
|
|
|
27.8
|
|
|
4.6
|
|
|
(6.3
|
)
|
|
(23
|
)%
|
|
23.2
|
|
|
504
|
%
|
Foreign currency exchange gain (loss)
|
5.5
|
|
|
3.6
|
|
|
3.6
|
|
|
1.9
|
|
|
53
|
%
|
|
—
|
|
|
—
|
%
|
Other, net
|
(7.5
|
)
|
|
(1.3
|
)
|
|
5.4
|
|
|
(6.2
|
)
|
|
477
|
%
|
|
(6.7
|
)
|
|
(124
|
)%
|
Total
|
$
|
18.0
|
|
|
$
|
25.3
|
|
|
$
|
3.3
|
|
|
$
|
(7.3
|
)
|
|
(29
|
)%
|
|
$
|
22.0
|
|
|
667
|
%
|
The net decrease in other income (expense) for fiscal 2020 as compared to fiscal 2019 was primarily due to changes in the fair value of our executive deferred compensation plan assets, partially offset by lower interest expenses due to a lower debt balance.
The net increase in other income (expense) in fiscal 2019 as compared to fiscal 2018 was also primarily due to changes in the fair value of our executive deferred compensation plan assets.
Segment Operating Results
We do not allocate certain operating expenses managed at a consolidated level to our reportable segments. These unallocated expenses consist primarily of stock-based compensation expense, amortization of intangible assets, restructuring, litigation and acquisition-related costs. See Note 15 of the Notes to Consolidated Financial Statements for more information.
Semiconductor & System Design Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Adjusted operating income
|
$
|
990.8
|
|
|
$
|
806.6
|
|
|
$
|
701.3
|
|
|
$
|
184.2
|
|
|
23
|
%
|
|
$
|
105.3
|
|
|
15
|
%
|
Adjusted operating margin
|
30
|
%
|
|
27
|
%
|
|
25
|
%
|
|
3
|
%
|
|
11
|
%
|
|
2
|
%
|
|
8
|
%
|
The increase in adjusted operating income for fiscal 2020 compared to fiscal 2019 was primarily due to an increase in revenue from arrangements booked in prior periods.
The increase in adjusted operating income for fiscal 2019 compared to fiscal 2018 was primarily due to higher revenue recognized under ASC 606 of $97.5 million and an increase in revenue from arrangements booked in prior periods, partially offset by approximately $12.0 million due to an additional week of operating income in fiscal 2018.
Software Integrity Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
|
|
|
|
Adjusted operating income
|
$
|
40.8
|
|
|
$
|
32.2
|
|
|
$
|
(10.6
|
)
|
|
$
|
8.6
|
|
|
27
|
%
|
|
$
|
42.8
|
|
|
(404
|
)%
|
Adjusted operating margin
|
11
|
%
|
|
10
|
%
|
|
(4
|
)%
|
|
1
|
%
|
|
10
|
%
|
|
14
|
%
|
|
(350
|
)%
|
The increase in adjusted operating income for fiscal 2020 compared to fiscal 2019 was primarily due to an increase in revenue from arrangements booked in prior periods.
The increase in adjusted operating income for fiscal 2019 compared to fiscal 2018 was primarily due to an increase in revenue from arrangements booked in prior periods and the impact of higher revenue recognized under ASC 606 of $5.0 million.
Income Taxes
The Tax Cuts and Jobs Act (the Tax Act), enacted on December 22, 2017, lowered the statutory federal corporate income tax rate from 35% to 21% effective on January 1, 2018. Beginning in fiscal 2019, our annual statutory federal corporate tax rate is 21%.
Our effective tax rate for fiscal 2020 was (4.0%), which included a tax benefit of $39.2 million of U.S. federal research tax credit, a foreign derived intangible income (FDII) deduction of $24.3 million, and excess tax benefits from stock-based compensation of $72.3 million.
Our effective tax rate for fiscal 2019 was 2.4%, which included a tax benefit of $28.1 million related to the realizability of U.S. foreign tax credits related to the transfer of intangibles associated with the tax restructuring in fiscal 2018, a U.S. federal research tax credit of $34.5 million, a FDII deduction of $26.6 million, and excess tax benefits from stock-based compensation of $40.5 million.
Our effective tax rate for fiscal 2018 was (19.0%), which included a tax benefit of $172.0 million relating to the restructuring of our foreign intellectual property rights, a U.S. federal research tax credit of $35.1 million, a tax benefit of $28.1 million arising from a settlement with the Internal Revenue Service (IRS) in fiscal 2017, and excess tax benefits from stock-based compensation of $31.0 million. These benefits were partially offset by tax expense of $63.1 million for a one-time transition tax on foreign earnings, $51.1 million due to re-measurement of U.S. deferred tax assets as a result of the Tax Act, and tax expense related to the integration of acquired technologies of $27.9 million.
The integration of acquired technologies represents the income tax effect resulting from the transfer of certain intangible assets among company-controlled entities. These intangible assets generally result from the acquisition of technology by a company-controlled entity as part of a business or asset acquisition.
The Tax Act required us to pay a one-time transition tax on previously untaxed earnings represented by foreign cash and certain other net current assets, and 8% on the remaining earnings. In fiscal 2018, we recorded a tax expense of $63.1 million. Based on subsequent judicial rulings in fiscal 2019 (including Altera Corp. et al. v. Commissioner and the Hungarian Administrative Court ruling), we recorded a tax benefit of $17.9 million related to the one-time transition tax. See Note 13 of Notes to Consolidated Financial Statements for further discussion.
The Tax Act includes certain new tax provisions listed below which apply to us beginning in fiscal 2019.
|
|
•
|
A tax on global intangible low-tax income (GILTI), which is determined annually based on our aggregate foreign subsidiaries' income in excess of certain qualified business asset investment return. In fiscal 2019, we adopted an accounting policy to account for the tax effects of GILTI in the period that it is subject to such tax.
|
|
|
•
|
A base erosion and anti-abuse tax (BEAT), which functions as a minimum tax that partially disallows deductions for certain related party transactions and certain tax credits.
|
|
|
•
|
A special tax deduction for FDII, which, in general, allows a deduction of certain intangible income earned in the U.S. and derived from foreign sources.
|
The Tax Act also provides an exemption from federal income taxes for distributions from foreign subsidiaries made after December 31, 2017 that were not subject to the one-time transition tax. We have provided for foreign withholding taxes on undistributed earnings of certain of our foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries.
In July 2017, the Hungarian Tax Authority (the HTA) issued a final assessment against our Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $25.0 million and interest and penalties of $11.0 million. We paid the tax assessments, penalties and interest in the first quarter of 2018 as required by law and recorded these amounts as prepaid taxes on our balance sheet. On April 30, 2019, the Hungarian Administrative Court ruled against Synopsys Hungary. We filed an appeal with the Hungarian Supreme Court on July 5, 2019. In the second quarter of 2019, as a result of the Court's decision, we recorded a tax expense due to an unrecognized tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits for the tax assessments. The Hungarian Supreme Court heard our appeal on November 12, 2020 and issued a ruling from the bench to remand the case to the Hungarian Administrative Court for further proceedings. We expect to receive the Hungarian Supreme Court’s written decision in the first quarter of fiscal 2021.
See Note 13 of Notes to Consolidated Financial Statements for further discussion of the provision for income taxes, the impacts related to the Tax Act, and the Hungarian audit.
Liquidity and Capital Resources
Our sources of cash and cash equivalents are funds generated from our business operations and funds that may be drawn down under our revolving credit and term loan facilities.
We have considered the potential impact of the COVID-19 pandemic on our liquidity and capital resources. Although we have not observed any material effects on our liquidity, collections from customers or other working capital requirements due to the COVID-19 pandemic to date, there is substantial uncertainty that could result in greater variability as additional events and information become known. We believe that our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital asset purchases, share repurchases, acquisitions, debt repayments and other liquidity requirements associated with our existing operations. We are continuously evaluating the COVID-19 pandemic’s effects and taking steps to mitigate known risks, including potential constraints on our liquidity and capital resources as a result of customers’ reduced expenditures or disruptions to our supply chain. In light of that ongoing assessment, we may choose to temporarily defer certain expenditures due to the effects of the COVID-19 pandemic.
As of October 31, 2020, we held an aggregate of $590.0 million in cash and cash equivalents in the United States and an aggregate of $645.7 million in our foreign subsidiaries. The Tax Act provides an exemption from federal income taxes for distributions from foreign subsidiaries made after December 31, 2017 that were not subject to the one-time transition tax. We have provided for foreign withholding taxes on undistributed earnings of certain of our foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries.
The following sections discuss changes in our consolidated balance sheets and statements of cash flow, and other commitments of our liquidity and capital resources during fiscal 2020.
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
% Change
|
|
2020
|
|
2019
|
|
|
(dollars in millions)
|
Cash and cash equivalents
|
$
|
1,235.7
|
|
|
$
|
728.6
|
|
|
$
|
507.1
|
|
|
70
|
%
|
Cash and cash equivalents increased primarily due to cash from our operations and net proceeds from our credit facilities. The increase in cash and cash equivalents was partially offset by stock repurchases, repayment of debt, cash used for acquisition, and purchases of property and equipment.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
$ Change
|
|
$ Change
|
|
2020
|
|
2019
|
|
2018
|
|
2019 to 2020
|
|
2018 to 2019
|
|
(dollars in millions)
|
Cash provided by operating activities
|
$
|
991.3
|
|
|
$
|
800.5
|
|
|
$
|
424.4
|
|
|
$
|
190.8
|
|
|
$
|
376.1
|
|
Cash used in investing activities
|
$
|
(360.4
|
)
|
|
$
|
(235.9
|
)
|
|
$
|
(743.5
|
)
|
|
$
|
(124.5
|
)
|
|
$
|
507.6
|
|
Cash provided by (used in) financing activities
|
$
|
(140.6
|
)
|
|
$
|
(561.9
|
)
|
|
$
|
5.1
|
|
|
$
|
421.3
|
|
|
$
|
(567.0
|
)
|
Cash Provided by Operating Activities
We expect cash from our operating activities to fluctuate as a result of a number of factors, including the timing of our billings and collections, our operating results, and the timing and amount of tax and other liability payments. Cash provided by our operations is dependent primarily upon the payment terms of our license agreements. We generally receive cash from upfront arrangements much sooner than from time-based products revenue, in which the license fee is typically paid either quarterly or annually over the term of the license.
Fiscal 2020 compared to fiscal 2019. The increase in cash provided by operating activities was primarily driven by higher net income, higher cash collections and lower disbursements in operations, including timing of vendor payments and other employee related expenses.
Fiscal 2019 compared to fiscal 2018. The increase in cash provided by operating activities was primarily driven by higher net income and higher cash collections, partially offset by higher disbursements for operations, including vendor payments.
Cash Used in Investing Activities
Fiscal 2020 compared to fiscal 2019. The increase in cash used in investing activities was primarily due to higher cash paid for acquisitions of $164.4 million.
Fiscal 2019 compared to fiscal 2018. The decrease in cash used in investing activities was primarily driven by higher cash paid for acquisitions in fiscal 2018 of $616.0 million.
Cash Provided by (Used in) Financing Activities
Fiscal 2020 compared to fiscal 2019. The decrease in cash used in financing activities was primarily due to lower debt repayments of $235.2 million and higher proceeds of $83.6 million from credit facilities drawdowns.
Fiscal 2019 compared to fiscal 2018. Cash used in financing activities was higher primarily due to higher debt repayments of $228.8 million and lower proceeds from credit facilities drawdowns of $427.7 million.
Accounts Receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
$ Change
|
|
% Change
|
|
(dollars in millions)
|
|
|
|
|
Accounts receivable, net
|
$
|
780.7
|
|
|
$
|
553.9
|
|
|
$
|
226.8
|
|
|
41
|
%
|
Changes in our accounts receivable balance are primarily driven by the timing and volume of customer billing and collection activities.
Working Capital
Working capital is comprised of current assets less current liabilities, as shown on our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
$ Change
|
|
% Change
|
|
(dollars in millions)
|
|
|
|
|
Current assets
|
$
|
2,549.2
|
|
|
$
|
1,738.9
|
|
|
$
|
810.3
|
|
|
47
|
%
|
Current liabilities
|
2,139.9
|
|
|
1,752.5
|
|
|
387.4
|
|
|
22
|
%
|
Working capital (deficit)
|
$
|
409.3
|
|
|
$
|
(13.6
|
)
|
|
$
|
422.9
|
|
|
(3,110
|
)%
|
Increases in our working capital were primarily due to an increase in cash and cash equivalents of $507.1 million and an increase in accounts receivable of $226.8 million, partially offset by an increase in deferred revenue of $175.8 million and an increase in accounts payable and accrued liabilities of $117.2 million. We did not see a significant impact on our working capital during this period from the COVID-19 pandemic.
Other Commitments — Credit and Term Loan Facilities
As of October 31, 2020, we had $102.1 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $75.0 million was classified as long-term liabilities. Outstanding principal payments under the Term Loan are due as follows:
|
|
|
|
|
Fiscal year
|
(in thousands)
|
2021
|
$
|
27,187
|
|
2022
|
75,000
|
|
Total
|
$
|
102,187
|
|
As of October 31, 2019, we had a $119.8 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $102.2 million was classified as long-term liabilities.
There was no outstanding balance under the Revolver as of October 31, 2020 and October 31, 2019. We expect our borrowings under the Revolver will fluctuate from quarter to quarter.
Our Term Loan and Revolver borrowings bear interest at a floating rate based on a margin over our choice of market observable base rates as defined in the Credit Agreement. As of October 31, 2020, borrowings under the Term Loan bore interest at LIBOR +1.125% and the applicable interest rate for the Revolver was LIBOR +1.000%. In addition, commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on our leverage ratio on the daily amount of the revolving commitment.
In July 2018, we entered into a 12-year 220.0 million RMB (approximately $33.0 million) credit agreement with a lender in China to support our facilities expansion. Borrowings bear interest at a floating rate based on the 5 year Loan Prime Rate plus 0.74%. As of October 31, 2020, we had $25.8 million outstanding under the agreement.
See Note 6 of the Notes to Consolidated Financial Statements for additional information.
Other
As of October 31, 2020, our cash equivalents consisted of taxable money market mutual funds. We follow an established investment policy and set of guidelines to monitor, manage and limit our exposure to interest rate and credit risk.
We proactively manage our cash equivalents balances and closely monitor our capital and stock repurchase expenditures to ensure ample liquidity. Additionally, we believe the overall credit quality of our portfolio is strong, with our global excess cash, and our cash equivalents, invested in banks and securities with a weighted-average credit rating exceeding AA. The majority of our investments are classified as Level 1 or Level 2 investments, as measured under fair value guidance. See Notes 6 and 7 of Notes to Consolidated Financial Statements.
We believe that our current cash and cash equivalents, cash generated from operations, and available credit under our Revolver will satisfy our routine business requirements for at least the next 12 months and the foreseeable future.
