10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO

COMMISSION FILE NUMBER: 000-19807

SYNOPSYS, INC.

(Exact name of registrant as specified in its charter)

Delaware	56-1546236
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

690 EAST MIDDLEFIELD ROAD

MOUNTAIN VIEW, CA 94043

(Address of principal executive offices, including zip code)

(650) 584-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	SNPS	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated Filer	¨
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý

As of August 21, 2019, there were 150,286,586 shares of the registrant’s common stock outstanding.

SYNOPSYS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED JULY 31, 2019

TABLE OF CONTENTS

		Page
PART I.	Financial Information	1
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Statements of Operations	2
	Unaudited Condensed Consolidated Statements of Comprehensive Income	3
	Unaudited Condensed Consolidated Statements of Stockholders' Equity	4
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	47
PART II.	Other Information	48
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 6.	Exhibits	61
Signatures		62

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SYNOPSYS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value amounts)

	July 31, 2019			October 31, 2018*
ASSETS
Current assets:
Cash and cash equivalents	$	686,780		$	723,115
Accounts receivable, net	457,390			554,217
Inventories	155,108			122,407
Income taxes receivable and prepaid taxes	29,751			76,525
Prepaid and other current assets	288,616			67,533
Total current assets	1,617,645			1,543,797
Property and equipment, net	372,566			309,310
Goodwill	3,143,056			3,143,249
Intangible assets, net	283,305			360,404
Long-term prepaid taxes	13,973			138,312
Deferred income taxes	339,354			404,166
Other long-term assets	383,509			246,736
Total assets	$	6,153,408		$	6,145,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	471,629		$	578,326
Accrued income taxes	3,175			27,458
Deferred revenue	1,138,993			1,152,862
Short-term debt	16,653			343,769
Total current liabilities	1,630,450			2,102,415
Long-term accrued income taxes	27,847			50,590
Long-term deferred revenue	91,229			116,859
Long-term debt	125,285			125,535
Other long-term liabilities	338,928			265,560
Total liabilities	2,213,739			2,660,959
Stockholders’ equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding	—			—
Common stock, $0.01 par value: 400,000 shares authorized; 150,373 and 149,265 shares outstanding, respectively	1,504			1,493
Capital in excess of par value	1,597,629			1,644,830
Retained earnings	3,003,430			2,543,688
Treasury stock, at cost: 6,888 and 7,996 shares, respectively	(572,104		)	(597,682		)
Accumulated other comprehensive income (loss)	(96,653		)	(113,177		)
Total Synopsys stockholders’ equity	3,933,806			3,479,152
Non-controlling interest	5,863			5,863
Total stockholders’ equity	3,939,669			3,485,015
Total liabilities and stockholders’ equity	$	6,153,408		$	6,145,974

* Derived from audited financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

1

SYNOPSYS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended   July 31,					Nine Months Ended   July 31,
	2019		2018			2019		2018
Revenue:
Time-based products	$	537,569	$	570,053		$	1,649,590	$	1,697,756
Upfront products	177,552		99,579			451,466		291,143
Maintenance and service	137,849		110,082			408,557		337,077
Total revenue	852,970		779,714			2,509,613		2,325,976
Cost of revenue:
Products	113,533		115,437			346,163		335,030
Maintenance and service	59,496		49,790			178,113		150,674
Amortization of intangible assets	13,603		20,154			45,927		59,612
Total cost of revenue	186,632		185,381			570,203		545,316
Gross margin	666,338		594,333			1,939,410		1,780,660
Operating expenses:
Research and development	284,804		277,402			846,429		793,947
Sales and marketing	157,109		157,953			471,720		455,653
General and administrative	67,382		84,336			165,794		199,517
Amortization of intangible assets	10,111		10,651			31,211		30,926
Restructuring	19,338		23			33,746		1,917
Total operating expenses	538,744		530,365			1,548,900		1,481,960
Operating income	127,594		63,968			390,510		298,700
Other income (expense), net	5,317		7,925			23,373		12,595
Income before income taxes	132,911		71,893			413,883		311,295
Provision (benefit) for income taxes	32,982		(7,516		)	42,230		133,105
Net income	$	99,929	$	79,409		$	371,653	$	178,190
Net income per share:
Basic	$	0.67	$	0.53		$	2.48	$	1.20
Diluted	$	0.65	$	0.52		$	2.42	$	1.16
Shares used in computing per share amounts:
Basic	150,123		148,490			149,708		148,760
Diluted	154,600		152,614			153,859		153,118

See accompanying notes to unaudited condensed consolidated financial statements.

2

SYNOPSYS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
Net income	$	99,929		$	79,409		$	371,653		$	178,190
Other comprehensive income:
Change in foreign currency translation adjustment	(2,123		)	(18,231		)	(67		)	(8,273		)
Cash flow hedges:
Deferred gains (losses), net of tax of $(464) and $(2,178), for the three and nine months ended July 31, 2019, respectively, and of $2,518 and $1,363 for each of the same periods in fiscal 2018, respectively.	(1,070		)	(12,371		)	4,844			(7,891		)
Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $(702) and $(2,988), for the three and nine months ended July 31, 2019 respectively, and of $247 and $2,767 for each of the same periods in fiscal 2018, respectively.	3,260			(1,662		)	11,747			(12,510		)
Other comprehensive income (loss), net of tax effects	67			(32,264		)	16,524			(28,674		)
Comprehensive income	$	99,996		$	47,145		$	388,177		$	149,516

See accompanying notes to unaudited condensed consolidated financial statements.

3

SYNOPSYS, INC.

UNAUDITED CONDENSED 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 April 30, 2019	149,982		$	1,500		$	1,659,484		$	2,912,811		$	(567,503	)	$	(96,720	)	$	3,909,572		$	5,863	$	3,915,435
Net income									99,929									99,929					99,929
Other comprehensive income (loss), net of tax effects															67			67					67
Purchases of treasury stock	(775	)	(8		)	8						(100,000		)				(100,000		)			(100,000		)
Common stock issued, net of shares withheld for employee taxes	1,166		12			(101,310		)	(9,310		)	95,399						(15,209		)			(15,209		)
Stock-based compensation						39,447												39,447					39,447
Balance at July 31, 2019	150,373		$	1,504		$	1,597,629		$	3,003,430		$	(572,104	)	$	(96,653	)	$	3,933,806		$	5,863	$	3,939,669
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									371,653									371,653					371,653
Retained earnings adjustment due to adoption of accounting standards related to revenue(1)									257,594									257,594					257,594
Retained earnings adjustment due to adoption of an accounting standard related to income taxes(2)									(130,544		)							(130,544		)			(130,544		)
Other comprehensive income (loss), net of tax effects															16,524			16,524					16,524
Purchases of treasury stock	(1,901	)	(19		)	19						(209,185		)				(209,185		)			(209,185		)
Equity forward contract						(20,000		)										(20,000		)			(20,000		)
Common stock issued, net of shares withheld for employee taxes	3,009		30			(140,841		)	(38,961		)	234,763						54,991					54,991
Stock-based compensation						113,621												113,621					113,621
Balance at July 31, 2019	150,373		$	1,504		$	1,597,629		$	3,003,430		$	(572,104	)	$	(96,653	)	$	3,933,806		$	5,863	$	3,939,669
Balance at April 30, 2018	148,961		$	1,490		$	1,678,921		$	2,223,287		$	(585,016	)	$	(62,389	)	$	3,256,293		$	4,104	$	3,260,397
Net income									79,409									79,409					79,409
Other comprehensive income (loss), net of tax effects															(32,264		)	(32,264		)			(32,264		)
Purchases of treasury stock	(1,509	)	(15		)	15						(132,000		)				(132,000		)			(132,000		)
Equity forward contract						(33,000		)										(33,000		)			(33,000		)
Common stock issued, net of shares withheld for employee taxes	1,104		11			(91,580		)	(6,150		)	80,483						(17,236		)			(17,236		)
Stock-based compensation						36,937												36,937					36,937
Non-controlling interest in an equity investment																		—			1,759		1,759
Balance at July 31, 2018	148,556		$	1,486		$	1,591,293		$	2,296,546		$	(636,533	)	$	(94,653	)	$	3,158,139		$	5,863	$	3,164,002
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									178,190									178,190					178,190
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															(28,674		)	(28,674		)			(28,674		)
Purchases of treasury stock	(4,412	)	(44		)	44						(387,000		)				(387,000		)			(387,000		)
Equity forward contract						(13,000		)										(13,000		)			(13,000		)
Common stock issued, net of shares withheld for employee taxes	2,523		25			(119,879		)	(25,224		)	176,675						31,597					31,597
Stock-based compensation						101,699												101,699					101,699
Non-controlling interest in an equity investment																		—			$	1,759	1,759
Balance at July 31, 2018	148,556		$	1,486		$	1,591,293		$	2,296,546		$	(636,533	)	$	(94,653	)	$	3,158,139		$	5,863	$	3,164,002