Contractual Obligations
Contractual obligations as of October 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Fiscal 2021
|
|
Fiscal 2022/ Fiscal 2023
|
|
Fiscal 2024/ Fiscal 2025
|
|
Thereafter
|
|
Other
|
|
(in thousands)
|
|
|
Lease Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases(1)
|
$
|
659,559
|
|
|
$
|
87,592
|
|
|
$
|
155,057
|
|
|
$
|
125,958
|
|
|
$
|
290,952
|
|
|
$
|
—
|
|
Purchase Obligations(2)
|
420,585
|
|
|
273,101
|
|
|
147,484
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Term Loan(3)
|
102,187
|
|
|
27,187
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other Obligations(4)
|
26,778
|
|
|
26,778
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Long term accrued income taxes(5)
|
25,178
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,178
|
|
Total
|
$
|
1,234,287
|
|
|
$
|
414,658
|
|
|
$
|
377,541
|
|
|
$
|
125,958
|
|
|
$
|
290,952
|
|
|
$
|
25,178
|
|
|
|
(1)
|
See Note 8 of Notes to Consolidated Financial Statements.
|
|
|
(2)
|
Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary course of business for which we have not received the goods or services as of October 31, 2020. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.
|
|
|
(3)
|
These commitments relate to the principal of the Term Loan and a credit facility as discussed in Other Commitments above.
|
|
|
(4)
|
These other obligations include fees associated with our credit facility.
|
|
|
(5)
|
Long-term accrued income taxes represent uncertain tax benefits as of October 31, 2020. Currently, a reasonably reliable estimate of timing of payments related to uncertain tax benefits in individual years beyond fiscal 2020 cannot be made due to uncertainties in timing of the commencement and settlement of potential tax audits.
|
The expected timing of payments of the obligations discussed above is estimated based on current information. Timing of payment and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.
Off-Balance Sheet Arrangements
As of October 31, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
|
|
Item 8. Financial Statements and Supplementary Data
|
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Synopsys, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Synopsys, Inc. and subsidiaries (the Company) as of October 31, 2020 and November 2, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and November 2, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended October 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2020 based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Notes 2 and 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of November 3, 2019 due to the adoption of Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” and changed its method of accounting for revenue from contracts with customers and sales commissions as of November 4, 2018 due to the adoption of FASB’s Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers (ASC 606),” and Subtopic 340-40, “Other Assets and Deferred Costs - Contracts with Customers (ASC 340-40).”
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under item 9A(b). Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of recognition of uncertain tax provisions
As discussed in Notes 2 and 13 to the consolidated financial statements, as of October 31, 2020 the Company recognized uncertain tax positions. The Company recognizes tax benefits from uncertain tax positions when it is determined that it is more likely than not that the position will be sustained on audit. As of October 31, 2020, the Company recorded a liability for gross unrecognized tax benefits, excluding associated interest and penalties, of $83.1 million.
We identified the assessment of the recognition of uncertain tax positions within the U.S. federal jurisdiction as a critical audit matter. Complex auditor judgment, including the involvement of tax professionals with specialized skills and knowledge, was required to evaluate the Company’s interpretation and application of U.S. federal tax law.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s accounting process for uncertain tax positions, including controls related to the interpretation of U.S. federal tax law and its application in the liability recognition process. Since U.S. federal tax law is complex and often subject to interpretation, we involved tax professionals with specialized skills and knowledge, who assisted in:
|
|
•
|
Obtaining an understanding of the Company’s overall tax structure and assessing the Company’s compliance with U.S. federal tax laws,
|
|
|
•
|
Evaluating U.S. federal tax law and assessing the Company’s interpretation of the tax law, and
|
|
|
•
|
Inspecting correspondence, assessments, and settlements from taxing authorities to assess the Company’s determination of its tax positions having more than a 50% likelihood to be sustained upon examination.
|
/s/ KPMG LLP
We have served as the Company’s auditor since 1992.
Santa Clara, California
December 14, 2020
SYNOPSYS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
1,235,653
|
|
|
$
|
728,597
|
|
Accounts receivable, net
|
780,709
|
|
|
553,895
|
|
Inventories, net
|
192,333
|
|
|
141,518
|
|
Income taxes receivable and prepaid taxes
|
32,355
|
|
|
24,855
|
|
Prepaid and other current assets
|
308,167
|
|
|
290,052
|
|
Total current assets
|
2,549,217
|
|
|
1,738,917
|
|
Property and equipment, net
|
483,818
|
|
|
429,532
|
|
Operating lease right-of-use assets, net
|
465,818
|
|
|
—
|
|
Goodwill
|
3,365,114
|
|
|
3,171,179
|
|
Intangible assets, net
|
254,322
|
|
|
279,374
|
|
Long-term prepaid taxes
|
8,276
|
|
|
15,503
|
|
Deferred income taxes
|
497,546
|
|
|
390,129
|
|
Other long-term assets
|
405,951
|
|
|
380,526
|
|
Total assets
|
$
|
8,030,062
|
|
|
$
|
6,405,160
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
623,664
|
|
|
$
|
506,459
|
|
Operating lease liabilities, current
|
73,173
|
|
|
—
|
|
Accrued income taxes
|
27,738
|
|
|
15,904
|
|
Deferred revenue
|
1,388,263
|
|
|
1,212,476
|
|
Short-term debt
|
27,084
|
|
|
17,614
|
|
Total current liabilities
|
2,139,922
|
|
|
1,752,453
|
|
Operating lease liabilities, non-current
|
462,411
|
|
|
—
|
|
Long-term accrued income taxes
|
25,178
|
|
|
29,911
|
|
Long-term deferred revenue
|
104,850
|
|
|
90,102
|
|
Long-term debt
|
100,823
|
|
|
120,093
|
|
Other long-term liabilities
|
284,511
|
|
|
323,725
|
|
Total liabilities
|
3,117,695
|
|
|
2,316,284
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding
|
—
|
|
|
—
|
|
Common stock, $0.01 par value: 400,000 shares authorized; 152,618 and 150,331 shares outstanding, respectively
|
1,528
|
|
|
1,503
|
|
Capital in excess of par value
|
1,653,166
|
|
|
1,635,455
|
|
Retained earnings
|
3,795,397
|
|
|
3,164,144
|
|
Treasury stock, at cost: 4,643 and 6,930 shares, respectively
|
(488,613
|
)
|
|
(625,642
|
)
|
Accumulated other comprehensive income (loss)
|
(54,074
|
)
|
|
(92,447
|
)
|
Total Synopsys stockholders’ equity
|
4,907,404
|
|
|
4,083,013
|
|
Non-controlling interest
|
4,963
|
|
|
5,863
|
|
Total stockholders’ equity
|
4,912,367
|
|
|
4,088,876
|
|
Total liabilities and stockholders’ equity
|
$
|
8,030,062
|
|
|
$
|
6,405,160
|
|
See accompanying notes to consolidated financial statements.
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
Revenue:
|
|
|
|
|
|
Time-based products
|
$
|
2,365,199
|
|
|
$
|
2,197,965
|
|
|
$
|
2,303,317
|
|
Upfront products
|
735,572
|
|
|
619,791
|
|
|
357,698
|
|
Maintenance and service
|
584,510
|
|
|
542,938
|
|
|
460,043
|
|
Total revenue
|
3,685,281
|
|
|
3,360,694
|
|
|
3,121,058
|
|
Cost of revenue:
|
|
|
|
|
|
Products
|
487,307
|
|
|
459,127
|
|
|
448,430
|
|
Maintenance and service
|
254,931
|
|
|
234,196
|
|
|
203,434
|
|
Amortization of intangible assets
|
52,452
|
|
|
59,623
|
|
|
84,034
|
|
Total cost of revenue
|
794,690
|
|
|
752,946
|
|
|
735,898
|
|
Gross margin
|
2,890,591
|
|
|
2,607,748
|
|
|
2,385,160
|
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
1,279,022
|
|
|
1,136,932
|
|
|
1,084,822
|
|
Sales and marketing
|
632,010
|
|
|
632,890
|
|
|
622,978
|
|
General and administrative
|
284,530
|
|
|
229,218
|
|
|
262,560
|
|
Amortization of intangible assets
|
38,829
|
|
|
41,291
|
|
|
41,630
|
|
Restructuring charges
|
36,059
|
|
|
47,186
|
|
|
12,945
|
|
Total operating expenses
|
2,270,450
|
|
|
2,087,517
|
|
|
2,024,935
|
|
Operating income
|
620,141
|
|
|
520,231
|
|
|
360,225
|
|
Other income (expense), net
|
18,018
|
|
|
25,275
|
|
|
3,318
|
|
Income before income taxes
|
638,159
|
|
|
545,506
|
|
|
363,543
|
|
Provision (benefit) for income taxes
|
(25,288
|
)
|
|
13,139
|
|
|
(68,975
|
)
|
Net income
|
663,447
|
|
|
532,367
|
|
|
432,518
|
|
Net income (loss) attributed to non-controlling interest
|
(900
|
)
|
|
—
|
|
|
—
|
|
Net income attributed to Synopsys
|
$
|
664,347
|
|
|
$
|
532,367
|
|
|
$
|
432,518
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
Basic
|
$
|
4.40
|
|
|
$
|
3.55
|
|
|
$
|
2.90
|
|
Diluted
|
$
|
4.27
|
|
|
$
|
3.45
|
|
|
$
|
2.82
|
|
Shares used in computing per share amounts:
|
|
|
|
|
|
Basic
|
151,135
|
|
|
149,872
|
|
|
149,036
|
|
Diluted
|
155,706
|
|
|
154,190
|
|
|
153,393
|
|
See accompanying notes to consolidated financial statements.
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
Net income
|
$
|
663,447
|
|
|
$
|
532,367
|
|
|
$
|
432,518
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
30,466
|
|
|
1,360
|
|
|
(18,882
|
)
|
Cash flow hedges:
|
|
|
|
|
|
Deferred gains (losses), net of tax of $(3,192), $(2,009), and $4,675 for fiscal years 2020, 2019 and 2018, respectively
|
7,834
|
|
|
4,733
|
|
|
(17,428
|
)
|
Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $176, $(3,672), and $2,207 for fiscal years 2020, 2019 and 2018, respectively
|
73
|
|
|
14,637
|
|
|
(10,888
|
)
|
Other comprehensive income (loss), net of tax effects
|
38,373
|
|
|
20,730
|
|
|
(47,198
|
)
|
Comprehensive income
|
701,820
|
|
|
553,097
|
|
|
385,320
|
|
Less: Net income (loss) attributed to non-controlling interest
|
(900
|
)
|
|
—
|
|
|
—
|
|
Comprehensive income attributed to Synopsys
|
$
|
702,720
|
|
|
$
|
553,097
|
|
|
$
|
385,320
|
|
See accompanying notes to consolidated financial statements.
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
Excess of
Par
Value
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Synopsys
Stockholders’
Equity
|
|
Non-controlling
Interest
|
|
Stockholders'
Equity
|
|
Common Stock
|
|
|
Shares
|
|
Amount
|
|
Balance at October 31, 2017
|
150,445
|
|
|
$
|
1,505
|
|
|
$
|
1,622,429
|
|
|
$
|
2,143,873
|
|
|
$
|
(426,208
|
)
|
|
$
|
(65,979
|
)
|
|
$
|
3,275,620
|
|
|
$
|
4,104
|
|
|
$
|
3,279,724
|
|
Net income
|
|
|
|
|
|
|
432,518
|
|
|
|
|
|
|
432,518
|
|
|
|
|
432,518
|
|
Retained earnings adjustment due to adoption of an accounting standard in reclassification of certain tax effects from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
(293
|
)
|
|
|
|
|
|
(293
|
)
|
|
|
|
(293
|
)
|
Other comprehensive income (loss), net of tax effects
|
|
|
|
|
|
|
|
|
|
|
(47,198
|
)
|
|
(47,198
|
)
|
|
|
|
(47,198
|
)
|
Purchases of treasury stock
|
(4,688
|
)
|
|
(47
|
)
|
|
47
|
|
|
|
|
(420,000
|
)
|
|
|
|
(420,000
|
)
|
|
|
|
(420,000
|
)
|
Equity forward contract
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
20,000
|
|
Common stock issued, net of shares withheld for employee taxes
|
3,508
|
|
|
35
|
|
|
(136,522
|
)
|
|
(32,410
|
)
|
|
248,526
|
|
|
|
|
79,629
|
|
|
|
|
79,629
|
|
Stock-based compensation
|
|
|
|
|
138,876
|
|
|
|
|
|
|
|
|
138,876
|
|
|
|
|
138,876
|
|
Non-controlling interest in an equity investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
1,759
|
|
|
1,759
|
|
Balance at October 31, 2018
|
149,265
|
|
|
$
|
1,493
|
|
|
$
|
1,644,830
|
|
|
$
|
2,543,688
|
|
|
$
|
(597,682
|
)
|
|
$
|
(113,177
|
)
|
|
$
|
3,479,152
|
|
|
$
|
5,863
|
|
|
$
|
3,485,015
|
|
Net income
|
|
|
|
|
|
|
532,367
|
|
|
|
|
|
|
532,367
|
|
|
|
|
532,367
|
|
Retained earnings adjustment due to adoption of accounting standards related to revenue
|
|
|
|
|
|
|
257,594
|
|
|
|
|
|
|
257,594
|
|
|
|
|
257,594
|
|
Retained earnings adjustment due to adoption of an accounting standard related to income taxes
|
|
|
|
|
|
|
(130,544
|
)
|
|
|
|
|
|
(130,544
|
)
|
|
|
|
(130,544
|
)
|
Other comprehensive income (loss), net of tax effects
|
|
|
|
|
|
|
|
|
|
|
20,730
|
|
|
20,730
|
|
|
|
|
20,730
|
|
Purchases of treasury stock
|
(2,732
|
)
|
|
(27
|
)
|
|
27
|
|
|
|
|
(329,185
|
)
|
|
|
|
(329,185
|
)
|
|
|
|
(329,185
|
)
|
Common stock issued, net of shares withheld for employee taxes
|
3,798
|
|
|
37
|
|
|
(163,198
|
)
|
|
(38,961
|
)
|
|
301,225
|
|
|
|
|
99,103
|
|
|
|
|
99,103
|
|
Stock-based compensation
|
|
|
|
|
153,796
|
|
|
|
|
|
|
|
|
153,796
|
|
|
|
|
153,796
|
|
Balance at October 31, 2019
|
150,331
|
|
|
$
|
1,503
|
|
|
$
|
1,635,455
|
|
|
$
|
3,164,144
|
|
|
$
|
(625,642
|
)
|
|
$
|
(92,447
|
)
|
|
$
|
4,083,013
|
|
|
$
|
5,863
|
|
|
$
|
4,088,876
|
|
Net income
|
|
|
|
|
|
|
664,347
|
|
|
|
|
|
|
664,347
|
|
|
(900
|
)
|
|
663,447
|
|
Other comprehensive income (loss), net of tax effects
|
|
|
|
|
|
|
|
|
|
|
38,373
|
|
|
38,373
|
|
|
|
|
38,373
|
|
Purchases of treasury stock
|
(1,585
|
)
|
|
(14
|
)
|
|
14
|
|
|
|
|
(242,078
|
)
|
|
|
|
(242,078
|
)
|
|
|
|
(242,078
|
)
|
Common stock issued, net of shares withheld for employee taxes
|
3,872
|
|
|
39
|
|
|
(230,887
|
)
|
|
(33,094
|
)
|
|
379,107
|
|
|
|
|
115,165
|
|
|
|
|
115,165
|
|
Stock-based compensation
|
|
|
|
|
248,584
|
|
|
|
|
|
|
|
|
248,584
|
|
|
|
|
248,584
|
|
Balance at October 31, 2020
|
152,618
|
|
|
$
|
1,528
|
|
|
$
|
1,653,166
|
|
|
$
|
3,795,397
|
|
|
$
|
(488,613
|
)
|
|
$
|
(54,074
|
)
|
|
$
|
4,907,404
|
|
|
$
|
4,963
|
|
|
$
|
4,912,367
|
|
See accompanying notes to consolidated financial statements.
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
Cash flow from operating activities:
|
|
|
|
|
|
Net income attributed to Synopsys
|
$
|
664,347
|
|
|
$
|
532,367
|
|
|
$
|
432,518
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Amortization and depreciation
|
209,986
|
|
|
201,676
|
|
|
209,207
|
|
Reduction of operating lease right-of-use assets
|
82,895
|
|
|
—
|
|
|
—
|
|
Amortization of capitalized costs to obtain revenue contracts
|
61,185
|
|
|
62,750
|
|
|
—
|
|
Stock-based compensation
|
248,584
|
|
|
155,001
|
|
|
140,032
|
|
Allowance for doubtful accounts
|
20,875
|
|
|
11,669
|
|
|
3,368
|
|
(Gain) loss on sale of property and investments
|
(1,994
|
)
|
|
(4,052
|
)
|
|
(93
|
)
|
Deferred income taxes
|
(111,526
|
)
|
|
(82,620
|
)
|
|
(210,310
|
)
|
Other non-cash
|
5,419
|
|
|
(993
|
)
|
|
(851
|
)
|
Net changes in operating assets and liabilities, net of acquired assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(236,806
|
)
|
|
(8,575
|
)
|
|
(95,785
|
)
|
Inventories
|
(55,024
|
)
|
|
(17,396
|
)
|
|
(65,751
|
)
|
Prepaid and other current assets
|
(11,298
|
)
|
|
(49,779
|
)
|
|
(12,652
|
)
|
Other long-term assets
|
(83,367
|
)
|
|
(125,749
|
)
|
|
(25,815
|
)
|
Accounts payable and accrued liabilities
|
113,773
|
|
|
(19,280
|
)
|
|
49,043
|
|
Operating lease liabilities
|
(78,578
|
)
|
|
—
|
|
|
—
|
|
Income taxes
|
14,120
|
|
|
19,777
|
|
|
(103,841
|
)
|
Deferred revenue
|
148,722
|
|
|
125,717
|
|
|
105,329
|
|
Net cash provided by operating activities
|
991,313
|
|
|
800,513
|
|
|
424,399
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Proceeds from sales and maturities of short-term investments
|
—
|
|
|
—
|
|
|
12,449
|
|
Proceeds from sales of long-term investments
|
2,151
|
|
|
6,361
|
|
|
494
|
|
Purchases of long-term investments
|
(2,762
|
)
|
|
(3,245
|
)
|
|
(3,561
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
|
—
|
|
|
1,662
|
|
Purchases of property and equipment
|
(154,717
|
)
|
|
(198,129
|
)
|
|
(98,976
|
)
|
Cash paid for acquisitions and intangible assets, net of cash acquired
|
(201,045
|
)
|
|
(36,605
|
)
|
|
(652,643
|
)
|
Capitalization of software development costs
|
(4,045
|
)
|
|
(4,259
|
)
|
|
(2,950
|
)
|
Net cash used in investing activities
|
(360,418
|
)
|
|
(235,877
|
)
|
|
(743,525
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from credit facilities
|
276,489
|
|
|
192,897
|
|
|
620,635
|
|
Repayment of debt
|
(288,879
|
)
|
|
(524,063
|
)
|
|
(295,313
|
)
|
Issuances of common stock
|
197,403
|
|
|
156,364
|
|
|
123,829
|
|
Payments for taxes related to net share settlement of equity awards
|
(82,225
|
)
|
|
(57,143
|
)
|
|
(45,772
|
)
|
Purchases of treasury stock
|
(242,078
|
)
|
|
(329,185
|
)
|
|
(400,000
|
)
|
Other
|
(1,316
|
)
|
|
(762
|
)
|
|
1,759
|
|
Net cash (used in) provided by financing activities
|
(140,606
|
)
|
|
(561,892
|
)
|
|
5,138
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
17,154
|
|
|
2,782
|
|
|
(11,086
|
)
|
Net change in cash, cash equivalents and restricted cash
|
507,443
|
|
|
5,526
|
|
|
(325,074
|
)
|
Cash, cash equivalents and restricted cash, beginning of year
|
730,527
|
|
|
725,001
|
|
|
1,050,075
|
|
Cash, cash equivalents and restricted cash, end of year
|
$
|
1,237,970
|
|
|
$
|
730,527
|
|
|
$
|
725,001
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid for income taxes during the year:
|
$
|
70,711
|
|
|
$
|
75,744
|
|
|
$
|
252,522
|
|
Interest payments during the year:
|
$
|
5,136
|
|
|
$
|
12,363
|
|
|
$
|
15,307
|
|
See accompanying notes to consolidated financial statements.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business
Synopsys, Inc. (Synopsys or the Company) provides products and services used across the entire silicon to software spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure the security and quality of their code. The Company is a global leader in supplying the electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips. The Company also offers semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. The Company provides software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. To complement these offerings, the Company provides technical services and support to help its customers develop advanced chips and electronic systems. These products and services are part of the Company’s Semiconductor & System Design segment.
The Company is also a leading provider of software tools and services that improve the security, quality and compliance of software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and industrials. These tools and services are part of the Company’s Software Integrity segment.
Note 2. Summary of Significant Accounting Policies
Fiscal Year End. The Company’s fiscal year generally ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, the Company has a 53-week year. When a 53-week year occurs, the Company includes the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2020 and fiscal 2019 were 52-week years ending on October 31, 2020 and November 2, 2019, respectively. Fiscal 2018 was a 53-week year and ended on November 3, 2018. For presentation purposes, the consolidated financial statements and accompanying notes refer to the closest calendar month end. Fiscal 2021 will be a 52-week year.
Basis of Presentation. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates. To prepare financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP), management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and may result in material effects on the Company’s operating results and financial position. In addition, the Company has considered the potential impact of the COVID-19 pandemic on the business operations. Although no material impairment or other effects have been identified to date related to the COVID-19 pandemic, there is substantial uncertainty in the nature and degree of its continued effects over time. This uncertainty affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information are known.
Foreign Currency Translation. The functional currency of the majority of the Company’s active foreign subsidiaries is the foreign subsidiary’s local currency. Assets and liabilities that are not denominated in the functional currency are remeasured into the functional currency with any related gain or loss recorded in earnings. The Company translates assets and liabilities of its non-U.S. dollar functional currency foreign operations into the U.S. dollar reporting currency at exchange rates in effect at the balance sheet date. The Company translates income and expense items of such foreign operations into the U.S. dollar reporting currency at average exchange rates for the period. Accumulated translation adjustments are reported in stockholders’ equity, as a component of accumulated other comprehensive income (loss).
Foreign Currency Contracts. The Company operates internationally and is exposed to potentially adverse movements in currency exchange rates. The Company enters into hedges in the form of foreign currency forward contracts to reduce its exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions. The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the consolidated balance sheets.
The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. See Note 6. Financial Assets and Liabilities.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Fair Values of Financial Instruments. The Company’s cash equivalents and foreign currency contracts are carried at fair value. The fair value of the Company’s accounts receivable and accounts payable approximates the carrying amount due to their short duration. Non-marketable equity securities are accounted for using either the measurement alternative or equity method of accounting, net of impairments. The Company performs periodic impairment analysis on these non-marketable equity securities. The carrying amount of the short-term debt approximates the estimated fair value. See Note 7. Fair Value Measures.
Cash and Cash Equivalents. The Company classifies investments with original maturities of three months or less when acquired as cash equivalents.
Concentration of Credit Risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents, marketable securities, foreign currency contracts, and accounts receivable from trade customers. The Company maintains cash equivalents primarily in highly rated taxable and tax-exempt money market funds located in the U.S. and in various overseas locations.
The Company sells its products worldwide primarily to customers in the global electronics market. The Company performs on-going credit evaluations of its customers’ financial condition and does not require collateral. The Company establishes reserves for potential credit losses and such losses have been within management’s expectations and have not been material in any year presented.
Accounts Receivable, Net. The balances consist of accounts receivable billed and unbilled. Unbilled accounts receivable represent amounts recorded as revenue which will be invoiced within one year of the balance sheet date. The following table represents the components of accounts receivable, net:
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Accounts receivable
|
$
|
758,341
|
|
|
$
|
524,766
|
|
Unbilled accounts receivable
|
50,932
|
|
|
38,175
|
|
Total accounts receivable
|
809,273
|
|
|
562,941
|
|
Less allowance for doubtful accounts
|
(28,564
|
)
|
|
(9,046
|
)
|
Total accounts receivable, net
|
$
|
780,709
|
|
|
$
|
553,895
|
|
Allowance for Doubtful Accounts. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances for doubtful accounts to reduce the Company’s receivables to their estimated net realizable value. The Company provides a general reserve on all accounts receivable based on a review of customer accounts. The following table presents the changes in the allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Balance at
Beginning
of Period
|
|
Provisions
|
|
Write-offs(1)
|
|
Balance at
End of
Period
|
|
(in thousands)
|
2020
|
$
|
9,046
|
|
|
$
|
20,875
|
|
|
$
|
(1,357
|
)
|
|
$
|
28,564
|
|
2019
|
$
|
5,613
|
|
|
$
|
11,669
|
|
|
$
|
(8,236
|
)
|
|
$
|
9,046
|
|
2018
|
$
|
5,165
|
|
|
$
|
3,368
|
|
|
$
|
(2,920
|
)
|
|
$
|
5,613
|
|
|
|
(1)
|
Balances written off, net of recoveries.
|
Inventories, net. Inventories are computed at standard costs which approximate actual costs, on a first-in, first-out basis and valued at the lower of cost or net realizable value. Inventories primarily include components and parts used in emulation and prototyping hardware systems. Valuation process include a review of the stage of the product life cycle and forecasts based upon future demand and market conditions. Inventory provisions are recorded when the costs are determined to be in excess of anticipated demand or considered obsolete.
Income Taxes. The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. An uncertain tax position is considered effectively settled on completion of an examination by a taxing authority if certain other conditions are satisfied.
Property and Equipment. Property and equipment is recorded at cost less accumulated depreciation. Assets, excluding land, are depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over the remaining term of the lease or the economic useful life of the asset, whichever is shorter. Depreciation expenses were $119.1 million, $100.4 million and $72.8 million in fiscal 2020, 2019 and 2018, respectively. Repair and maintenance costs are expensed as incurred and such costs were $62.1 million, $52.5 million and $45.7 million in fiscal 2020, 2019 and 2018, respectively.
A summary of property and equipment, at cost less accumulated depreciation and amortization, as of October 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Computer and other equipment
|
$
|
788,105
|
|
|
$
|
678,901
|
|
Buildings
|
129,746
|
|
|
68,708
|
|
Furniture and fixtures
|
72,702
|
|
|
72,437
|
|
Land
|
19,965
|
|
|
18,849
|
|
Leasehold improvements
|
242,830
|
|
|
273,985
|
|
|
1,253,348
|
|
|
1,112,880
|
|
Less accumulated depreciation and amortization(1)
|
(769,530
|
)
|
|
(683,348
|
)
|
Total
|
$
|
483,818
|
|
|
$
|
429,532
|
|
|
|
(1)
|
Accumulated depreciation and amortization includes write-offs due to retirement of fully amortized fixed assets.
|
The useful lives of depreciable assets are as follows:
|
|
|
|
Useful Life in Years
|
Computer and other equipment
|
3-8
|
Buildings
|
30
|
Furniture and fixtures
|
5
|
Leasehold improvements
|
Shorter of the lease term or the estimated useful life
|
Leases. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” which supersedes the previous lease requirements in Topic 840. Topic 842 was subsequently amended by several ASUs. The new guidance requires a lessee to recognize a right-of-use (ROU) asset and a lease liability for most operating leases in the consolidated balance sheets. These ASUs also made minor changes to lessor accounting and aligned key aspects of the lessor accounting model with the new revenue recognition guidance. The new standard did not have a material impact on the consolidated financial statements for arrangements in which the Company is the lessor.
The Company adopted Topic 842 at the beginning of fiscal 2020 using the modified retrospective method without restatement of comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which allows the carryforward of historical assessments about (1) lease classification, (2)
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
whether a contract is or contains a lease, and (3) which costs qualify as initial direct costs for leases that existed prior to the adoption. The Company did not elect either the use of hindsight or land easements practical expedients available in transition.
The adoption of the standard did not have an impact on the Company’s beginning retained earnings, results of operations, or cash flows. The operating lease liabilities equaled the present value of the remaining Topic 840 minimum rental payments for those leases, discounted at the Company’s incremental borrowing rate as of the date of adoption. The ROU assets were measured at the amount of the related lease liabilities plus any prepaid rental payments and less any unamortized lease incentives such as tenant improvement allowances. The Company recognized ROU assets of $475 million and operating lease liabilities of $540 million on the consolidated balance sheets.
The Company determines if a contract is or contains a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make payments arising from the lease. Lease liabilities for operating and finance leases are recognized at the lease commencement date based on the present value of future lease payments over the remaining lease terms. ROU assets are derived from the carrying amount of the related lease liability plus any prepaid lease payments, less any lease incentives such as tenant improvement allowances. The Company primarily uses its incremental borrowing rate, determined as of the lease commencement date, to measure the present value of its future lease payments, as the rate implicit in the lease is generally not readily determinable. The Company uses a benchmark senior unsecured yield curve for debt instruments and considers specific credit quality, market conditions, tenor of lease arrangements, and quality of collateral to determine the incremental borrowing rate.
Operating lease expense is recognized on a straight-line basis over the lease term of each lease. Variable payments, such as for maintenance, property taxes or insurance, are recognized on our consolidated statements of operations as incurred.
The Company has adopted both (1) the practical expedient to not separate lease from non-lease components and (2) the short-term lease exemption. The Company has elected the practical expedient to not separate lease from non-lease components for all classes of underlying assets and the short-term lease exemption for all classes of underlying assets except real estate leases, with terms 12 months or less.
Goodwill. Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and identifiable intangible assets acquired by the Company. The carrying amount of goodwill at each reporting unit is tested for impairment annually as of October 31, or more frequently if facts and circumstances warrant a review.
The Company performs a qualitative analysis when testing a reporting unit’s goodwill for impairment. A qualitative goodwill impairment test is performed when the fair value of a reporting unit historically has significantly exceeded the carrying value of its net assets and based on current operations is expected to continue to do so. Otherwise, the Company is required to conduct a quantitative impairment test for each reporting unit and estimate the fair value of each reporting unit using a combination of an income approach based on discounted cash flow analysis and a market approach based on market multiples. The discount rate used in the income approach is based on the Company's weighted-average cost of capital and may be adjusted for the relevant risks pertaining to projecting future cash flows. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference. As of October 31, 2020, the Company performed a qualitative impairment test on each of the reporting units and concluded there was no impairment of goodwill.
Intangible Assets. Intangible assets consist of acquired technology, certain contract rights, customer relationships, trademarks and trade names, capitalized software, and in-process research and development. These intangible assets are acquired through business combinations, direct purchases, or internally developed capitalized software. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to ten years, except for in-process research and development (IPR&D) projects not yet completed. IPR&D assets are amortized over their estimated useful lives upon completion or are written off upon abandonment.