(1) See Note 2. Summary of Significant Accounting Policies for additional information on the retained earnings adjustment due to adoption of Accounting Standards Codification (ASC) 606 and ASC 340.

4

(2) See Note 14. Taxes for additional information on the retained earnings adjustment due to adoption of Accounting Standard Update (ASU) 2016-16.

See accompanying notes to unaudited condensed consolidated financial statements.

5

SYNOPSYS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended   July 31,
	2019			2018
Cash flows from operating activities:
Net income	$	371,653		$	178,190
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation	152,133			150,245
Amortization of capitalized costs to obtain revenue contracts	46,230			—
Stock compensation	114,826			102,540
Allowance for doubtful accounts	8,950			3,368
(Gain) loss on sale of property and investments	(4,052		)	(93		)
Deferred income taxes	(9,664		)	5,509
Net changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable	89,370			(41,695		)
Inventories	(39,431		)	(48,440		)
Prepaid and other current assets	(38,224		)	(9,766		)
Other long-term assets	(114,344		)	(31,652		)
Accounts payable and accrued liabilities	(45,200		)	(56,491		)
Income taxes	(6,963		)	(35,014		)
Deferred revenue	53,980			76,780
Net cash provided by operating activities	579,264			293,481
Cash flows from investing activities:
Proceeds from sales and maturities of short-term investments	—			12,449
Proceeds from sales of long-term investments	6,361			494
Purchases of long-term investments	—			(645		)
Proceeds from sales of property and equipment	—			1,662
Purchases of property and equipment	(122,358		)	(70,469		)
Cash paid for acquisitions and intangible assets, net of cash acquired	—			(646,687		)
Capitalization of software development costs	(2,245		)	(2,714		)
Net cash used in investing activities	(118,242		)	(705,910		)
Cash flows from financing activities:
Proceeds from credit facilities	192,897			615,000
Repayment of debt	(520,312		)	(137,500		)
Issuances of common stock	107,354			72,722
Payments for taxes related to net share settlement of equity awards	(52,309		)	(42,636		)
Purchase of equity forward contract	(20,000		)	(33,000		)
Purchases of treasury stock	(209,185		)	(367,000		)
Other	(762		)	1,759
Net cash (used in) provided by financing activities	(502,317		)	109,345
Effect of exchange rate changes on cash, cash equivalents and restricted cash	4,975			(3,826		)
Net change in cash, cash equivalents and restricted cash	(36,320		)	(306,910		)
Cash, cash equivalents and restricted cash, beginning of period	725,001			1,050,075
Cash, cash equivalents and restricted cash, end of period	$	688,681		$	743,165

See accompanying notes to unaudited condensed consolidated financial statements.

6

SYNOPSYS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business

Synopsys, Inc. (Synopsys or the Company) provides products and services used by designers 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 and quality of software code in a wide variety of industries, including electronics, financial services, media, 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

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its unaudited condensed consolidated balance sheets, results of operations, comprehensive income, stockholders' equity and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in Synopsys’ Annual Report on Form 10-K for the fiscal year ended October 31, 2018 as filed with the SEC on December 17, 2018.

Use of Estimates. To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the unaudited condensed 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.

Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.

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 every five or six 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 2019 is a 52-week year and will end on November 2, 2019. Fiscal 2018 was a 53-week year and ended on November 3, 2018.

The results of operations for the first nine months of fiscal 2019 and 2018 included 39 weeks and 40 weeks, respectively, and ended on August 3, 2019 and August 4, 2018, respectively. For presentation purposes, the unaudited condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.

Segment Reporting. Effective in fiscal 2019, the Company realigned its business to evaluate the results of its Software Integrity business separately from Synopsys’ traditional electronic design automation (EDA) and semiconductor IP business. The Chief Operating Decision Makers (CODMs) now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. Synopsys' CODMs are its two co-

7

Chief Executive Officers. Historical segment disclosures have been recast to retrospectively reflect the change from one to two reportable segments.

Goodwill. Effective in the first quarter of fiscal 2019, with the change in the Company’s reportable segments, the Company has determined there are now two reporting units, requiring goodwill to be allocated to the two reporting units using a relative fair value method. 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. As a result of changes to the Company's segment reporting, the Company conducted a quantitative impairment test for each of its reporting units and concluded that there was no impairment. The Company performs either a qualitative or quantitative 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 estimates the fair value of each reporting unit using a combination of a discounted cash flow analysis and a market approach based on market multiples. The discount rate used in an 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. Refer to Note 3. Goodwill and Intangible Assets for a discussion of the change in reporting units as related to the realignment of the Company’s segments.

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC 606), "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in “Revenue Recognition (ASC 605).” The new guidance creates a single, principle-based model for revenue recognition that is intended to expand and improve companies' revenue disclosures. For revenue recognition policies under ASC 605, refer to Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended October 31, 2018.

ASC 606 requires a company to recognize revenue when goods are transferred or services are provided to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. ASC 606 also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to ASC 606, including amendments that deferred the initially proposed adoption date and clarified accounting for licenses of intellectual property and identifying performance obligations.

The Company adopted ASC 606 at the beginning of fiscal 2019 using the modified retrospective transition method. Under this method, periods prior to the adoption date are not adjusted and continue to be reported under the revenue accounting literature in effect during those periods. The Company evaluated contracts that were in effect at the beginning of fiscal 2019 as if they had been accounted for under ASC 606 from the contract inception and summarized the most significant adoption impacts as follows:

• Revenue for certain ongoing contracts that was previously deferred would have been recognized in the periods prior to adoption under ASC 606. Therefore, upon adoption, the Company recorded the following adjustments to the beginning balances to reflect the amount of revenue that will no longer be recognized in future periods for such contracts: an increase to retained earnings of $265.1 million, a decrease to unbilled receivables of $27.4 million, an increase to contract assets of $126.9 million, and a decrease in deferred revenue of $165.6 million.

• The Company capitalized $73.8 million of incremental costs for obtaining contracts with customers at the adoption date with a corresponding adjustment to retained earnings and is amortizing these costs over the contract term.

• The Company recorded an increase in its opening deferred tax liability of $81.4 million, with a corresponding adjustment to retained earnings, to record the tax effect of the above adjustments.

8

The impacts of adopting ASC 606 on the Company's unaudited condensed consolidated financial statements for the nine months ended July 31, 2019 are summarized in the tables below.

Balance Sheet Accounts

The following table summarizes the effects of adopting ASC 606 on certain account balances of the unaudited condensed consolidated balance sheet that were impacted as of July 31, 2019:

	As reported under ASC 606		Adjustments			Adjusted balance under ASC 605
	(in thousands)
Receivables, net	$	457,390	$	64,122		$	521,512
Prepaid and other current assets	288,616		(205,822		)	82,794
Deferred income taxes	339,354		76,891			416,245
Other long-term assets	383,509		(94,626		)	288,883
Accounts payable and other accrued liabilities	471,629		(10,413		)	461,216
Deferred revenue	1,138,993		132,450			1,271,443
Long-term deferred revenue	91,229		41,585			132,814
Other long-term liabilities (1)	338,928		(16,671		)	322,257
Retained earnings	3,003,430		(306,386		)	2,697,044

(1) Includes long-term deferred tax liabilities.