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including property and equipment and intangible assets, may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such asset group will be recovered through the undiscounted future cash flow. If the undiscounted future cash flow is less than the carrying amount of the asset group, the Company
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
recognizes an impairment loss based on the excess of the carrying amount over the fair value of the asset group. The Company had no material impairment charges for long-lived assets in fiscal 2018 and none in fiscal 2020 and 2019.
Restructuring Charges. In the second quarter of fiscal 2019, the Company initiated a restructuring plan for involuntary and voluntary employee termination and facility closure actions as part of a business reorganization to better position the Company for future growth by reallocating resources to priority areas, and to a lesser extent, eliminating operational redundancy. The total charges under the 2019 restructuring plan were $83.3 million and consisted primarily of severance, termination, and retirement benefits under the 2019 VRP.
During fiscal 2020, the Company incurred restructuring charges of $36.1 million under the 2019 restructuring plan. These charges consisted primarily of severance, termination, and retirement benefits. $57.4 million was paid in fiscal 2020 which included payments of remaining balances in fiscal 2019. As of October 31, 2020, $1.3 million remained outstanding and was recorded in accounts payable and accrued liabilities as payroll and related benefits in the consolidated balance sheets. The remaining balance will be paid in fiscal 2021.
During fiscal 2019, the Company incurred restructuring charges of approximately $47.2 million for involuntary employee termination actions and the VRP. These charges consist primarily of severance, termination, and retirement benefits, of which $24.6 million was paid in fiscal 2019. As of October 31, 2019, $22.6 million remained outstanding and was recorded in accounts payable and accrued liabilities as payroll and related benefits in the consolidated balance sheets. The remaining balance was paid in fiscal 2020.
During fiscal 2018, the Company recorded $12.9 million of restructuring charges for severance and benefits due to involuntary employee termination actions. The restructuring actions were undertaken to position the Company for future growth, reallocate resources to priority areas and, to a lesser extent, eliminate operational redundancy. These charges consisted primarily of severance benefits. As of October 31, 2018, there was an $8.1 million outstanding balance remaining in accounts payable and accrued liabilities in the consolidated balance sheets. The majority of the balance was paid in fiscal 2019 and there was no remaining balance as of the end of fiscal 2020.
Accounts Payable and Accrued Liabilities. The balance consisted of:
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Payroll and related benefits
|
$
|
492,626
|
|
|
$
|
417,157
|
|
Other accrued liabilities
|
101,035
|
|
|
69,487
|
|
Accounts payable
|
30,003
|
|
|
19,815
|
|
Total
|
$
|
623,664
|
|
|
$
|
506,459
|
|
Other Long-term Liabilities. The balance consisted of:
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Deferred compensation liability (See Note 12)
|
$
|
269,737
|
|
|
$
|
249,822
|
|
Other long-term liabilities
|
14,774
|
|
|
73,903
|
|
Total
|
$
|
284,511
|
|
|
$
|
323,725
|
|
Other Comprehensive Income (Loss). Other comprehensive income (loss) (OCI) includes all changes in equity during a period, such as accumulated net translation adjustments, unrealized gain (loss) on certain foreign currency forward contracts that qualify as cash flow hedges, reclassification adjustments related to cash flow hedges and unrealized gain (loss) on investments. See Note 10. Accumulated Other Comprehensive Income (Loss).
Revenue Recognition. The Company adopted ASC 606 on November 4, 2018, the beginning of fiscal year 2019, using the modified retrospective method. The comparative information for periods prior to fiscal year 2019 has not been restated and continues to be reported under the accounting standards in effect for those periods. The core principle of ASC 606 is to recognize revenue for the transfer of services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or products.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The principle is achieved through the following five-step approach:
|
|
•
|
Identification of the contract, or contracts, with the customer
|
|
|
•
|
Identification of the performance obligation in the contract
|
|
|
•
|
Determination of the transaction price
|
|
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
|
|
•
|
Recognition of revenue when, or as, the Company satisfies a performance obligation
|
Nature of Products and Services
The Company generates revenue from the sale of products that include software licenses and, to a lesser extent, hardware products, maintenance and services. The various types are set forth below.
Electronic Design Automation
Software license revenue consists of fees associated with the licensing of the Company's software primarily through Technology Subscription License (TSL) contracts. TSLs are time-based licenses for a finite term and generally provide the customer with limited rights to receive, or to exchange certain quantities of licensed software for, unspecified future technology. The majority of the Company's arrangements are TSLs due to the nature of its business and customer requirements. In addition to the licenses, the arrangements also include: post-contract customer support, which includes providing frequent updates and upgrades to maintain the utility of the software due to rapid changes in technology; other intertwined services such as multiple copies of the tools; assisting the Company's customers in applying the Company's technology in the customers' development environment; and rights to remix licenses for other licenses. Payments are generally received in equal or near equal installments over the term of the arrangement. Under ASC 605, these arrangements were required to be recognized ratably over the contract terms. Under ASC 606, the Company has concluded that its software licenses in TSL contracts are not distinct from its obligation to provide unspecified software updates to the licensed software throughout the license term. Such updates represent inputs to a single, combined performance obligation, commencing upon the later of the arrangement effective date or transfer of the software license. Remix rights are not an additional promised good or service in the contract, and where unspecified additional software product rights are part of the contract with the customer, such rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support because such rights are provided for the same period of time and have the same pattern of transfer to the customer over the duration of the subscription term.
IP & System Integration
The Company generally licenses IP under nonexclusive license agreements that provide usage rights for specific applications. Additionally, for certain IP license agreements, royalties are collected as customers sell their own products that incorporate the Company’s IP. Under ASC 605, the Company recognized revenue either upfront if certain criteria in ASC 605 were met, or over the contractual period for IP licensing and support arrangements if such arrangements were combined with other TSL arrangements. Under ASC 606, these arrangements generally have two distinct performance obligations that consist of transferring the licensed IP and the support service. Support services consist of a stand-ready obligation to provide technical support and software updates over the support term. Revenue allocated to the IP license is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term. Royalties are recognized as revenue is earned, generally when the customer sells its products that incorporate the Company’s IP.
Software Integrity Products
Software Integrity product arrangements provide customers the right to software licenses, software updates and technical support. Under the term of these arrangements, the customer expects to receive integral updates to the software licenses that protect the customer’s software from potential security vulnerabilities. The licenses and software updates together serve to fulfill the Company’s commitment to the customer, as they represent inputs to a single, combined performance obligation that commences upon the later of the arrangement effective date or transfer of the software license. Software updates are part of the contract with the customer, and such rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support because such rights are provided for the same period of time and have the same time-based pattern of transfer to the customer.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Hardware
The Company generally has two performance obligations in arrangements involving the sale of hardware products. The first performance obligation is to transfer the hardware product, which includes embedded software integral to the functionality of the hardware product. The second performance obligation is to provide maintenance on the hardware and its embedded software, including rights to technical support, hardware repairs and software updates that are all provided over the same term and have the same time-based pattern of transfer to the customer. The portion of the transaction price allocated to the hardware product is generally recognized as revenue at a point in time when the hardware is shipped to the customer. The Company has concluded that control generally transfers upon delivery because the customer has the ability to direct the use of the asset and an obligation to pay for the hardware. The portion of the transaction price allocated to maintenance is recognized as revenue that is ratable over the maintenance term. The adoption of ASC 606 did not change the timing of revenue recognition for hardware products and related services.
Professional Services
The Company's arrangements often include service elements (other than maintenance and support services). These services include training, design assistance, and consulting. Services performed on a time and materials basis are recognized over time, as the customer simultaneously receives and consumes the benefit provided. Certain arrangements also include the customization or modification of licensed IP. Revenue from these contracts is recognized over time as the services are performed, when the development is specific to the customer’s needs and Synopsys has enforceable rights to payment for performance completed. Inputs such as costs incurred and hours expended are used in order to measure progress of performance. The Company has a history of accurately estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances, specification and testing requirement changes, and changes in customer delivery priorities. Payments for services are generally due upon milestones in the contract or upon consumption of the hourly resources.
Flexible Spending Accounts
Some customers enter into a non-cancelable Flexible Spending Account arrangement (FSA) whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of Synopsys products or services. These arrangements do not meet the definition of a revenue contract until the customer executes a separate order to identify the required products and services that they are purchasing. The combination of the FSA arrangement and the subsequent order creates enforceable rights and obligations, thus meeting the definition of a revenue contract. Each separate order under the agreement is treated as an individual contract under the new standard and accounted for based on the respective performance obligations included within the FSA arrangements.
Judgments
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately versus together requires significant judgment. The Company has concluded that (1) its EDA software licenses in TSL contracts are not distinct from its obligation to provide unspecified software updates to the licensed software throughout the license term, because those promises represent inputs to a single, combined performance obligation, and (2) where unspecified additional software product rights are part of the contract with the customer, such rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support, because such rights are provided for the same period of time and have the same time-based pattern of transfer to the customer. In reaching this conclusion, the Company considered the nature of the obligation to customers which is to provide an ongoing right to use the most up to date and relevant software. As EDA customers operate in a rapidly changing and competitive environment, satisfying the obligation requires providing critical updates to the existing software products, including ongoing iterative interaction with customers to make the software relevant to customers’ ability to meet the time to go to market with advanced products.
Similarly, the Company also concluded that in its Software Integrity business, the licenses and maintenance updates serve together to fulfill the Company’s commitment to the customer as both work together to provide the
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
functionality to the customer and represent a combined performance obligation because the updates are essential to the software’s central utility, which is to identify security vulnerabilities and other threats.
Judgment is also required to determine the standalone selling price (SSP) for each distinct performance obligation. For non-software performance obligations (IP, Hardware, and services), SSP is established based on observable prices of products and services sold separately. SSP for license (and related updates and support) in a contract with multiple performance obligations is determined by applying a residual approach whereby all other non-software performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSP, using observable prices, with any residual amount of the transaction price allocated to the license because the Company does not sell the license separately, and the pricing is highly variable.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables (billed or unbilled), contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated balance sheet. The Company records a contract asset when revenue is recognized prior to the right to invoice, or deferred revenue when revenue is recognized subsequent to invoicing. For time-based software agreements, customers are generally invoiced in equal, quarterly amounts, although some customers prefer to be invoiced in single or annual amounts. The Company records an unbilled receivable when revenue is recognized and it has an unconditional right to invoice and receive payment.
Warranties and Indemnities. The Company generally warrants its products to be free from defects in media and to substantially conform to material specifications for a period of 90 days for software products and for up to six months for hardware systems. In certain cases, the Company also provides its customers with limited indemnification with respect to claims that their use of the Company’s software products infringes on United States patents, copyrights, trademarks or trade secrets. The Company is unable to estimate the potential impact of these commitments on the future results of operations. To date, the Company has not been required to pay any material warranty claims.
Net Income Per Share. The Company computes basic income per share by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the dilution from potential common shares outstanding such as stock options and unvested restricted stock units and awards during the period using the treasury stock method.
The table below reconciles the weighted average common shares used to calculate basic net income per share with the weighted average common shares used to calculate diluted net income per share:
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands, except per share amounts)
|
Numerator:
|
|
|
|
|
|
Net income attributed to Synopsys
|
$
|
664,347
|
|
|
$
|
532,367
|
|
|
$
|
432,518
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares for basic net income per share
|
151,135
|
|
|
149,872
|
|
|
149,036
|
|
Dilutive effect of common share equivalents from equity-based compensation
|
4,571
|
|
|
4,318
|
|
|
4,357
|
|
Weighted average common shares for diluted net income per share
|
155,706
|
|
|
154,190
|
|
|
153,393
|
|
Net income per share:
|
|
|
|
|
|
Basic
|
$
|
4.40
|
|
|
$
|
3.55
|
|
|
$
|
2.90
|
|
Diluted
|
$
|
4.27
|
|
|
$
|
3.45
|
|
|
$
|
2.82
|
|
Anti-dilutive employee stock-based awards excluded(1)
|
97
|
|
|
171
|
|
|
850
|
|
|
|
(1)
|
These stock options and unvested restricted stock units were anti-dilutive for the respective periods and are excluded in calculating diluted net income per share. While such awards were anti-dilutive for the respective periods, they could be dilutive in the future.
|
Note 3. Revenue
Disaggregated Revenue
The following table shows the percentage of revenue by product groups:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
EDA
|
57
|
%
|
|
59
|
%
|
|
62
|
%
|
IP & System Integration
|
33
|
%
|
|
31
|
%
|
|
29
|
%
|
Software Integrity Products & Services
|
10
|
%
|
|
10
|
%
|
|
9
|
%
|
Other(1)
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
(1)
|
The percentage of revenue by Other is less than 1%.
|
Contract Balances
The contract assets indicated below are presented as prepaid and other current assets in the consolidated balance sheets. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional. Unbilled receivables are presented as accounts receivable, net, in the consolidated balance sheets.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Contract balances are as follows:
|
|
|
|
|
|
|
|
|
|
As of October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Contract assets
|
$
|
214,583
|
|
|
$
|
210,557
|
|
Unbilled receivables
|
$
|
50,932
|
|
|
$
|
38,175
|
|
Deferred revenue
|
$
|
1,493,113
|
|
|
$
|
1,302,578
|
|
During fiscal 2020, the Company recognized $1.1 billion of revenue that was included in the deferred revenue balance as of October 31, 2019. During fiscal 2019, the Company recognized $1.0 billion of revenue that was included in the deferred revenue balance as of October 31, 2018.
Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $4.9 billion as of October 31, 2020, which includes $673.8 million in non-cancellable FSA commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date. The Company has elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 61% of the contracted but unsatisfied or partially unsatisfied performance obligations as of October 31, 2020, excluding non-cancellable FSA, are expected to be recognized over the next 12 months with the remainder recognized thereafter.
During fiscal 2020, the Company recognized $102.4 million from performance obligations satisfied from sales-based royalties earned during the periods. During fiscal 2019, the Company recognized $80.0 million from performance obligations satisfied from sales-based royalties earned during the periods.
Costs of Obtaining a Contract with Customer
The Company adopted ASC Subtopic 340-40, “Other Assets and Deferred Costs - Contracts with Customers (ASC 340-40)” on November 4, 2018, the beginning of fiscal year 2019, using the modified retrospective method. The comparative information for periods prior to fiscal year 2019 has not been restated and continues to be reported under the accounting standards in effect for those periods. The incremental costs of obtaining a contract with a customer, which consist primarily of direct sales commissions earned upon execution of the contract, are required to be capitalized under ASC 340-40 and amortized over the estimated period of which the benefit is expected to be received. As direct sales commissions paid for renewals are commensurate with the amounts paid for initial contracts, the deferred incremental costs will be recognized over the contract term. Total capitalized direct commission costs as of October 31, 2020 were $81.3 million and are included in other assets in the Company’s consolidated balance sheets. Amortization of these assets was $61.2 million during fiscal 2020 and is included in sales and marketing expense in the Company’s consolidated statements of operations. Total capitalized direct commission costs as of October 31, 2019 were $86.4 million and are included in other assets in the Company’s consolidated balance sheets. Amortization of these assets was $62.8 million during fiscal 2019 and is included in sales and marketing expense in the Company’s consolidated statements of operations.