Statements of Operations

The following table summarizes the effects of adopting ASC 606 on the unaudited condensed consolidated statements of operations for the three and nine months ended July 31, 2019:

9

	Three Months Ended   July 31, 2019							Nine Months Ended   July 31, 2019
	As reported under ASC 606		Adjustments			Adjusted under ASC 605		As reported under ASC 606		Adjustments			Adjusted under ASC 605
	(in thousands, except per share amounts)
Revenue:
Time-based products	$	537,569	$	55,604		$	593,173	$	1,649,590	$	158,222		$	1,807,812
Upfront products	177,552		(73,267		)	104,285		451,466		(151,110		)	300,356
Maintenance and service	137,849		(26,914		)	110,935		408,557		(57,707		)	350,850
Total revenue	852,970		(44,577		)	808,393		2,509,613		(50,595		)	2,459,018
Cost of Revenue:
Products	113,533		—			113,533		346,163		—			346,163
Maintenance and service	59,496		—			59,496		178,113		—			178,113
Amortization of intangible assets	13,603		—			13,603		45,927		—			45,927
Total cost of revenue	186,632		—			186,632		570,203		—			570,203
Gross margin	666,338		(44,577		)	621,761		1,939,410		(50,595		)	1,888,815
Operating expenses:
Research and development	284,804		—			284,804		846,429		—			846,429
Sales and marketing	157,109		(2,731		)	154,378		471,720		10,395			482,115
General and administrative	67,382		—			67,382		165,794		—			165,794
Amortization of intangible assets	10,111		—			10,111		31,211		—			31,211
Restructuring	19,338		—			19,338		33,746		—			33,746
Total operating expenses	538,744		(2,731		)	536,013		1,548,900		10,395			1,559,295
Operating income	127,594		(41,846		)	85,748		390,510		(60,990		)	329,520
Other income (expense), net	5,317		—			5,317		23,373		—			23,373
Income before provision for income taxes	132,911		(41,846		)	91,065		413,883		(60,990		)	352,893
Provision (benefit) for income taxes	32,982		(9,127		)	23,855		42,230		(12,198		)	30,032
Net income	$	99,929	$	(32,719	)	$	67,210	$	371,653	$	(48,792	)	$	322,861
Net income per share:
Basic	$	0.67	$	(0.22	)	$	0.45	$	2.48	$	(0.32	)	$	2.16
Diluted	$	0.65	$	(0.22	)	$	0.43	$	2.42	$	(0.32	)	$	2.10
Shares used in computing per share amounts:
Basic	150,123					150,123		149,708					149,708
Diluted	154,600					154,600		153,859					153,859

Statements of Cash Flows

Adoption of ASC 606 had no impact to cash from or used in operating, financing, or investing activities on the unaudited condensed consolidated cash flows statements.

Revenue Policy

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. 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 

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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 qualified 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.

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 delivered to the customer. The Company has concluded that control generally transfers upon delivery because the customer has title to the hardware, physical possession of the hardware, and a present

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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

Our 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. Performance is generally measured using costs incurred or hours expended to measure progress. 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.

Disaggregated Revenue

The following table shows the percentage of revenue by product groups:

	Three Months Ended July 31,				Nine Months Ended July 31,
	2019		2018		2019		2018
EDA	57	%	64	%	59	%	63	%
IP & System Integration	33	%	27	%	31	%	28	%
Software Integrity Products & Services	10	%	9	%	10	%	9	%
Other	—	%	—	%	—	%	—	%
Total	100	%	100	%	100	%	100	%

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

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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 unaudited condensed 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.

The contract assets indicated below are presented as prepaid and other current assets in the unaudited condensed consolidated balance sheet. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional.

Contract balances are as follows:

	As of July 31, 2019		As of October 31, 2018
			as adjusted
	(in thousands)
Contract assets	$	205,822	$	126,897
Unbilled receivables	38,965		36,699
Deferred revenue	1,230,222		1,104,110

During the three and nine months ended July 31, 2019, the Company recognized $470.6 million and $1,432.1 million, respectively, of revenue that were included in the deferred revenue balance at the beginning of the period, as adjusted for the adoption of ASC 606.

Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $4.3 billion as of July 31, 2019, which includes $463.5 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. The contracted unsatisfied performance obligations, excluding non-cancellable FSA, expected to be recognized over the next 12 months is approximately 56%, with the remainder recognized thereafter.

During the three and nine month periods ended July 31, 2019, the Company recognized $17.5 million and $64.8 million, respectively, from performance obligations satisfied from sales based royalties earned during the periods.

Costs of Obtaining a Contract with Customer

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 July 31, 2019 were $94.6 million and are included in other assets in the Company’s unaudited condensed consolidated balance sheet. Amortization of these assets was $17.8 million and $46.2 million during the three and nine months ended July 31, 2019, respectively, and are included in sales and marketing expense in the Company’s unaudited condensed consolidated statements of

13

operations.

Note 3. Goodwill and Intangible Assets

Following the realignment of the Company’s operating segments during the first quarter of fiscal 2019, as described in Note 12. Segment Disclosure, 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. Previously, the Company operated as a single reporting segment and reporting unit. Goodwill was reallocated to the reporting units using a relative fair value method and assessed for impairment. No impairment of goodwill was identified for any periods presented.

In-process research and development (IPR&D) as of July 31, 2019 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 July 31, 2019 consisted of the following:

	Gross Assets		Accumulated Amortization		Net Assets
	(in thousands)
Core/developed technology	$	773,147	$	642,185	$	130,962
Customer relationships	358,667		232,784		125,883
Contract rights intangible	184,321		180,349		3,972
Trademarks and trade names	42,929		24,803		18,126
In-process research and development (IPR&D)	1,200		—		1,200
Capitalized software development costs	38,063		34,901		3,162
Total	$	1,398,327	$	1,115,022	$	283,305

Intangible assets as of October 31, 2018 consisted of the following:

	Gross Assets		Accumulated Amortization		Net Assets
	(in thousands)
Core/developed technology	$	773,147	$	598,956	$	174,191
Customer relationships	358,524		204,382		154,142
Contract rights intangible	183,953		177,191		6,762
Trademarks and trade names	42,929		21,944		20,985
In-process research and development (IPR&D)	1,200		—		1,200
Capitalized software development costs	35,818		32,694		3,124
Total	$	1,395,571	$	1,035,167	$	360,404

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Amortization expense related to intangible assets consisted of the following:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Core/developed technology	$	12,825	$	18,692	$	43,229	$	55,745
Customer relationships	9,303		9,584		28,261		27,803
Contract rights intangible	808		1,357		2,790		3,619
Trademarks and trade names	778		1,172		2,858		3,371
Capitalized software development costs(1)	700		894		2,207		2,710
Total	$	24,414	$	31,699	$	79,345	$	93,248

(1) Amortization of capitalized software development costs is included in cost of products revenue in the unaudited condensed consolidated statements of operations.

The following table presents the estimated future amortization of the existing intangible assets as of July 31, 2019:

Fiscal Year	(in thousands)
Remainder of fiscal 2019	$	23,821
2020	79,195
2021	56,409
2022	44,014
2023	29,219
2024 and thereafter	49,447
IPR&D	1,200
Total	$	283,305

Note 4. 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 July 31, 2019, the balances of the Company's cash equivalents are:

	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	$	130,437	$	—	$	—	$	—	$	130,437
Total:	$	130,437	$	—	$	—	$	—	$	130,437

(1) See Note 5. Fair Value Measures for further discussion on fair values of cash equivalents.

15

As of October 31, 2018, the balances of the Company's cash equivalents are:

	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	$	165,296	$	—	$	—	$	—	$	165,296
Total:	$	165,296	$	—	$	—	$	—	$	165,296

(1) See Note 5. Fair Value Measures for further discussion on fair values of cash equivalents.

Restricted Cash. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The Company adopted the standard in the first quarter of fiscal 2019 and applied it retrospectively for the periods presented. As required by ASU 2016-18, the Company included 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 unaudited condensed consolidated statement of cash flows.

The following table provides a reconciliation of cash, cash equivalents and restricted cash included in the unaudited condensed consolidated balance sheets:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Cash and cash equivalents	$	686,780	$	723,115
Restricted cash included in Prepaid expenses and other current assets	1,171		1,164
Restricted cash included in Other long-term assets	730		722
Total cash, cash equivalents and restricted cash	$	688,681	$	725,001

Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately-held companies. The securities accounted for under cost method investments are reported at cost net of impairment losses. Securities accounted for under 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. Refer to Note 5. Fair Value Measures.

Derivatives. The Company recognizes derivative instruments as either assets or liabilities in the unaudited condensed 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. Further, the Company 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 unaudited condensed 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.

16

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 effective portion of 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 (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 12 months.

Hedging effectiveness is evaluated monthly using spot rates, with any gain or loss caused by hedging ineffectiveness recorded in other income (expense), net. The premium/discount component of the forward contracts is recorded to other income (expense), net, and is not included in evaluating hedging effectiveness.

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 effect of the changes in the fair values of non-designated forward contracts is summarized as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Gain (loss) recorded in other income (expense), net	$	1,179	$	1,567	$	4,314	$	1,244

The notional amounts in the table below for derivative instruments provide one measure of the transaction volume outstanding:

	As of July 31, 2019			As of October 31, 2018
	(in thousands)
Total gross notional amount	$	779,127		$	1,135,549
Net fair value	$	(565	)	$	(18,120	)

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 losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

17

The following table represents the unaudited condensed consolidated balance sheet 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)
As of July 31, 2019
Other current assets	$	6,487	$	77
Accrued liabilities	$	7,020	$	109
As of October 31, 2018
Other current assets	$	4,771	$	131
Accrued liabilities	$	22,890	$	132

The following table represents the unaudited condensed consolidated statement of operations location and amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax:

	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)
Three months ended   July 31, 2019
Foreign exchange contracts	Revenue	$	(994	)	Revenue	$	685
Foreign exchange contracts	Operating expenses	(76		)	Operating expenses	(3,945		)
Total		$	(1,070	)		$	(3,260	)
Three months ended   July 31, 2018
Foreign exchange contracts	Revenue	$	1,422		Revenue	$	(308	)
Foreign exchange contracts	Operating expenses	(13,793		)	Operating expenses	1,970
Total		$	(12,371	)		$	1,662
Nine months ended   July 31, 2019
Foreign exchange contracts	Revenue	$	(253	)	Revenue	$	1,048
Foreign exchange contracts	Operating expenses	5,097			Operating expenses	(12,795		)
Total		$	4,844			$	(11,747	)
Nine months ended   July 31, 2018
Foreign exchange contracts	Revenue	$	(542	)	Revenue	$	1,190
Foreign exchange contracts	Operating expenses	(7,349		)	Operating expenses	11,320
Total		$	(7,891	)		$	12,510

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The following table represents the ineffective portions and portions excluded from effectiveness testing of the hedge gains (losses) for derivative instruments designated as hedging instruments, which are recorded in other income (expense), net:

Foreign exchange contracts	Amount of gain (loss) recognized in statement of operations on derivatives (ineffective portion)(1)			Amount of gain (loss) recognized in statement of operations on derivatives (excluded from effectiveness testing)(2)
	(in thousands)
For the three months ended July 31, 2019	$	232		$	1,077
For the three months ended July 31, 2018	$	(132	)	$	782
For the nine months ended July 31, 2019	$	148		$	358
For the nine months ended July 31, 2018	$	389		$	2,488

(1) The ineffective portion includes forecast inaccuracies.

(2) The portion excluded from effectiveness testing includes the discount earned or premium paid for the contracts.

Note 5. Fair Value Measures

Accounting standards require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Accounting standards also establish 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.

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. Refer to Note 7. Credit Facility for more information on these borrowings.

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Assets and 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 July 31, 2019:

			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	$	130,437	$	130,437	$	—	$	—
Prepaid and other current assets:
Foreign currency derivative contracts	6,564		—		6,564		—
Other long-term assets:
Deferred compensation plan assets	248,510		248,510		—		—
Total assets	$	385,511	$	378,947	$	6,564	$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts	$	7,129	$	—	$	7,129	$	—
Other long-term liabilities:
Deferred compensation plan liabilities	248,510		248,510		—		—
Total liabilities	$	255,639	$	248,510	$	7,129	$	—

Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2018:

			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	$	165,296	$	165,296	$	—	$	—
Prepaid and other current assets:
Foreign currency derivative contracts	4,902		—		4,902		—
Other long-term assets:
Deferred compensation plan assets	212,165		212,165		—		—
Total assets	$	382,363	$	377,461	$	4,902	$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts	$	23,022	$	—	$	23,022	$	—
Other long-term liabilities:
Deferred compensation plan liabilities	212,165		212,165		—		—
Total liabilities	$	235,187	$	212,165	$	23,022	$	—

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 cost or equity method of accounting.

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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 an other-than-temporary decline in value has occurred. 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.

The Company did not recognize any impairment during the three and nine months ended July 31, 2019.

Note 6. Liabilities and Restructuring Charges

In the second quarter of fiscal 2019, the Company initiated restructuring plans 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 plans are expected to be $43 million to $65 million and consist primarily of severance, termination, and retirement benefits under the 2019 Voluntary Retirement Program (VRP). The actual total charges depend, in part, on the number of eligible employees accepting offers of the VRP. The 2019 restructuring plans are anticipated to be completed by the second quarter of fiscal 2020.

During the three and nine months ended July 31, 2019, the Company incurred restructuring charges of approximately $19.3 million and $33.7 million, respectively, for involuntary employee termination actions and the VRP. These charges consist primarily of severance, termination, and retirement benefits. As of July 31, 2019, $20.8 million remained outstanding and was recorded in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets.

During the nine months ended July 31, 2018, the Company incurred restructuring charges of approximately $1.9 million as part of a business realignment. Total charges under this realignment were expected to be $8 million to $10 million consisting of severance and benefits. The outstanding balance as of July 31, 2019 was immaterial. As of October 31, 2018, $8.1 million remained outstanding and was recorded in accounts payable and accrued liabilities in the consolidated balance sheets.

Accounts payable and accrued liabilities consist of:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Payroll and related benefits	$	391,593	$	413,307
Other accrued liabilities	65,190		79,973
Accounts payable	14,846		85,046
Total	$	471,629	$	578,326

Other long-term liabilities consist of:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Deferred compensation liability	$	248,510	$	212,165
Other long-term liabilities	90,418		53,395
Total	$	338,928	$	265,560

Note 7. Credit Facility

In July 2018, the Company entered into a 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 Chinese Central Bank rate plus 10% of such rate. As of July 31, 2019, the Company had $18.4 million outstanding under the agreement.

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

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restated the Company’s previous credit agreement dated May 19, 2015 (the 2015 agreement), in order to increase the size of the revolving credit facility from $500.0 million to $650.0 million, to 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 a minimum interest coverage ratio, as well as other non-financial covenants. As of July 31, 2019, the Company was in compliance with all financial covenants.

As of July 31, 2019, the Company had $123.5 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $106.9 million was classified as long-term liabilities. Outstanding principal payments under the Term Loan are due as follows:

Fiscal year	(in thousands)
Remainder of fiscal 2019	$	3,750
2020	17,813
2021	27,187
2022	75,000
Total	$	123,750

As of October 31, 2018, the Company had $133.8 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $120.0 million was classified as long-term liabilities, and $330.0 million outstanding balance under the Revolver.