Note 4. Business Combinations
Fiscal 2020 Acquisitions
During fiscal 2020, the Company completed several acquisitions for an aggregate consideration of $238.3 million, net of cash acquired as described below:
|
|
•
|
During the second quarter of fiscal 2020, the Company completed an acquisition for an aggregate consideration of $105.7 million; including cash consideration of $75.7 million and the Company’s products exchanged in connection with the acquisition with a fair value of $30.0 million.
|
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The consideration of $105.7 million was allocated to $20.6 million of identifiable intangible assets, $4.2 million of net tangible assets, and $80.9 million in goodwill, on a preliminary basis. The fair value of these intangible assets was estimated using the income method. These transactions are not considered to be material to the Company’s consolidated statements of operations. The acquisition was attributable to the Semiconductor & System Design reporting segment.
Concurrent to this transaction, the Company also executed a design service arrangement and recognized an asset of $10.7 million for the off-market component. The $10.7 million contract asset is expected to be amortized over the contractual period of the agreement of five years.
|
|
•
|
In addition to the above, the Company also completed several other acquisitions for an aggregate cash consideration of $132.6 million, net of cash acquired. The preliminary purchase allocations are $44.7 million of identifiable intangible assets and $92.8 million in goodwill, of which $13.3 million is attributable to the Software Integrity reporting segment. The fair value of these intangible assets and goodwill are estimated using the income method.
|
The preliminary fair value estimates for the assets acquired and liabilities assumed for all acquisitions completed within 12 months from the applicable acquisition date are not yet finalized and may change as additional information becomes available during the respective measurement periods. The primary areas of those preliminary estimates relate to certain tangible assets and liabilities, identifiable intangible assets, and income taxes.
The Company does not consider these acquisitions to be material, individually or in the aggregate, to the Company’s consolidated statements of operations.
Note 5. Goodwill and Intangible Assets
The Company has two reporting units and has assigned assets and liabilities to each of the reporting units based on each unit's operating activities. No impairment of goodwill was identified for any periods presented. Goodwill activity by reportable segment for the year ended October 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor & System Design
|
|
Software Integrity
|
|
Total
|
|
(in thousands)
|
Balance at October 31, 2019
|
$
|
2,758,926
|
|
|
$
|
412,253
|
|
|
$
|
3,171,179
|
|
Additions
|
160,447
|
|
|
13,285
|
|
|
173,732
|
|
Adjustments
|
59
|
|
|
—
|
|
|
59
|
|
Effect of foreign currency translation
|
20,080
|
|
|
64
|
|
|
20,144
|
|
Balance at October 31, 2020
|
$
|
2,939,512
|
|
|
$
|
425,602
|
|
|
$
|
3,365,114
|
|
Goodwill activity by reportable segment for the year ended October 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor & System Design
|
|
Software Integrity
|
|
Total
|
|
(in thousands)
|
Balance at October 31, 2018
|
$
|
2,730,990
|
|
|
$
|
412,259
|
|
|
$
|
3,143,249
|
|
Additions
|
23,690
|
|
|
—
|
|
|
23,690
|
|
Effect of foreign currency translation
|
4,246
|
|
|
(6
|
)
|
|
4,240
|
|
Balance at October 31, 2019
|
$
|
2,758,926
|
|
|
$
|
412,253
|
|
|
$
|
3,171,179
|
|
In-process research and development (IPR&D) as of October 31, 2020 consisted of acquired projects that, if completed, will be reclassified to core/developed technology upon completion, or if abandoned, will be written off. Intangible assets as of October 31, 2020 consisted of the following:
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net Assets
|
|
(in thousands)
|
Core/developed technology
|
$
|
827,232
|
|
|
$
|
703,009
|
|
|
$
|
124,223
|
|
Customer relationships
|
380,838
|
|
|
277,219
|
|
|
103,619
|
|
Contract rights intangible
|
192,812
|
|
|
186,763
|
|
|
6,049
|
|
Trademarks and trade names
|
43,096
|
|
|
28,716
|
|
|
14,380
|
|
In-process research and development (IPR&D)
|
1,214
|
|
|
—
|
|
|
1,214
|
|
Capitalized software development costs
|
44,122
|
|
|
39,285
|
|
|
4,837
|
|
Total
|
$
|
1,489,314
|
|
|
$
|
1,234,992
|
|
|
$
|
254,322
|
|
Intangible assets as of October 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net Assets
|
|
(in thousands)
|
Core/developed technology
|
$
|
791,647
|
|
|
$
|
655,119
|
|
|
$
|
136,528
|
|
Customer relationships
|
358,661
|
|
|
242,058
|
|
|
116,603
|
|
Contract rights intangible
|
184,304
|
|
|
181,124
|
|
|
3,180
|
|
Trademarks and trade names
|
42,929
|
|
|
25,581
|
|
|
17,348
|
|
In-process research and development (IPR&D)
|
1,200
|
|
|
—
|
|
|
1,200
|
|
Capitalized software development costs
|
40,077
|
|
|
35,562
|
|
|
4,515
|
|
Total
|
$
|
1,418,818
|
|
|
$
|
1,139,444
|
|
|
$
|
279,374
|
|
Amortization expense related to intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Core/developed technology
|
$
|
47,890
|
|
|
$
|
56,163
|
|
|
$
|
78,820
|
|
Customer relationships
|
35,075
|
|
|
37,533
|
|
|
37,395
|
|
Contract rights intangible
|
5,181
|
|
|
3,581
|
|
|
4,906
|
|
Trademarks and trade names
|
3,135
|
|
|
3,637
|
|
|
4,543
|
|
Capitalized software development costs(1)
|
3,723
|
|
|
2,868
|
|
|
3,599
|
|
Total
|
$
|
95,004
|
|
|
$
|
103,782
|
|
|
$
|
129,263
|
|
|
|
(1)
|
Amortization of capitalized software development costs is included in cost of products revenue in the consolidated statements of operations.
|
The following table presents the estimated future amortization of intangible assets as of October 31, 2020:
|
|
|
|
|
Fiscal Year
|
(in thousands)
|
2021
|
$
|
76,078
|
|
2022
|
61,242
|
|
2023
|
44,733
|
|
2024
|
34,398
|
|
2025
|
18,295
|
|
2026 and thereafter
|
18,362
|
|
IPR&D
|
1,214
|
|
Total
|
$
|
254,322
|
|
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Note 6. Financial Assets and Liabilities
Cash equivalents. The Company classifies time deposits and other investments with original maturities less than three months as cash equivalents.
As of October 31, 2020, the balances of the Company's cash equivalents and non-marketable equity securities investments were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses Less Than 12 Continuous Months
|
|
Gross
Unrealized
Losses 12 Continuous Months or Longer
|
|
Estimated
Fair Value(1)
|
|
(in thousands)
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
304,127
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
304,127
|
|
Total:
|
$
|
304,127
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
304,127
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
|
Non-marketable equity securities
|
$
|
13,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,200
|
|
Total:
|
$
|
13,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,200
|
|
|
|
(1)
|
See Note 7. Fair Value Measures for further discussion on fair values of cash equivalents.
|
As of October 31, 2019, the balances of our cash equivalents and non-marketable equity securities investments were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses Less Than 12 Continuous Months
|
|
Gross
Unrealized
Losses 12 Continuous Months or Longer
|
|
Estimated
Fair Value(1)
|
|
(in thousands)
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
166,024
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
166,024
|
|
Total:
|
$
|
166,024
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
166,024
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
|
Non-marketable equity securities
|
$
|
10,951
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,951
|
|
Total:
|
$
|
10,951
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,951
|
|
|
|
(1)
|
See Note 7. Fair Value Measures for further discussion on fair values of cash equivalents.
|
Restricted cash. The Company includes amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows. All restricted cash is primarily associated with office leases and has no material impact on the Company’s consolidated statements of cash flows.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The following table provides a reconciliation of cash, cash equivalents and restricted cash included in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Cash and cash equivalents
|
$
|
1,235,653
|
|
|
$
|
728,597
|
|
Restricted cash included in Prepaid expenses and other current assets
|
1,523
|
|
|
1,174
|
|
Restricted cash included in Other long-term assets
|
794
|
|
|
756
|
|
Total cash, cash equivalents and restricted cash
|
$
|
1,237,970
|
|
|
$
|
730,527
|
|
Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately held companies. The investments that the Company does not have the ability to exercise significant influence are accounted using the measurement alternative when the fair value of the investment is not readily determinable. Securities accounted for as equity method investments are recorded at cost plus the proportional share of the issuers’ income or loss, which is recorded in the Company’s other income (expense), net. The cost basis of securities sold is based on the specific identification method. See Note 7. Fair Value Measures.
Derivatives.
In the first quarter of 2020, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedge Activities, which amends the hedge accounting recognition and presentation requirements of ASC 815. Pursuant to the provisions of ASU 2017-12, the Company is not required to separately measure and report hedge ineffectiveness, which was previously recorded in Other income (expense), net in our consolidated statements of operations. Also, prior to the adoption of ASU 2017-12, the forward point components of the cash flow hedges were excluded from assessing effectiveness of the hedging relationship and were recorded on the consolidated statements of operations in other income (expense), net. Following the Company's adoption of ASU 2017-12, the Company presents the related earning impact of the cash flow hedges in the same income statement section as the hedged items. Adoption of the guidance did not impact opening retained earnings or have a material impact on our financial statements.
The Company recognizes derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value and provides qualitative and quantitative disclosures about such derivatives. The Company operates internationally and is exposed to potentially adverse movements in foreign currency exchange rates. The Company enters into hedges in the form of foreign currency forward contracts to reduce its exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies.
The duration of forward contracts ranges from approximately one month to 22 months, the majority of which are short-term. The Company does not use foreign currency forward contracts for speculative or trading purposes. The Company enters into foreign exchange forward contracts with high credit quality financial institutions that are rated ‘A’ or above and to date has not experienced nonperformance by counterparties. In addition, the Company mitigates credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty and anticipates continued performance by all counterparties to such agreements.
The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. The cash flow impact upon settlement of the derivative contracts will be included in “Net cash provided by operating activities” in the consolidated statements of cash flows.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Cash Flow Hedging Activities
Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of approximately 22 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to the Company’s foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The related gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (loss) (OCI), in stockholders’ equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. The Company expects a majority of the hedge balance in OCI to be reclassified to the statements of operations within the next twelve months.
Prior to adoption of ASU 2017-12, hedge effectiveness was evaluated monthly using spot rates, with any gain or loss caused by hedging ineffectiveness recorded in other income (expense), net. During fiscal 2020, 2019 and 2018, the amounts recognized in other income (expense) for ineffectiveness and excluded component were immaterial.
Upon adoption of ASU 2017-12, the Company elected to use the forward method to measure hedge effectiveness for its Japanese yen revenue and foreign currency expense cash flow hedges. The Company did not change the process for its backlog cash flow hedges and continues to measure hedging effectiveness on a monthly basis.
Non-designated Hedging Activities
The Company’s foreign exchange forward contracts that are used to hedge non-functional currency denominated balance sheet assets and liabilities are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying assets and liabilities, which are also recorded in other income (expense), net. The duration of the forward contracts for hedging the Company’s balance sheet exposure is approximately one month.
The Company also has certain foreign exchange forward contracts for hedging certain international revenues and expenses that are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the foreign currency in operating income. The duration of these forward contracts is usually less than one year. The overall goal of the Company’s hedging program is to minimize the impact of currency fluctuations on its net income over its fiscal year.
The effects of non-designated derivative instruments on the Company’s consolidated statements of operations for fiscal years 2020, 2019, and 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Gain (loss) recorded in other income (expense), net
|
$
|
1,957
|
|
|
$
|
4,538
|
|
|
$
|
3,361
|
|
The notional amounts in the table below for derivative instruments provide one measure of the transaction volume outstanding:
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Total gross notional amount
|
$
|
981,234
|
|
|
$
|
817,441
|
|
Net fair value
|
$
|
6,940
|
|
|
$
|
3,494
|
|
The notional amounts for derivative instruments do not represent the amount of the Company’s exposure to market gain or loss. The Company’s exposure to market gain or loss will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.
The following table represents the consolidated balance sheets location and amount of derivative instrument fair values segregated between designated and non-designated hedge instruments:
|
|
|
|
|
|
|
|
|
|
Fair values of
derivative instruments
designated as
hedging instruments
|
|
Fair values of
derivative instruments
not designated as
hedging instruments
|
|
(in thousands)
|
Balance at October 31, 2020
|
|
|
|
Other current assets
|
$
|
9,182
|
|
|
$
|
138
|
|
Accrued liabilities
|
$
|
2,088
|
|
|
$
|
292
|
|
Balance at October 31, 2019
|
|
|
|
Other current assets
|
$
|
7,327
|
|
|
$
|
53
|
|
Accrued liabilities
|
$
|
3,715
|
|
|
$
|
171
|
|
The following table represents, for designated hedge instruments, net of tax, the respective locations in the consolidated statements of operations and the amount of gains and losses on derivative instrument fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of gain (loss)
recognized in OCI on
derivatives
|
|
Amount of gain (loss)
recognized in
OCI on
derivatives
(effective portion)
|
|
Location of gain (loss)
reclassified
from OCI
|
|
Amount of
gain (loss)
reclassified
from OCI
(effective
portion)
|
|
(in thousands)
|
Fiscal year ended October 31, 2020
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Revenue
|
|
$
|
3,034
|
|
|
Revenue
|
|
$
|
530
|
|
Foreign exchange contracts
|
Operating expenses
|
|
4,800
|
|
|
Operating expenses
|
|
(603
|
)
|
Total
|
|
|
$
|
7,834
|
|
|
|
|
$
|
(73
|
)
|
Fiscal year ended October 31, 2019
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Revenue
|
|
$
|
278
|
|
|
Revenue
|
|
$
|
1,436
|
|
Foreign exchange contracts
|
Operating expenses
|
|
4,455
|
|
|
Operating expenses
|
|
(16,073
|
)
|
Total
|
|
|
$
|
4,733
|
|
|
|
|
$
|
(14,637
|
)
|
Fiscal year ended October 31, 2018
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Revenue
|
|
$
|
693
|
|
|
Revenue
|
|
$
|
1,103
|
|
Foreign exchange contracts
|
Operating expenses
|
|
(18,121
|
)
|
|
Operating expenses
|
|
9,785
|
|
Total
|
|
|
$
|
(17,428
|
)
|
|
|
|
$
|
10,888
|
|
Other Commitments — Credit and Term Loan Facilities
On November 28, 2016, the Company entered into an amended and restated credit agreement with several lenders (the Credit Agreement) providing for (i) a $650.0 million senior unsecured revolving credit facility (the Revolver) and (ii) a $150.0 million senior unsecured term loan facility (the Term Loan). The Credit Agreement amended and restated the Company’s previous credit agreement dated May 19, 2015, in order to increase the size of the revolving credit facility from $500.0 million to $650.0 million, provide a new $150.0 million senior unsecured term loan facility, and to extend the termination date of the revolving credit facility from May 19, 2020 to November 28, 2021. Subject to obtaining additional commitments from lenders, the principal amount of the loans provided under the Credit Agreement may be increased by the Company by up to an additional $150.0 million. The Credit Agreement contains financial covenants requiring the Company to operate within a maximum leverage ratio and maintain a minimum interest coverage ratio, as well as other non-financial covenants. As of October 31, 2020, the Company was in compliance with all financial covenants.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
As of October 31, 2020, the Company had an outstanding balance of $102.1 million, net of debt issuance costs, under the Term Loan, of which $75.0 million was classified as long-term liabilities. Outstanding principal payments under the Term Loan are due as follows:
|
|
|
|
|
Fiscal year
|
(in thousands)
|
2021
|
$
|
27,187
|
|
2022
|
75,000
|
|
Total
|
$
|
102,187
|
|
As of October 31, 2019, the Company had $119.8 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $102.2 million was classified as long-term liabilities.