There was no outstanding balance of the Revolver as of July 31, 2019. The Company expects its borrowings under the Revolver will fluctuate from quarter to quarter. 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 July 31, 2019, 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.

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 8. Accumulated Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss), on an after-tax basis where applicable, were as follows:

	As of July 31, 2019			As of October 31, 2018
	(in thousands)
Cumulative currency translation adjustments	$	(89,355	)	$	(89,289	)
Unrealized gain (loss) on derivative instruments, net of taxes	(7,298		)	(23,888		)
Total accumulated other comprehensive income (loss)	$	(96,653	)	$	(113,177	)

The effect of amounts reclassified out of each component of accumulated other comprehensive income (loss) (AOCI) into net income was as follows:

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	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Reclassifications from AOCI to unaudited condensed consolidated statement of operations:
Gain (loss) on cash flow hedges, net of taxes
Revenues	$	685		$	(308	)	$	1,048		$	1,190
Operating expenses	(3,945		)	1,970			(12,795		)	11,320
Total reclassifications into net income	$	(3,260	)	$	1,662		$	(11,747	)	$	12,510

Note 9. 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 14, 2019. 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 July 31, 2019, $500.0 million remained available for further repurchases under the program.

In February 2019, the Company entered into an accelerated share repurchase agreement (the February 2019 ASR) to repurchase an aggregate of $100.0 million of the Company’s common stock. Pursuant to the February 2019 ASR, the Company made a prepayment of $100.0 million and received initial share deliveries valued at $80.0 million. The remaining balance of $20.0 million was settled in May 2019. Total shares repurchased under the February 2019 ASR were approximately 0.9 million shares, at an average purchase price of $114.01 per share.

In June 2019, the Company entered into an accelerated share repurchase agreement (the June 2019 ASR) to repurchase an aggregate of $100.0 million of the Company’s common stock. Pursuant to the June 2019 ASR, the Company made a prepayment of $100.0 million and received initial share deliveries valued at $80.0 million. The remaining balance of $20.0 million was settled in August 2019. Total shares repurchased under the June 2019 ASR were approximately 0.8 million shares, at an average purchase price of $130.23 per share.

Stock repurchase activities are as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019 (1)		2018		2019 (1)(2)		2018
	(in thousands)
Total shares repurchased(3)(4)	775		1,509		1,901		4,411
Total cost of the repurchased shares (4)	$	100,000	$	132,000	$	209,185	$	387,000
Reissuance of treasury stock	1,166		1,107		3,009		2,527

(1) Does not include the 90,202 shares or $20.0 million equity forward contract from the June 2019 ASR settled in August 2019.

(2) The third quarter of fiscal 2019 includes the settlement of the 97,601 shares or $20.0 million equity forward contract from the February 2019 ASR settled in May 2019.

(3) The first quarter of fiscal 2018 includes the settlement of the $20.0 million equity forward contract related to the Company's accelerated share repurchase agreement entered into in September 2017.

(4) The Company also repurchased 0.4 million shares at an average price of $82.61 per share, for an aggregate purchase price of $35.0 million during the second quarter of fiscal 2018.

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Note 10. Stock Compensation

The compensation cost recognized in the unaudited condensed consolidated statements of operations for the Company’s stock compensation arrangements was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Cost of products	$	4,493		$	3,820		$	12,684		$	10,663
Cost of maintenance and service	1,694			1,442			4,675			3,979
Research and development expense	19,383			18,412			55,802			48,958
Sales and marketing expense	7,360			7,317			21,790			20,813
General and administrative expense	6,523			6,261			19,876			18,127
Stock compensation expense before taxes	39,453			37,252			114,827			102,540
Income tax benefit	(6,593		)	(7,111		)	(19,188		)	(19,574		)
Stock compensation expense after taxes	$	32,860		$	30,141		$	95,639		$	82,966

As of July 31, 2019, there was $298.1 million of unamortized share-based compensation expense relating to options and restricted stock units and awards, which is expected to be amortized over a weighted-average period of approximately 2.4 years.

The intrinsic values of equity awards exercised during the periods are as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Intrinsic value of awards exercised	$	37,436	$	19,283	$	96,014	$	50,075

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Note 11. Net Income per Share

The Company computes basic net income per share by dividing net income available to common stockholders 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:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands, except per share amounts)
Numerator:
Net income	$	99,929	$	79,409	$	371,653	$	178,190
Denominator:
Weighted-average common shares for basic net income per share	150,123		148,490		149,708		148,760
Dilutive effect of potential common shares from equity-based compensation	4,477		4,124		4,151		4,358
Weighted-average common shares for diluted net income per share	154,600		152,614		153,859		153,118
Net income per share:
Basic	$	0.67	$	0.53	$	2.48	$	1.20
Diluted	$	0.65	$	0.52	$	2.42	$	1.16
Anti-dilutive employee stock-based awards excluded(1)	152		1,063		798		774

(1) These employee stock-based awards 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 12. Segment Disclosure

Certain disclosures are required for operating segments, products and services, geographic areas of operation and major customers. 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 Chief Operating Decision Makers (CODMs) in deciding how to allocate resources and in assessing performance. Synopsys’ CODMs are its two co-Chief Executive Officers.

In prior periods, the Company operated in a single segment. Effective in fiscal 2019, the Company realigned its business to evaluate the results of its Software Integrity business separately from the Company’s traditional EDA and semiconductor IP business. The CODMs now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. The Company’s historical results have been recast to retrospectively reflect the change from one to two reportable segments.

As a result of the change in reporting structure, 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 revenues by geographic region.

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Information by reportable segment was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Total Segments:
Revenues	$	852,970		$	779,714		$	2,509,613		$	2,325,976
Adjusted operating income	216,581			167,847			627,369			553,909
Adjusted operating margin	25		%	22		%	25		%	24		%
Semiconductor & System Design:
Revenues	$	769,411		$	708,413		$	2,260,372		$	2,122,780
Adjusted operating income	207,773			169,798			604,497			564,656
Adjusted operating margin	27		%	24		%	27		%	27		%
Software Integrity:
Revenues	$	83,559		$	71,301		$	249,241		$	203,196
Adjusted operating income	8,808			(1,951		)	22,872			(10,747		)
Adjusted operating margin	11		%	(3		)%	9		%	(5		)%

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:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Total segment adjusted operating income	$	216,581		$	167,847		$	627,369		$	553,909
Reconciling items:
Amortization of intangible expense	(23,714		)	(30,805		)	(77,138		)	(90,538		)
Stock-based compensation expense	(39,453		)	(37,252		)	(114,827		)	(102,540		)
Other	(25,820		)	(35,822		)	(44,894		)	(62,131		)
Total operating income	$	127,594		$	63,968		$	390,510		$	298,700

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.

Revenue by Geography

The CODMs consider where individual “seats” or licenses to the Company’s products are located in allocating revenue to particular geographic areas. Revenue is defined as revenues from external customers. Revenues related to operations in the United States and other geographic areas were: 

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	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Revenue:
United States	$	407,408	$	365,414	$	1,231,951	$	1,126,624
Europe	90,074		90,657		257,502		273,136
Japan	65,709		71,981		203,486		210,805
Asia-Pacific and Other	289,779		251,662		816,675		715,411
Consolidated	$	852,970	$	779,714	$	2,509,613	$	2,325,976

Geographic revenue data for multi-region, multi-product transactions reflect internal allocations and are therefore subject to certain assumptions and the Company’s methodology.

For the three and nine months ended July 31, 2019 and 2018, one customer, including its subsidiaries, through multiple agreements accounted for greater than 10% of the Company's total revenues.

Note 13. Other Income (Expense), net

The following table presents the components of other income (expense), net:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Interest income	$	1,789		$	1,096		$	5,280		$	3,659
Interest expense	(2,214		)	(4,558		)	(10,608		)	(11,281		)
Gain (loss) on assets related to executive deferred compensation plan assets	4,686			8,397			25,201			14,592
Foreign currency exchange gain (loss)	696			1,627			2,999			1,725
Other, net	360			1,363			501			3,900
Total	$	5,317		$	7,925		$	23,373		$	12,595

Note 14. Taxes

Effective Tax Rate

The Company estimates its annual effective tax rate at the end of each fiscal quarter. The effective tax rate takes into account the Company's estimations of annual pre-tax income, the geographic mix of pre-tax income and interpretations of tax laws and possible outcomes of audits.

The following table presents the provision (benefit) for income taxes and the effective tax rates:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Income before income taxes	$	132,911		$	71,893		$	413,883		$	311,295
Provision (benefit) for income taxes	$	32,982		$	(7,516	)	$	42,230		$	133,105
Effective tax rate	24.8		%	(10.5		)%	10.2		%	42.8		%

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

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the first quarter of 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.

In the first, second and third quarters of fiscal 2019, the U.S. Treasury Department issued proposed regulations that could impact the calculation of taxes related to these provisions. While the Company continues to evaluate the potential impact on its estimated annual tax rate, certain regulations have not been finalized and are subject to change.

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 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 a tax restructuring.

The Company’s effective tax rate for the nine months ended July 31, 2019 is lower than the statutory federal corporate tax rate of 21.0% primarily due to U.S. federal and California research credits, foreign-derived intangible income deduction, excess tax benefits from stock-based compensation, and a decrease in unrecognized foreign tax benefits, partially offset by state taxes, the effect of non-deductible stock-based compensation, higher taxes on certain foreign earnings, and the impact of the Altera Ninth Circuit decision.

The Company's effective tax rate increased in the three months ended July 31, 2019 as compared to the same period in fiscal 2018, primarily due to the impact of the Altera Ninth Circuit decision. The Company's effective tax rate in the three months ended July 31, 2018 was lower primarily due to excess stock benefits.

The Company's effective tax rate decreased in the nine months ended July 31, 2019, as compared to the same period in fiscal 2018, primarily due to accounting for the effects of the Tax Act in fiscal 2018.

The timing of the resolution of income tax examinations is highly uncertain, as are the amounts and timing of various tax payments that are part of the settlement process. This 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 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 and $6 million. In addition, a settlement or changes in guidance could result in changes to the Company's valuation allowance.

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 statement of income in the period when the transaction takes place.

Non-U.S. Examinations

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In July 2017, the Hungarian Tax Authority (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 ("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 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.  

In the fourth quarter of 2018, the Company made significant changes to its international tax structure by transferring intangible assets between certain foreign subsidiaries, including its Hungarian subsidiary. In the first quarter of fiscal 2019, the Company received a ruling from the Hungarian authorities, which provided guidance on determining the tax associated with the gain recognized on the transfer, resulting in a benefit of $22.8 million recognized in the first quarter of fiscal 2019. The Company recorded an additional benefit of $10.3 million in the second quarter of fiscal 2019 upon the filing of its fiscal 2018 Hungarian return.

The Company is undergoing an audit by the HTA for fiscal years 2014 through 2018. No material assessments have been proposed in these examinations.

In the first quarter of fiscal 2019, the Company reached final settlement with Taiwanese tax authorities for fiscal year 2017 and recognized $5.5 million in previously unrecognized tax benefits.

The Company is also under examination by the tax authorities in certain other jurisdictions. No material assessments have been proposed in these examinations.

Note 15. 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.

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 from the Company to Mentor. 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. As of July 31, 2019, there has been no change to the status of the contingent charges.

Tax Matters

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.

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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 14. Taxes.

Note 16. Effect of New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)," which supersedes the lease requirements in "Leases (Topic 840)." This ASU requires a lessee to recognize a right-of-use asset and a lease payment liability for most leases in the consolidated balance sheets. This ASU also makes minor changes to lessor accounting and aligns with the new revenue recognition guidance. This ASU will be effective for fiscal 2020, including interim periods within that reporting period, and earlier adoption is permitted. The Company is currently evaluating its lease portfolio and the impact of adoption is expected to be material to the consolidated balance sheets.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,” "forecast," or the negatives of such terms, and similar expressions, are intended to identify forward-looking statements. Without limiting the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements concerning expected growth in the semiconductor and electronics industries, the effects of consolidation among our customers and within the industries in which we operate, our business outlook, our business model, our growth strategy, the ability of our prior acquisitions to drive revenue growth, the sufficiency of our cash, cash equivalents and cash generated from operations, our future liquidity requirements, and other statements that involve certain known and unknown risks, uncertainties and other factors that could cause our actual results, time frames or achievements to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those identified below in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All subsequent written or oral forward-looking statements attributable to Synopsys or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (SEC) that attempt to advise interested parties of the risks and factors that may affect our business.

The following summary of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this report and with our audited consolidated financial statements and the related notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, as filed with the SEC on December 17, 2018.

Overview

Business Summary

Synopsys, Inc. provides products and services used by designers 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. 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. We are also a leading provider of software tools and services that improve the security and quality of software code in a wide variety of industries, including electronics, financial services, media, automotive, medicine, energy and industrials.

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. In addition, a number of consolidations have taken place in the semiconductor and electronics industries over the past several years. While we do not believe customer consolidations have had a material impact on our results, the future impact of potential consolidation remains uncertain. For a discussion of potential risks, please see the risk factor titled “Consolidation among our customers and within the industries in which we operate, as well as our dependence on a relatively small number of large customers, may negatively impact our operating results” in Part II, Item 1A. Risk Factors.

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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.

Despite global economic uncertainty, we have consistently grown our revenue since 2005. We achieved these results not only because of our solid execution, leading technologies and strong customer relationships, but also because of our time-based revenue business model. Under this model, a substantial majority of our customers pay over time and we typically recognize this revenue over the life of the contract, which averages approximately three years. Time-based revenue consists of time-based products, maintenance and service revenue. The revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period. Due to our business model, decreases as well as increases in customer spending do not immediately affect our revenues in a significant way.

Our growth strategy is based on (1) building on our leadership in our EDA products, (2) expanding and proliferating our IP offerings, and (3) driving growth in the software security and quality market. As we continue to expand our product portfolio and our total addressable market, for instance in the software security and quality space, and as hardware product sales grow, we expect to experience increased variability in our total revenue. In addition, due to our adoption of ASC 606 in fiscal 2019, as further described in Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements, the way in which we are required to account for certain types of arrangements will increase the variability in our total revenue from period to period. We expect approximately 80% to 85% of non-hardware revenue to be time-based or recognized over time. The accounting impact of ASC 606 has not affected our cash generation or changed the way we operate 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.

Business Segments

Effective in fiscal 2019, we realigned our business to evaluate the results of our Software Integrity business separately from our traditional EDA and semiconductor IP business. The CODMs now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. Our historical results have been recast to retrospectively reflect the change from one to two reportable segments.

As a result of the change in reporting structure, 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 for the Semiconductor & System Design and Software Integrity segments, accompanied by disaggregated information relating to revenues by geographic region.

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. A large number of our EDA products are used by designers to automate the complex IC design process. 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 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 every five or six years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first

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quarter to realign fiscal quarters with calendar quarters. Fiscal 2019 is a 52-week year and will end on November 2, 2019. Fiscal 2018 was a 53-week year and ended on November 3, 2018.

Our results of operations for the first nine months of fiscal 2019 and 2018 included 39 weeks and 40 weeks, respectively, and ended on August 3, 2019 and August 4, 2018, respectively. The extra week in the first quarter of fiscal 2018 resulted in approximately $46 million of additional revenue, and approximately $34 million of additional expenses. For presentation purposes, the unaudited condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.

Financial Performance Summary

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 the fiscal quarter ended January 31, 2019 has not been restated. Additional comparative information is provided in Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements for the adoption of ASC 606 and our pro-forma financial results under ASC 605 for the three and nine months ended July 31, 2019.