There was no outstanding balance under the Revolver as of October 31, 2020 and October 31, 2019. The Company expects its borrowings under the Revolver will fluctuate from quarter to quarter.
The Term Loan and Revolver borrowings bear interest at a floating rate based on a margin over the Company’s choice of market observable base rates as defined in the Credit Agreement. As of October 31, 2020, borrowings under the Term Loan bore interest at LIBOR +1.125% and the applicable interest rate for the Revolver was LIBOR +1.000%. In addition, commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on the Company’s leverage ratio on the daily amount of the revolving commitment.
In July 2018, the Company entered into a 12-year $220.0 million RMB (approximately $33.0 million) credit agreement with a lender in China to support its facilities expansion. Borrowings bear interest at a floating rate based on the 5 year Loan Prime Rate plus 0.74%. As of October 31, 2020, the Company had $25.8 million outstanding under the agreement.
The carrying amount of the short-term and long-term debt approximates the estimated fair value. These borrowings under the Credit Agreement have a variable interest rate structure and are classified within Level 2 of the fair value hierarchy.
Note 7. Fair Value Measures
Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes guidelines and enhances disclosure requirements for fair value measurements. The accounting guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance also establishes a fair value hierarchy based on the independence of the source and objective evidence of the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value measurement:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical instruments in active markets;
Level 2—Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3—Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
On a recurring basis, the Company measures the fair value of certain of its assets and liabilities, which include cash equivalents, non-qualified deferred compensation plan assets, and foreign currency derivative contracts.
The Company’s cash equivalents are classified within Level 1 or Level 2 because they are valued using quoted market prices in an active market or alternative independent pricing sources and models utilizing market observable inputs.
The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets and are therefore classified within Level 1.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The Company’s foreign currency derivative contracts are classified within Level 2 because these contracts are not actively traded and the valuation inputs are based on quoted prices and market observable data of similar instruments.
The Company’s borrowings under its credit and term loan facilities are classified within Level 2 because these borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities. See Note 6. Financial Assets and Liabilities for more information on these borrowings.
Assets/Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
Description
|
Total
|
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
304,127
|
|
|
$
|
304,127
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Prepaid and other current assets:
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
9,320
|
|
|
—
|
|
|
9,320
|
|
|
—
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
Deferred compensation plan assets
|
269,737
|
|
|
269,737
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
583,184
|
|
|
$
|
573,864
|
|
|
$
|
9,320
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
$
|
2,380
|
|
|
$
|
—
|
|
|
$
|
2,380
|
|
|
$
|
—
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities
|
269,737
|
|
|
269,737
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
$
|
272,117
|
|
|
$
|
269,737
|
|
|
$
|
2,380
|
|
|
$
|
—
|
|
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Total
|
|
Fair Value Measurement Using
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
166,024
|
|
|
$
|
166,024
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Prepaid and other current assets:
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
7,380
|
|
|
—
|
|
|
7,380
|
|
|
—
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
Deferred compensation plan assets
|
249,822
|
|
|
249,822
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
423,226
|
|
|
$
|
415,846
|
|
|
$
|
7,380
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
$
|
3,886
|
|
|
$
|
—
|
|
|
$
|
3,886
|
|
|
$
|
—
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities
|
249,822
|
|
|
249,822
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
$
|
253,708
|
|
|
$
|
249,822
|
|
|
$
|
3,886
|
|
|
$
|
—
|
|
Assets/Liabilities Measured at Fair Value on a Non-Recurring Basis
Non-Marketable Equity Securities
Equity investments in privately-held companies, also called non-marketable equity securities, are accounted for using either the measurement alternative or equity method of accounting.
The non-marketable equity securities are measured and recorded at fair value when an event or circumstance which impacts the fair value of these securities indicates that the securities are impaired and the fair value of the securities is less than the carrying value. In such events, these equity investments would be classified within Level 3 as they are valued using significant unobservable inputs or data in an inactive market, and the valuation requires management judgment due to the absence of market price and inherent lack of liquidity. The Company monitors these investments and generally uses the income approach to assess impairments based primarily on the financial conditions of these companies.
Note 8. Leases
The Company has operating lease arrangements for office space, data center, equipment and other corporate assets. These leases have various expiration dates through March 31, 2032, some of which include options to extend the leases for up to 10 years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The components of the Company’s lease expense during the period presented are as follows:
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
(in thousands)
|
Operating lease expense
|
$
|
93,636
|
|
Variable lease expense (1)
|
5,147
|
|
Total lease expense
|
$
|
98,783
|
|
(1) Variable lease expense includes payments to lessors that are not fixed or determinable at lease commencement date. These payments primarily consist of maintenance, property taxes, insurance and variable indexed based payments.
Supplemental cash flow information during the period presented is as follows:
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
(in thousands)
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
72,828
|
|
ROU assets obtained in exchange for operating lease liabilities
|
$
|
69,439
|
|
Lease term and discount rate information related to the Company’s operating leases as of the end of the period presented are as follows:
|
|
|
|
|
October 31, 2020
|
Weighted-average remaining lease term (in years)
|
8.62
|
|
Weighted-average discount rate
|
2.56
|
%
|
The following represents the maturities of the Company’s future lease payments due under operating leases as of October 31, 2020:
|
|
|
|
|
|
Lease Payments
|
Fiscal year
|
(in thousands)
|
2021
|
$
|
84,534
|
|
2022
|
79,886
|
|
2023
|
64,073
|
|
2024
|
59,751
|
|
2025
|
53,280
|
|
Thereafter
|
259,969
|
|
Total future minimum lease payments
|
601,493
|
|
Less: Imputed interest
|
65,909
|
|
Total lease liabilities
|
$
|
535,584
|
|
As of October 31, 2020, the Company has additional operating leases for facilities that have not yet commenced with future undiscounted lease payments of $58.6 million. These operating leases will commence before March 1, 2021, with lease terms between 3 years and 9 years.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
As of October 31, 2019, the future minimum lease payments due under non-cancellable operating leases were as follows:
|
|
|
|
|
|
Minimum Lease Payments(1)
|
|
(in thousands)
|
Fiscal year
|
|
2020
|
$
|
79,286
|
|
2021
|
79,703
|
|
2022
|
69,477
|
|
2023
|
53,909
|
|
2024
|
48,730
|
|
Thereafter
|
291,494
|
|
Total
|
$
|
622,599
|
|
(1) Amounts based on Topic 840, Leases.
In addition, certain facilities owned by the Company were leased to 3rd parties under non-cancellable operating lease agreements. These leases have annual escalating payments and have expiration dates through March 31, 2031 in accordance with the terms and conditions of the existing agreement. Lease payments due to the Company, over the remaining life of the leases, are approximately $69.6 million as of October 31, 2020.
Note 9. Contingencies
Legal Proceedings
The Company is subject to routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of its business. The ultimate outcome of any litigation is often uncertain and unfavorable outcomes could have a negative impact on the Company’s results of operations and financial condition. The Company regularly reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount is estimable, the Company accrues a liability for the estimated loss. Legal proceedings are inherently uncertain and as circumstances change, it is possible that the amount of any accrued liability may increase, decrease, or be eliminated.
The Company has determined that, except as set forth below, no disclosure of estimated loss is required for a claim against the Company because: (1) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (2) a reasonably possible loss or range of loss cannot be estimated; or (3) such estimate is immaterial.
Mentor Patent Litigation
Prior to the legal settlement as further described below, the Company was engaged in complex patent litigation with Mentor Graphics Corporation (Mentor) involving several actions in different forums. The Company succeeded to the litigation when it acquired Emulation & Verification Engineering S.A. on October 4, 2012.
Legal Settlement
In March 2017, Siemens PLM Software (Siemens) acquired Mentor. On June 29, 2018, the Company, Siemens and Mentor settled all outstanding patent litigation between the Company and Mentor for a $65.0 million payment made in the current quarter from the Company to Mentor. The Company had previously accrued $39.0 million and recorded the remaining $26.0 million as an expense in the quarter ended July 31, 2018. As a result of the settlement, the litigation with Mentor was dismissed and the injunction entered in connection with that litigation was vacated. The settlement included mutual seven-year patent cross-licenses between the Company and Siemens, and between the Company and Mentor. The Company and Mentor also amended an existing interoperability agreement to collaborate on a wide range of EDA products for the benefit of their mutual customers. The amendment includes a one-time termination charge between $0.0 and $25.0 million, payable to Mentor under certain conditions.
Tax Matters
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The Company undergoes examination from time to time by U.S. and foreign authorities for non-income based taxes, such as sales, use and value-added taxes, and is currently under examination by tax authorities in certain jurisdictions. If the potential loss from such examinations is considered probable and the amount or the range of loss could be estimated, the Company would accrue a liability for the estimated expense. In addition to the foregoing, the Company is, from time to time, party to various other claims and legal proceedings in the ordinary course of its business, including with tax and other governmental authorities. For a description of certain of these other matters, refer to Note 13. Income Taxes.
Note 10. Accumulated Other Comprehensive Income (Loss)
Components of accumulated other comprehensive income (loss), on an after-tax basis where applicable, were as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Cumulative currency translation adjustments
|
$
|
(57,463
|
)
|
|
$
|
(87,929
|
)
|
Unrealized gain (loss) on derivative instruments, net of taxes
|
3,389
|
|
|
(4,518
|
)
|
Total accumulated other comprehensive income (loss)
|
$
|
(54,074
|
)
|
|
$
|
(92,447
|
)
|
The effect of amounts reclassified out of each component of accumulated other comprehensive income (loss) into net income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Reclassifications from accumulated other comprehensive income (loss) into consolidated statements of operations:
|
|
|
|
|
|
Gain (loss) on cash flow hedges, net of taxes
|
|
|
|
|
|
Revenues
|
$
|
530
|
|
|
$
|
1,436
|
|
|
$
|
1,103
|
|
Operating expenses
|
(603
|
)
|
|
(16,073
|
)
|
|
9,785
|
|
Total reclassifications into net income
|
$
|
(73
|
)
|
|
$
|
(14,637
|
)
|
|
$
|
10,888
|
|
Amounts reclassified in fiscal 2020, 2019, and 2018 primarily consisted of gains (losses) from the Company’s cash flow hedging activities. See Note 6. Financial Assets and Liabilities.
Note 11. Stock Repurchase Program
The Company’s Board of Directors (the Board) previously approved a stock repurchase program pursuant to which the Company was authorized to purchase up to $500.0 million of its common stock and has periodically replenished the stock repurchase program to such amount. The Board replenished the stock repurchase program up to $500.0 million on June 19, 2020. The program does not obligate the Company to acquire any particular amount of common stock, and the program may be suspended or terminated at any time by the Company's Chief Financial Officer or the Board. The Company repurchases shares to offset dilution caused by ongoing stock issuances from existing equity plans for equity compensation awards and issuances related to acquisitions, and when management believes it is a good use of cash. Repurchases are transacted in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) and may be made through any means, including, but not limited to, open market purchases, plans executed under Rule 10b5-1(c) of the Exchange Act and structured transactions. As of October 31, 2020, $457.9 million remained available for future repurchases under the program.
In December 2019, the Company entered into an accelerated share repurchase agreement (the December 2019 ASR) to repurchase an aggregate of $100.0 million of the Company's common stock. Pursuant to the December 2019 ASR, the Company made a prepayment of $100.0 million to receive initial share deliveries of shares valued at $80.0 million. The remaining balance of $20.0 million was settled in February 2020. Total shares purchased under the December 2019 ASR were approximately 0.7 million shares, at an average purchase price of $149.75 per share.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
In February 2020, the Company entered into an accelerated share repurchase agreement (the February 2020 ASR) to repurchase an aggregate of $100.0 million of the Company’s common stock. Pursuant to the February 2020 ASR, the Company made a prepayment of $100.0 million to receive initial share deliveries of shares valued at $80.0 million. The remaining balance of $20.0 million was settled in May 2020. Total shares purchased under the February 2020 ASR were approximately 0.7 million shares, at an average purchase price of $140.41 per share.
Stock repurchase activities as well as the reissuance of treasury stock for employee stock-based compensation purposes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands, except per share price)
|
Shares repurchased(1)
|
1,585
|
|
|
2,732
|
|
|
4,688
|
|
Average purchase price per share(1)
|
$
|
152.76
|
|
|
$
|
120.49
|
|
|
$
|
89.59
|
|
Aggregate purchase price(1)
|
$
|
242,078
|
|
|
$
|
329,185
|
|
|
$
|
420,000
|
|
Reissuance of treasury stock
|
3,872
|
|
|
3,798
|
|
|
3,508
|
|
|
|
(1)
|
The first quarter of fiscal 2018 includes the settlement of the $20.0 million equity forward contract related to the September 2017 ASR.
|
Note 12. Employee Benefit Plans
Employee Stock Purchase Plan
Under the Company’s Employee Stock Purchase Plan (ESPP), participating 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 an offering period (generally, a rolling two year period) or (2) the purchase date (generally occurring at the end of each semi-annual purchase period), subject to the terms of ESPP, including a limit on the number of shares that may be purchased in a purchase period.
On April 9, 2020, 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 2020, 2019 and 2018, the Company issued 1.0 million, 1.2 million, and 1.2 million shares, respectively, under the ESPP at average per share prices of $103.41, $73.18 and $62.52, respectively. As of October 31, 2020, 13.8 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 and in the award agreements governing particular awards. Options granted under this plan generally have a contractual term of seven years and generally vest over four years. On April 9, 2020, the Company's stockholders approved an amendment to, among other things, increase the number of shares of common stock reserved for future issuance under the 2006 Employee Plan by 3.5 million shares. As of October 31, 2020, an aggregate of 3.9 million stock options and 4.1 million restricted stock units were outstanding, and 12.1 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
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
directors during fiscal 2007, fiscal 2011, fiscal 2015, and fiscal 2017. As of October 31, 2020, 29,222 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. On April 6, 2017, the Company’s stockholders approved an aggregate of 0.45 million shares of common stock reserved under the 2017 Directors Plan.
For the fiscal year ended October 31, 2020, the Company issued an aggregate of 9,412 shares of restricted stock awards with an aggregate grant date fair value of approximately $1.3 million under the 2017 Directors Plan. Restricted stock awards generally vest on an annual basis under the 2017 Directors Plan. In addition, the Company granted options to purchase 5,998 shares of common stock, which vest over a period of three years, with an aggregate grant date fair value of $1.4 million. As of October 31, 2020, 9,412 shares of restricted stock were unvested and 5,998 stock options were outstanding, and a total of 389,682 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, fiscal 2017, and fiscal 2018 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, 2020, 0.1 million shares of the Company’s common stock remained subject to such outstanding assumed equity awards.
Restricted Stock Units. Restricted stock units are granted under the 2006 Employee Plan as part of the Company’s incentive compensation program. In general, restricted stock units vest over three to four years and are subject to the employee's continuing service with the Company. Certain restricted stock units were granted with specific performance criteria and vest to the extent performance conditions are met. 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. As of October 31, 2020, the share reserve ratio was 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, 2017
|
3,843
|
|
|
$
|
57.26
|
|
|
1.54
|
|
|
Granted(2)
|
1,679
|
|
|
$
|
89.35
|
|
|
|
|
|
Vested(1)
|
(1,495
|
)
|
|
$
|
52.55
|
|
|
|
|
$
|
136,417
|
|
Forfeited
|
(258
|
)
|
|
$
|
67.04
|
|
|
|
|
|
Balance at October 31, 2018
|
3,769
|
|
|
$
|
72.75
|
|
|
1.46
|
|
|
Granted
|
1,844
|
|
|
$
|
119.27
|
|
|
|
|
|
Vested(1)
|
(1,508
|
)
|
|
$
|
65.97
|
|
|
|
|
$
|
176,659
|
|
Forfeited
|
(248
|
)
|
|
$
|
79.49
|
|
|
|
|
|
Balance at October 31, 2019
|
3,857
|
|
|
$
|
97.21
|
|
|
1.56
|
|
|
Granted
|
2,041
|
|
|
$
|
168.15
|
|
|
|
|
|
Vested(1)
|
(1,480
|
)
|
|
$
|
88.70
|
|
|
|
|
$
|
261,563
|
|
Forfeited
|
(288
|
)
|
|
$
|
104.67
|
|
|
|
|
|
Balance at October 31, 2020
|
4,130
|
|
|
$
|
134.80
|
|
|
1.47
|
|
|
|
|
(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.
|
|
|
(2)
|
The Company assumed unvested restricted stock units from acquisitions including Black Duck.
|
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
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, 2017
|
12,583
|
|
|
6,530
|
|
|
$
|
46.83
|
|
|
4.60
|
|
$
|
263,555
|
|
Options granted
|
(1,134
|
)
|
|
1,134
|
|
|
$
|
89.52
|
|
|
|
|
|
Options assumed(2)
|
|
|
141
|
|
|
$
|
18.66
|
|
|
|
|
|
Options exercised
|
|
|
(1,336
|
)
|
|
$
|
38.18
|
|
|
|
|
|
Options canceled/forfeited/expired
|
157
|
|
|
(178
|
)
|
|
$
|
51.82
|
|
|
|
|
|
Restricted stock units granted(1)
|
(2,541
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited(1)
|
374
|
|
|
|
|
|
|
|
|
|
Additional shares reserved
|
3,000
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2018
|
12,439
|
|
|
6,291
|
|
|
$
|
55.63
|
|
|
4.39
|
|
$
|
214,432
|
|
Options granted
|
(799
|
)
|
|
799
|
|
|
$
|
113.17
|
|
|
|
|
|
Options exercised
|
|
|
(1,615
|
)
|
|
$
|
44.29
|
|
|
|
|
|
Options canceled/forfeited/expired
|
129
|
|
|
(185
|
)
|
|
$
|
58.02
|
|
|
|
|
|
Restricted stock units granted(1)
|
(3,134
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited(1)
|
373
|
|
|
|
|
|
|
|
|
|
Additional shares reserved
|
3,200
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2019
|
12,208
|
|
|
5,290
|
|
|
$
|
65.57
|
|
|
4.08
|
|
$
|
373,112
|
|
Options granted
|
(694
|
)
|
|
700
|
|
|
$
|
143.44
|
|
|
|
|
|
Options exercised
|
|
|
(1,891
|
)
|
|
$
|
51.76
|
|
|
|
|
|
Options canceled/forfeited/expired
|
102
|
|
|
(106
|
)
|
|
$
|
84.14
|
|
|
|
|
|
Restricted stock units granted(1)
|
(3,469
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited(1)
|
482
|
|
|
|
|
|
|
|
|
|
Additional shares reserved
|
3,500
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2020
|
12,129
|
|
|
3,993
|
|
|
$
|
85.26
|
|
|
4.10
|
|
$
|
513,845
|
|
Exercisable at October 31, 2020
|
|
|
2,311
|
|
|
$
|
65.36
|
|
|
3.23
|
|
$
|
343,230
|
|
|
|
(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 $213.86 as of October 31, 2020. The pretax intrinsic value of options exercised and their average exercise prices were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands, except per share price)
|
Intrinsic value
|
$
|
218,640
|
|
|
$
|
110,815
|
|
|
$
|
71,840
|
|
Average exercise price per share
|
$
|
51.76
|
|
|
$
|
44.29
|
|
|
$
|
38.18
|
|
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Restricted stock award activities during fiscal 2020 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, 2017
|
38
|
|
|
$
|
59.89
|
|
Granted
|
15
|
|
|
$
|
82.96
|
|
Vested
|
(32
|
)
|
|
$
|
62.09
|
|
Forfeited
|
(1
|
)
|
|
$
|
48.27
|
|
Unvested at October 31, 2018
|
20
|
|
|
$
|
73.95
|
|
Granted
|
11
|
|
|
$
|
116.43
|
|
Vested
|
(20
|
)
|
|
$
|
73.95
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Unvested at October 31, 2019
|
11
|
|
|
$
|
116.43
|
|
Granted
|
9
|
|
|
$
|
140.97
|
|
Vested
|
(11
|
)
|
|
$
|
116.43
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Unvested at October 31, 2020
|
9
|
|
|
$
|
140.97
|
|
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 except for performance grants with specific performance criteria. With respect to such performance grants in each reporting period, the Company estimates the probability of achievement of applicable performance goals and recognizes related stock-based compensation expense using the graded-vesting method. The amount of stock-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the various performance goals. If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.
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. Restricted stock units are valued based on the closing price of the Company’s common stock on the grant date.
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:
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
Stock Options
|
|
|
|
|
|
Expected life (in years)
|
4.1
|
|
4.1
|
|
4.1
|
Risk-free interest rate
|
0.26% - 1.71%
|
|
1.28% - 2.73%
|
|
2.10% - 2.95%
|
Volatility
|
23.05% - 32.80%
|
|
23.16% - 24.76%
|
|
20.22% - 21.04%
|
Weighted average estimated fair value
|
$33.02
|
|
$22.86
|
|
$23.55
|
ESPP
|
|
|
|
|
|
Expected life (in years)
|
0.5 - 2.0
|
|
0.5 - 2.0
|
|
0.5 - 2.0
|
Risk-free interest rate
|
0.09% - 1.24%
|
|
1.54% - 2.60%
|
|
1.80% - 2.73%
|
Volatility
|
25.59% - 43.06%
|
|
23.73% - 27.86%
|
|
19.99% - 21.54%
|
Weighted average estimated fair value
|
$47.69
|
|
$35.18
|
|
$23.34
|
The compensation cost recognized in the consolidated statements of operations for the Company's stock compensation arrangements was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Cost of products
|
$
|
27,193
|
|
|
$
|
17,193
|
|
|
$
|
14,648
|
|
Cost of maintenance and service
|
9,327
|
|
|
6,385
|
|
|
5,467
|
|
Research and development expense
|
125,814
|
|
|
75,853
|
|
|
67,355
|
|
Sales and marketing expense
|
43,205
|
|
|
28,834
|
|
|
28,069
|
|
General and administrative expense
|
43,045
|
|
|
26,736
|
|
|
24,493
|
|
Stock-based compensation expense before taxes
|
248,584
|
|
|
155,001
|
|
|
140,032
|
|
Income tax benefit
|
(39,077
|
)
|
|
(26,226
|
)
|
|
(26,578
|
)
|
Stock-based compensation expense after taxes
|
$
|
209,507
|
|
|
$
|
128,775
|
|
|
$
|
113,454
|
|
As of October 31, 2020, the Company had $488.6 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 2.3 years. As of October 31, 2020, the Company had $55.8 million of total unrecognized stock-based compensation expense relating to the ESPP, which is expected to be recognized over a period of 2.0 years.
Deferred Compensation Plan. The Company maintains the Synopsys Deferred Compensation Plan (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, 2020
|
|
As of October 31, 2019
|
|
(in thousands)
|
Plan assets recorded in other long-term assets
|
$
|
269,737
|
|
|
$
|
249,822
|
|
Plan liabilities recorded in other long-term liabilities(1)
|
$
|
269,737
|
|
|
$
|
249,822
|
|
|
|
(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:
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Increase (reduction) to cost of revenue and operating expense
|
$
|
21,469
|
|
|
$
|
27,759
|
|
|
$
|
4,636
|
|
Other income (expense), net
|
21,469
|
|
|
27,759
|
|
|
4,636
|
|
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 $54.7 million, $50.7 million, and $56.5 million in fiscal 2020, 2019, and 2018, 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.
Note 13. Income Taxes
The domestic and foreign components of the Company’s total income (loss) before provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
United States
|
$
|
544,391
|
|
|
$
|
487,430
|
|
|
$
|
(18,029
|
)
|
Foreign
|
93,768
|
|
|
58,076
|
|
|
381,572
|
|
Total income (loss) before provision for income taxes
|
$
|
638,159
|
|
|
$
|
545,506
|
|
|
$
|
363,543
|
|
The components of the provision (benefit) for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Current:
|
|
|
|
|
|
Federal
|
$
|
29,272
|
|
|
$
|
22,821
|
|
|
$
|
(1,120
|
)
|
State
|
1,863
|
|
|
11,846
|
|
|
2,025
|
|
Foreign
|
55,103
|
|
|
61,092
|
|
|
140,430
|
|
|
86,238
|
|
|
95,759
|
|
|
141,335
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(84,739
|
)
|
|
(41,219
|
)
|
|
(139,547
|
)
|
State
|
(20,233
|
)
|
|
(7,227
|
)
|
|
(25,661
|
)
|
Foreign
|
(6,554
|
)
|
|
(34,174
|
)
|
|
(45,102
|
)
|
|
(111,526
|
)
|
|
(82,620
|
)
|
|
(210,310
|
)
|
Provision (benefit) for income taxes
|
$
|
(25,288
|
)
|
|
$
|
13,139
|
|
|
$
|
(68,975
|
)
|
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The provision (benefit) for income taxes differs from the taxes computed with the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Statutory federal tax
|
$
|
133,979
|
|
|
$
|
114,557
|
|
|
$
|
85,142
|
|
State tax (benefit), net of federal effect
|
(29,096
|
)
|
|
6,529
|
|
|
(32,351
|
)
|
Tax credits
|
(39,206
|
)
|
|
(34,485
|
)
|
|
(35,142
|
)
|
Tax on foreign earnings
|
(3,980
|
)
|
|
23,467
|
|
|
(104,252
|
)
|
Foreign-derived intangible income deduction
|
(24,282
|
)
|
|
(26,615
|
)
|
|
—
|
|
Tax settlements
|
(13,167
|
)
|
|
(10,953
|
)
|
|
(14,691
|
)
|
Stock-based compensation
|
(50,047
|
)
|
|
(25,356
|
)
|
|
(19,293
|
)
|
Changes in valuation allowance
|
(614
|
)
|
|
(42,144
|
)
|
|
78,192
|
|
Integration of acquired technologies
|
—
|
|
|
—
|
|
|
27,927
|
|
Undistributed earnings of foreign subsidiaries
|
—
|
|
|
6,341
|
|
|
(974
|
)
|
Impact of tax restructuring
|
—
|
|
|
—
|
|
|
(171,979
|
)
|
Impact of Tax Act rate change
|
—
|
|
|
—
|
|
|
51,075
|
|
Transition tax
|
—
|
|
|
—
|
|
|
63,107
|
|
Other
|
1,125
|
|
|
1,798
|
|
|
4,264
|
|
Provision (benefit) for income taxes
|
$
|
(25,288
|
)
|
|
$
|
13,139
|
|
|
$
|
(68,975
|
)
|
The integration of acquired technologies represents the income tax effect resulting from the transfer of certain intangible assets among company-controlled entities. These intangible assets generally result from the acquisition of technology by a company-controlled entity as part of a business or asset acquisition.
The Tax Cuts and Jobs Act (Tax Act), enacted on December 22, 2017, lowered the statutory federal corporate income tax rate from 35% to 21% effective on January 1, 2018. Beginning in the Company's fiscal 2019, the annual statutory federal corporate tax rate is 21%.
The Tax Act includes certain new tax provisions listed below which apply to the Company beginning in fiscal 2019.
|
|
•
|
A tax on global intangible low-tax income (GILTI), which is determined annually based on the Company's aggregate foreign subsidiaries' income in excess of certain qualified business asset investment return. In fiscal 2019, the Company adopted an accounting policy to account for the tax effects of GILTI in the period that it is subject to such tax.
|
|
|
•
|
A base erosion and anti-abuse tax (BEAT), which functions as a minimum tax that partially disallows deductions for certain related party transactions and certain tax credits.
|
|
|
•
|
A special tax deduction for foreign-derived intangible income (FDII), which, in general, allows a deduction of certain intangible income earned in the U.S. and derived from foreign sources.
|
The Tax Act also provides an exemption from federal income taxes for distributions from foreign subsidiaries made after December 31, 2017, that were not subject to the one-time transition tax. The Company has provided for foreign withholding taxes on undistributed earnings of certain of its foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries.
The Tax Act required the Company to pay a one-time transition tax of 15.5% on previously untaxed earnings represented by foreign cash and certain other net current assets, and 8% on the remaining earnings. In fiscal 2018, the Company recorded a tax expense of $63.1 million. Based on subsequent judicial rulings in fiscal 2019 (including Altera Corp. et al. v. Commissioner and the Hungarian Administrative Court ruling, see Non-U.S. Examinations below) the Company recorded a tax benefit of $17.9 million related to the one-time transition tax.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
On July 27, 2015, the United States Tax Court (Tax Court) issued an opinion (Altera Corp. et al. v. Commissioner) regarding the treatment of stock-based compensation expense in intercompany cost-sharing arrangements. In view of the Tax Court opinion, the Company amended its cost-sharing arrangement effective February 1, 2016 to exclude stock-based compensation expense on a prospective basis and reflected the corresponding benefits in its income tax expense for fiscal years 2016, 2017 and 2018. On July 24, 2018, the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) reversed the decision of the Tax Court, and then subsequently withdrew its decision on August 7, 2018. A rehearing of the case was held on October 16, 2018 and on June 7, 2019, the Ninth Circuit overturned the July 27, 2015 Tax Court decision. In the third quarter of 2019, as a result of the Ninth Circuit decision, the Company recorded a tax expense of $18.3 million, which is net of estimated U.S. foreign tax credits for the tax assessments related to fiscal years 2016, 2017 and 2018. The Company's intercompany cost-sharing arrangement was terminated at the end of fiscal 2018 as part of the tax restructuring.