The third quarter of fiscal 2019 compared to the same period of fiscal 2018:

• Revenues were $853.0 million, an increase of $73.3 million, or 9%, primarily due to our continued growth both organically and through prior year acquisitions, as well as the adoption of ASC 606.

• Total cost of revenue and operating expenses were $725.4 million, an increase of $9.6 million, or 1%, primarily due to increases in restructuring costs of $19.3 million and employee-related costs of $5.1 million, resulting from increases in headcount, partially offset by the Mentor Graphics Corporation (Mentor) litigation settlement in the third quarter of fiscal 2018 of $26.0 million.

• Operating income was $127.6 million, a 99% increase of $63.6 million.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial results under the heading “Results of Operations” below are based on our unaudited condensed consolidated financial statements, 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.

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:

• Revenue recognition;

• Business combinations; and

• Income taxes

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 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

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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

• discount rates.

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 Unaudited Condensed 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 the fiscal quarter ended January 31, 2019 has not been restated. Additional comparative information is provided in Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements for the adoption of ASC 606 and our pro-forma financial results under ASC 605 for the three and nine months ended July 31, 2019.

Revenue

Our revenues are generated from two business segments: the Semiconductor & System Design segment and the Software Integrity segment. Refer to Note 12 of the Notes to Unaudited Condensed 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

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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, which is typically three years. 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. Under ASC 605, these arrangements were recognized ratably over the contract term.

• 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 a 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.” Under ASC 605, we recognized revenues ratably for certain IP licensing and support arrangements.

• 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 delivery 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 title to the hardware, physical possession, and a present 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. The adoption of ASC 606 did not change the timing of revenue recognition for hardware products.

• 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. The adoption of ASC 606 did not change from ASC 605 the timing of revenue recognition for professional services.

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 the functionality to the customer and represent a combined performance obligation. We will recognize revenue for the combined performance obligation over the term of the arrangement.

Most of our customer arrangements are complex, involving 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 a highly competitive market. Customers generally negotiate the total value of the arrangement rather than just unit pricing or volumes.

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Total Revenue

	July 31,
	2019		2018		$ Change		% Change
	(dollars in millions)
Three months ended
Semiconductor & System Design Segment	$	769.4	$	708.4	$	61.0	9	%
Software Integrity Segment	83.6		71.3		12.3		17	%
Total	$	853.0	$	779.7	$	73.3	9	%
Nine months ended
Semiconductor & System Design Segment	$	2,260.3	$	2,122.8	$	137.5	6	%
Software Integrity Segment	249.3		203.2		46.1		23	%
Total	$	2,509.6	$	2,326.0	$	183.6	8	%

The overall growth of our business, including contributions from acquisitions, has been the primary driver of the increase in our revenue. Our revenues are subject to fluctuations, primarily due to customer requirements, including payment terms and the timing and value of contract renewals. For example, we experience variability in our revenue due to factors such as the timing of IP consulting projects, royalties, variability in hardware sales, and due to certain contracts where revenue is recognized when customer installment payments are due. As revenue from hardware sales is recognized upfront, customer demand and timing requirements for such hardware may result in increased variability of our total revenue.

The increase in total revenue for the three and nine months ended July 31, 2019 compared to the same periods in fiscal 2018 was primarily attributable to the business growth in all product categories, and to a lesser extent, revenue recognized under new revenue standard ASC 606 was higher compared with revenue recognized under old revenue standard ASC 605. The increase for the nine-month period was partially offset by one extra week of approximately $46 million additional revenue in the first quarter of fiscal 2018.

Time-Based Products Revenue

	July 31,
	2019			2018			$ Change			% Change
	(dollars in millions)
Three months ended	$	537.6		$	570.1		$	(32.5	)	(6	)%
Percentage of total revenue	63		%	73		%
Nine months ended	$	1,649.6		$	1,697.8		$	(48.2	)	(3	)%
Percentage of total revenue	66		%	73		%

The time-based products revenue for the three months ended July 31, 2019 compared to the same period in fiscal 2018 decreased by $32.5 million due to the impact of lower revenue recognized under ASC 606 of $55.6 million offset by an increase in TSL license revenue from arrangements booked in prior periods.

The time-based products revenue for the nine months ended July 31, 2019 compared to the same period in fiscal 2018 decreased by $48.2 million due to the impact of lower revenue recognized under ASC 606 of $158.2 million and the extra week of revenue in the first quarter of fiscal 2018, offset by an increase in TSL license revenue from arrangements booked in prior periods.

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Upfront Products Revenue

	July 31,
	2019			2018			$ Change		% Change
	(dollars in millions)
Three months ended	$	177.6		$	99.6		$	78.0	78	%
Percentage of total revenue	21		%	13		%
Nine months ended	$	451.5		$	291.1		$	160.4	55	%
Percentage of total revenue	18		%	13		%

Changes in upfront products revenue are generally attributable to normal fluctuations in customer requirements, which can drive the amount of upfront orders and revenue in any particular period.

The increase in upfront products revenue for the three and nine months ended July 31, 2019 compared to the same periods in fiscal 2018 was primarily due to higher IP revenue recognized upfront under ASC 606 of $73.3 million and $151.1 million, respectively.

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

	July 31,
	2019			2018			$ Change		% Change
	(dollars in millions)
Three months ended
Maintenance revenue	$	42.3		$	25.0		$	17.3	69	%
Professional services and other revenue	95.5			85.1			10.4		12	%
Total maintenance and service revenue	$	137.8		$	110.1		$	27.7	25	%
Percentage of total revenue	16		%	14		%
Nine months ended
Maintenance revenue	$	137.1		$	74.6		$	62.5	84	%
Professional services and other revenue	271.5			262.5			9.0		3	%
Total maintenance and service revenue	$	408.6		$	337.1		$	71.5	21	%
Percentage of total revenue	16		%	14		%

The increase in maintenance revenue for the three and nine months ended July 31, 2019 compared to the same periods in fiscal 2018 was primarily due to higher revenue under ASC 606 of $26.9 million and $57.7 million, respectively, and an increase in the volume of arrangements that include maintenance.

The increase in professional services and other revenue for the three and nine months ended July 31, 2019 compared to the same periods in fiscal 2018 was primarily due to the timing of IP customization and consulting projects that are accounted for using the percentage of completion method. The increase for the nine-month period was offset by the impact of the extra week in the first quarter of fiscal 2018.

Cost of Revenue and Operating Expenses

Our expenses are generally impacted by changes in personnel-related costs driven by increased headcount from our overall growth, including those from acquisitions, and fixed charges such as facilities, as well as product costs due to hardware sales. We allocate certain expenses such as information technology and facility expenses among our functional income statement categories based on headcount within each functional area. Annually, or upon a significant change in headcount (such as a workforce reduction, realignment, or acquisition) or other factors, management reviews the allocation methodology and expenses included in the allocation pool.

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Cost of Revenue

	July 31,
	2019			2018			$ Change			% Change
	(dollars in millions)
Three months ended
Cost of products revenue	$	113.5		$	115.4		$	(1.9	)	(2	)%
Cost of maintenance and service revenue	59.5			49.8			9.7			19	%
Amortization of intangible assets	13.6			20.2			(6.6		)	(33	)%
Total	$	186.6		$	185.4		$	1.2		1	%
Percentage of total revenue	22		%	24		%
Nine months ended
Cost of products revenue	$	346.2		$	335.0		$	11.2		3	%
Cost of maintenance and service revenue	178.1			150.7			27.4			18	%
Amortization of intangible assets	45.9			59.6			(13.7		)	(23	)%
Total	$	570.2		$	545.3		$	24.9		5	%
Percentage of total revenue	23		%	23		%

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, 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 the three months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to increases of $4.6 million in consulting costs primarily related to servicing an increased volume of IP consulting arrangements, $3.7 million in personnel-related costs as a result of headcount increases, including organic hiring and those from prior year acquisitions, and $2.4 million in functionally allocated expenses, partially offset by a decrease of $5.0 million in hardware product costs due to decreases in shipments.