The significant components of deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Net deferred tax assets:
|
|
|
|
Deferred tax assets:
|
|
|
|
Deferred revenue
|
2,367
|
|
|
—
|
|
Deferred compensation
|
55,172
|
|
|
56,483
|
|
Intangible and depreciable assets
|
115,097
|
|
|
160,072
|
|
Capitalized research and development costs
|
118,857
|
|
|
48,804
|
|
Stock-based compensation
|
28,478
|
|
|
20,372
|
|
Tax loss carryovers
|
35,571
|
|
|
40,068
|
|
Foreign tax credit carryovers
|
18,645
|
|
|
20,187
|
|
Research and other tax credit carryovers
|
320,317
|
|
|
278,382
|
|
Operating Lease Liabilities
|
101,386
|
|
|
—
|
|
Gross deferred tax assets
|
795,890
|
|
|
624,368
|
|
Valuation allowance
|
(158,895
|
)
|
|
(157,343
|
)
|
Total deferred tax assets
|
636,995
|
|
|
467,025
|
|
Deferred tax liabilities:
|
|
|
|
Intangible assets
|
45,915
|
|
|
58,697
|
|
Operating lease Right-of-Use-Assets
|
84,716
|
|
|
—
|
|
Accruals and reserves
|
7,780
|
|
|
4,450
|
|
Deferred revenue
|
—
|
|
|
6,611
|
|
Undistributed earnings of foreign subsidiaries
|
3,063
|
|
|
6,864
|
|
Other
|
372
|
|
|
1,762
|
|
Total deferred tax liabilities
|
141,846
|
|
|
78,384
|
|
Net deferred tax assets
|
$
|
495,149
|
|
|
$
|
388,641
|
|
It is more likely than not that the results of future operations will be able to generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance provided against the Company's deferred tax assets as of October 31, 2020 is mainly attributable to international foreign tax credits and the California research credits. The valuation allowance increased by a net of $1.6 million in fiscal 2020 primarily related to the realizability of U.S. foreign tax credits offset by the net increase of valuation allowance on California research credits.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The Company has the following tax loss and credit carryforwards available to offset future income tax liabilities:
|
|
|
|
|
|
|
Carryforward
|
Amount
|
|
Expiration
Date
|
|
(in thousands)
|
|
|
Federal net operating loss carryforward
|
$
|
41,757
|
|
|
2021-2037
|
Federal research credit carryforward
|
176,616
|
|
|
2021-2040
|
Federal foreign tax credit carryforward
|
1,921
|
|
|
2021-2029
|
International foreign tax credit carryforward
|
15,681
|
|
|
Indefinite
|
International net operating loss carryforward
|
81,069
|
|
|
2021-Indefinite
|
California research credit carryforward
|
173,600
|
|
|
Indefinite
|
Other state research credit carryforward
|
15,486
|
|
|
2024-2035
|
State net operating loss carryforward
|
70,251
|
|
|
2027-2039
|
The federal and state net operating loss carryforward is from acquired companies and the annual use of such loss is subject to significant limitations under Internal Revenue Code Section 382 and certain provisions of the Tax Act. Foreign tax credits may only be used to offset tax attributable to foreign source income.
The gross unrecognized tax benefits decreased by approximately $33.1 million during fiscal 2020 resulting in gross unrecognized tax benefits of $83.1 million as of October 31, 2020. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:
|
|
|
|
|
|
|
|
|
|
As of October 31, 2020
|
|
As of October 31, 2019
|
|
(in thousands)
|
Beginning balance
|
$
|
116,212
|
|
|
$
|
131,019
|
|
Increases in unrecognized tax benefits related to prior year tax positions
|
5,390
|
|
|
41,346
|
|
Decreases in unrecognized tax benefits related to prior year tax positions
|
(43,783
|
)
|
|
(71,092
|
)
|
Increases in unrecognized tax benefits related to current year tax positions
|
9,226
|
|
|
16,927
|
|
Decreases in unrecognized tax benefits related to settlements with taxing authorities
|
(1,411
|
)
|
|
(1,624
|
)
|
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations
|
(2,472
|
)
|
|
(964
|
)
|
Increases in unrecognized tax benefits acquired
|
778
|
|
|
—
|
|
Changes in unrecognized tax benefits due to foreign currency translation
|
(791
|
)
|
|
600
|
|
Ending balance
|
$
|
83,149
|
|
|
$
|
116,212
|
|
As of October 31, 2020 and 2019, approximately $83.1 million and $116.2 million, respectively, of the unrecognized tax benefits would affect the Company's effective tax rate if recognized upon resolution of the uncertain tax positions.
Interest and penalties related to estimated obligations for tax positions taken in the Company’s tax returns are recognized as a component of income tax expense (benefit) in the consolidated statements of operations and totaled approximately $0.2 million, $0.3 million and $9.4 million for fiscal years 2020, 2019 and 2018, respectively. As of October 31, 2020 and 2019, the combined amount of accrued interest and penalties related to tax positions taken on the Company’s tax returns was approximately $13.1 million and $12.8 million, respectively.
The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. The Company believes that in the coming 12 months, it is reasonably possible that either certain audits and ongoing tax litigation will conclude or the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is between $0.0 and $42.5 million.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
The Company and/or its subsidiaries remain subject to tax examination in the following jurisdictions:
|
|
|
|
|
Jurisdiction
|
Year(s) Subject to Examination
|
United States
|
Fiscal 2019 and 2020
|
California
|
Fiscal years after 2017
|
Hungary
|
Fiscal years after 2018
|
Ireland
|
Fiscal years after 2016
|
Japan and Taiwan
|
Fiscal years after 2015
|
Korea
|
Fiscal years after 2016
|
In addition, the Company has made acquisitions with operations in several of its significant jurisdictions which may have years subject to examination different from the years indicated in the above table.
Intra-Entity Transfers of Assets
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.” This ASU requires the immediate recognition of current and deferred income tax effects of intra-entity transfers of assets other than inventory. This ASU was adopted on the first day of fiscal 2019. As a result of the adoption, the Company recorded a decrease of approximately $130.5 million in retained earnings as of the beginning of the period of adoption, with a corresponding decrease in prepaid taxes related to the unamortized tax expense attributed to intra-entity transfers of assets other than inventory previously deferred. The Company will recognize the income tax consequences of new intra-entity transfers of assets other than inventory in the consolidated statements of operations in the period when the transaction takes place.
IRS Examinations
In fiscal 2020, the Company reached partial settlement with the Examination Division of the IRS for fiscal 2019 and recognized approximately $6.3 million in unrecognized tax benefits, primarily due to the allowance of certain foreign tax credits and research tax credits.
In fiscal 2019, the Company reached final settlement with the Examination Division of the IRS for fiscal 2018 and recognized approximately $5.4 million in unrecognized tax benefits and realized $28.1 million of foreign tax credits.
In fiscal 2018, the Company reached final settlement with the Examination Division of the IRS for fiscal 2017 and recognized approximately $21.8 million in unrecognized tax benefits, primarily due to the allowance of certain foreign tax credits, and research tax credits from acquired companies.
State Examinations
In fiscal 2020, the Company reached final settlement with the California Franchise Tax Board for fiscal 2015, 2016, and 2017. As a result of the settlement, the Company recognized $20.2 million in unrecognized tax benefits and increased its valuation allowance by $20.2 million.
Non-U.S. Examinations
Hungarian Tax Authority
In July 2017, the Hungarian Tax Authority (the HTA) issued a final assessment against the Company's Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA has applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $25.0 million and interest and penalties of $11.0 million (at current exchange rates). On August 2, 2017, Synopsys Hungary filed a claim contesting the final assessment with the Hungarian Administrative Court. In the first quarter of fiscal 2018, Synopsys Hungary paid the assessments, penalties and interest as required by law and recorded these amounts as prepaid taxes on its balance sheet, while continuing its challenge to the assessment through the Hungarian Administrative Court. On April 30, 2019, the Hungarian Administrative Court (the Court) ruled against Synopsys Hungary. The Court's opinion was received on May 16, 2019 and the Company filed an appeal with the Hungarian Supreme Court on July 5, 2019. In the second quarter of 2019, as a result of the Court's decision, the Company
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
recorded a tax expense due to an unrecognized tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits for the tax assessments. The Hungarian Supreme Court heard the Company's appeal on November 12, 2020 and issued a ruling from the bench to remand the case to the Hungarian Administrative Court for further proceedings. The Company expects to receive the Hungarian Supreme Court's written decision in the first quarter of fiscal 2021.
In fiscal 2020, the Company reached final settlement with the HTA for fiscal years 2014 through 2018. As a result of the settlement, the Company recognized tax expense of $1.4 million, and recognized $6.9 million in unrecognized tax benefits.
National Taxation Bureau of Taipei
In fiscal 2019, the Company reached final settlement with the National Taxation Bureau of Taipei for fiscal year 2017 and recognized $5.5 million in previously unrecognized tax benefits.
Note 14. Other Income (Expense), Net
The following table presents the components of other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Interest income
|
$
|
3,561
|
|
|
$
|
6,859
|
|
|
$
|
5,323
|
|
Interest expense
|
(5,140
|
)
|
|
(11,659
|
)
|
|
(15,607
|
)
|
Gain (loss) on assets related to deferred compensation plan
|
21,469
|
|
|
27,759
|
|
|
4,636
|
|
Foreign currency exchange gain (loss)
|
5,544
|
|
|
3,588
|
|
|
3,557
|
|
Other, net
|
(7,416
|
)
|
|
(1,272
|
)
|
|
5,409
|
|
Total
|
$
|
18,018
|
|
|
$
|
25,275
|
|
|
$
|
3,318
|
|
Note 15. Segment Disclosure
Segment reporting is based upon the “management approach,” i.e., how management organizes the Company’s operating segments for which separate financial information is (1) available and (2) evaluated regularly by the CODMs in deciding how to allocate resources and in assessing performance. Synopsys’ CODMs are its two Co-Chief Executive Officers.
Financial information provided to and used by the CODMs to assist in making operational decisions, allocating resources, and assessing performance reflects consolidated financial information as well as revenue, adjusted operating income, and adjusted operating margin information for the Semiconductor & System Design and Software Integrity segments, accompanied by disaggregated information relating to revenue by geographic region.
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
Information by reportable segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Total Segments:
|
|
|
|
|
|
Revenue
|
$
|
3,685,281
|
|
|
$
|
3,360,694
|
|
|
$
|
3,121,058
|
|
Adjusted operating income
|
1,031,630
|
|
|
838,821
|
|
|
690,681
|
|
Adjusted operating margin
|
28
|
%
|
|
25
|
%
|
|
22
|
%
|
Semiconductor & System Design:
|
|
|
|
|
|
Revenue
|
$
|
3,327,211
|
|
|
$
|
3,026,097
|
|
|
$
|
2,840,589
|
|
Adjusted operating income
|
990,837
|
|
|
806,618
|
|
|
701,283
|
|
Adjusted operating margin
|
30
|
%
|
|
27
|
%
|
|
25
|
%
|
Software Integrity:
|
|
|
|
|
|
Revenue
|
$
|
358,070
|
|
|
$
|
334,597
|
|
|
$
|
280,469
|
|
Adjusted operating income
|
40,793
|
|
|
32,203
|
|
|
(10,602
|
)
|
Adjusted operating margin
|
11
|
%
|
|
10
|
%
|
|
(4
|
)%
|
Certain operating expenses are not allocated to the segments and are managed at a consolidated level. The unallocated expenses managed at a consolidated level, including amortization of intangible assets, stock compensation and other operating expenses, are presented in the table below to provide a reconciliation of the total adjusted operating income from segments to the Company's consolidated operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Total segment adjusted operating income
|
$
|
1,031,630
|
|
|
$
|
838,821
|
|
|
$
|
690,681
|
|
Reconciling items:
|
|
|
|
|
|
Amortization of intangible expense
|
(91,281
|
)
|
|
(100,914
|
)
|
|
(125,664
|
)
|
Stock-based compensation expense
|
(248,584
|
)
|
|
(155,001
|
)
|
|
(140,032
|
)
|
Other
|
(71,624
|
)
|
|
(62,675
|
)
|
|
(64,760
|
)
|
Total operating income
|
$
|
620,141
|
|
|
$
|
520,231
|
|
|
$
|
360,225
|
|
The CODMs do not use total assets by segment to evaluate segment performance or allocate resources. As a result, total assets by segment are not required to be disclosed.
In allocating revenue to particular geographic areas, the CODMs consider where individual “seats” or licenses to the Company’s products are located. Revenue is defined as revenue from external customers. Revenue and property and equipment, net, related to operations in the United States and other geographic areas were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in thousands)
|
Revenue:
|
|
|
|
|
|
United States
|
$
|
1,774,348
|
|
|
$
|
1,676,178
|
|
|
$
|
1,508,224
|
|
Europe
|
385,287
|
|
|
349,033
|
|
|
369,125
|
|
China
|
420,829
|
|
|
321,777
|
|
|
259,279
|
|
Korea
|
389,008
|
|
|
353,358
|
|
|
307,974
|
|
Other
|
715,809
|
|
|
660,348
|
|
|
676,456
|
|
Consolidated
|
$
|
3,685,281
|
|
|
$
|
3,360,694
|
|
|
$
|
3,121,058
|
|
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
|
|
|
|
|
|
|
|
|
|
As of October 31,
|
|
2020
|
|
2019
|
|
(in thousands)
|
Property and Equipment, net:
|
|
|
|
United States
|
$
|
311,350
|
|
|
$
|
293,725
|
|
Other countries
|
172,468
|
|
|
135,807
|
|
Total
|
$
|
483,818
|
|
|
$
|
429,532
|
|
Geographic revenue data for multi-regional, multi-product transactions reflect internal allocations and are therefore subject to certain assumptions and to the Company’s methodology.
One customer, including its subsidiaries, accounted for 12.4%, 12.8%, and 15.4% of the Company’s consolidated revenue in fiscal 2020, 2019, and 2018, respectively.
Note 16. Effect of New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and subsequently issued amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for fiscal 2021, and earlier adoption is permitted beginning in the first quarter of fiscal 2020. The adoption of Topic 326 will not have material impact to the Company’s consolidated financial statements.
Supplementary Data - Selected Unaudited Quarterly Financial Data
The table below includes certain unaudited financial information for the last eight fiscal quarters. See Note 2. Summary of Significant Accounting Policies for information on the Company's fiscal year end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
January 31,
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
(in thousands, except per share amounts)
|
2020
|
|
|
|
|
|
|
|
Revenue
|
$
|
834,381
|
|
|
$
|
861,327
|
|
|
$
|
964,134
|
|
|
$
|
1,025,439
|
|
Gross margin
|
641,513
|
|
|
677,062
|
|
|
771,126
|
|
|
800,890
|
|
Income before provision for income taxes
|
99,573
|
|
|
110,166
|
|
|
236,383
|
|
|
192,037
|
|
Net income attributed to Synopsys
|
104,061
|
|
|
109,920
|
|
|
252,911
|
|
|
197,455
|
|
Net income per share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.69
|
|
|
$
|
0.73
|
|
|
$
|
1.67
|
|
|
$
|
1.30
|
|
Diluted(1)
|
0.67
|
|
|
0.71
|
|
|
1.62
|
|
|
1.26
|
|
2019
|
|
|
|
|
|
|
|
Revenue
|
$
|
820,401
|
|
|
$
|
836,242
|
|
|
$
|
852,970
|
|
|
$
|
851,081
|
|
Gross margin
|
627,509
|
|
|
645,563
|
|
|
666,338
|
|
|
668,338
|
|
Income before provision for income taxes
|
147,055
|
|
|
133,917
|
|
|
132,911
|
|
|
131,623
|
|
Net income attributed to Synopsys
|
153,514
|
|
|
118,210
|
|
|
99,929
|
|
|
160,714
|
|
Net income per share
|
|
|
|
|
|
|
|
Basic
|
$
|
1.03
|
|
|
$
|
0.79
|
|
|
$
|
0.67
|
|
|
$
|
1.07
|
|
Diluted(1)
|
1.01
|
|
|
0.77
|
|
|
0.65
|
|
|
1.04
|
|
(1) Net income per share is computed independently. Therefore, the sum of the quarterly net income per share may not equal to the total computed for the year or any cumulative interim period.