The increase in cost of revenue for the nine months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to increases of $21.8 million in personnel-related costs as a result of headcount increases including organic hiring and those from prior year acquisitions, $12.8 million in consulting costs primarily related to servicing an increased volume of IP consulting arrangements, and $7.5 million in functionally allocated expenses, partially offset by one additional week of expenses of approximately $4.5 million and a $3.7 million decrease in hardware product costs due to decreases in shipments.

Changes in other cost of revenue categories for the above-mentioned periods were not individually material.

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Operating Expenses

Research and Development

	July 31,
	2019			2018			$ Change		% Change
	(dollars in millions)
Three months ended	$	284.8		$	277.4		$	7.4	3	%
Percentage of total revenue	33		%	36		%
Nine months ended	$	846.4		$	794.0		$	52.4	7	%
Percentage of total revenue	34		%	34		%

The increase in research and development expenses for the three months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to an increase of $5.7 million in functionally allocated expenses.

The increase in research and development expenses for the nine months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to increases of $43.4 million in personnel-related costs as a result of headcount increases, including organic hiring and those from prior year acquisitions, $16.3 million in functionally allocated expenses, and $5.7 million in consultants and contractor costs, partially offset by an additional week of expenses of approximately $19.3 million in the first quarter of fiscal 2018.

Changes in other research and development expense categories for the above-mentioned periods were not individually material.

Sales and Marketing

	July 31,
	2019			2018			$ Change			% Change
	(dollars in millions)
Three months ended	$	157.1		$	158.0		$	(0.9	)	(1	)%
Percentage of total revenue	18		%	20		%
Nine months ended	$	471.7		$	455.7		$	16.0		4	%
Percentage of total revenue	19		%	20		%

The decrease in sales and marketing expenses for the three months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to a decrease in marketing communications and travel of $2.2 million, partially offset by an increase in commissions expense of $1.8 million.

The increase in sales and marketing expenses for the nine months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to increases of $17.4 million in personnel-related costs as a result of headcount increases and $3.3 million in functionally allocated expenses, partially offset by an additional week of expenses of approximately $5.8 million in the first quarter of fiscal 2018.

For the three and nine months ended July 31, 2019, commission expenses were $2.7 million higher and $10.4 million lower, respectively, compared to commissions expenses under ASC 605.

Changes in other sales and marketing expense categories for the above-mentioned periods were not individually material.

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General and Administrative

	July 31,
	2019			2018			$ Change			% Change
	(dollars in millions)
Three months ended	$	67.4		$	84.3		$	(16.9	)	(20	)%
Percentage of total revenue	8		%	11		%
Nine months ended	$	165.8		$	199.5		$	(33.7	)	(17	)%
Percentage of total revenue	7		%	9		%

The decrease in general and administrative expenses for the three months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to a $26.0 million litigation settlement in the third quarter of fiscal 2018 and an additional $9.4 million of general and administrative expenses allocated to other functions, partially offset by a $6.6 million increase in facility costs, a $5.0 million increase in bad debt expense, and a $3.1 million increase in depreciation and maintenance expenses.

The decrease in general and administrative expenses for the nine months ended July 31, 2019 compared to the same period in fiscal 2018 was primarily due to an additional $28.7 million of general and administrative expenses allocated to other functions, a $26.0 million litigation settlement in the third quarter of fiscal 2018, legal settlements of $18.3 million in the first quarter of fiscal 2019, and an additional week of expenses of approximately $4.1 million in the first quarter of fiscal 2018. The decreases were partially offset by a $15.8 million increase in facility costs, a $11.4 million increase in depreciation and maintenance expenses, a $9.6 million increase in personnel-related costs, and a $5.7 million increase in bad debt expense.

Changes in other general and administrative expense categories for the above-mentioned periods were not individually material.

Amortization of Intangible Assets

	July 31,
	2019			2018			$ Change			% Change
	(dollars in millions)
Three months ended
Included in cost of revenue	$	13.6		$	20.2		$	(6.6	)	(33	)%
Included in operating expenses	10.1			10.7			(0.6		)	(6	)%
Total	$	23.7		$	30.9		$	(7.2	)	(23	)%
Percentage of total revenue	3		%	4		%
Nine months ended
Included in cost of revenue	$	45.9		$	59.6		$	(13.7	)	(23	)%
Included in operating expenses	31.2			30.9			0.3			1	%
Total	$	77.1		$	90.5		$	(13.4	)	(15	)%
Percentage of total revenue	3		%	4		%

Amortization of intangible assets for the three and nine months ended July 31, 2019 compared to the same periods in fiscal 2018 decreased primarily due to intangible assets that were fully amortized, partially offset by additions of acquired intangible assets in fiscal 2018. See Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements for a schedule of future amortization amounts.

Restructuring Charges

In the second quarter of fiscal 2019, our management approved, committed and initiated a restructuring plan as part of a business reorganization. Total charges under this realignment are expected to be $43 million to $65 million and consist primarily of severance, termination, and retirement benefits under the 2019 Voluntary Retirement Program (VRP). The actual total charges will depend, in part, on the number of eligible employees to accept offers of our VRP. Payments of these restructuring charges are anticipated to be completed by the second quarter of fiscal 2020. During the three and nine months ended July 31, 2019, we incurred restructuring charges of approximately $19.3 million and $33.7 million, respectively, as part of a business realignment under both the 2019 VRP and the 2019

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restructuring plan. The outstanding balance as of July 31, 2019 was $20.8 million recorded in accounts payable and accrued liabilities as payroll and related benefits.

During the nine months ended July 31, 2018, we incurred restructuring charges of approximately $1.9 million as part of a business realignment under the 2018 restructuring plan. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information related to our restructuring charges.

Other Income (Expense), net

	July 31,
	2019			2018			$ Change			% Change
	(dollars in millions)
Three months ended
Interest income	$	1.8		$	1.1		$	0.7		64	%
Interest (expense)	(2.2		)	(4.6		)	2.4			(52	)%
Gain (loss) on assets related to executive deferred compensation plan	4.7			8.4			(3.7		)	(44	)%
Foreign currency exchange gain (loss)	0.7			1.6			(0.9		)	(56	)%
Other, net	0.4			1.4			(1.0		)	(71	)%
Total	$	5.4		$	7.9		$	(2.5	)	(32	)%
Nine months ended
Interest income	$	5.3		$	3.7		$	1.6		43	%
Interest (expense)	(10.6		)	(11.3		)	0.7			(6	)%
Gain (loss) on assets related to executive deferred compensation plan	25.2			14.6			10.6			73	%
Foreign currency exchange gain (loss)	3.0			1.7			1.3			76	%
Other, net	0.5			3.9			(3.4		)	(87	)%
Total	$	23.4		$	12.6		$	10.8		86	%

Other income (expense), net, for the three months ended July 31, 2019 was lower compared to the same period in fiscal 2018, primarily due to lower gains in the market value of our executive deferred compensation plan assets. Other income (expense), net, for the nine months ended July 31, 2019 was higher compared to the same period in fiscal 2018, primarily due to higher gains in the market 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 12 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Semiconductor & System Design Segment

	July 31,
	2019			2018			Change			% Change
	(dollars in millions)
Three months ended
Adjusted operating income	$	207.8		$	169.8		$	38.0		22	%
Adjusted operating margin	27		%	24		%	3		%	13	%
Nine months ended
Adjusted operating income	$	604.5		$	564.7		$	39.8		7	%
Adjusted operating margin	27		%	27		%	—		%	—	%

The increase in adjusted operating income for the three and nine months ended July 31, 2019 compared to the same periods in fiscal 2018 was primarily due to higher revenue recognized under ASC 606 of $41.1 million and $45.9 million, respectively, and an increase in revenue from arrangements booked in prior periods. The increase for

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the nine-month period was also partially offset by approximately $12.0 million due to an additional week of operating income in the first quarter of fiscal 2018.

Software Integrity Segment

	July 31,
	2019			2018			Change			% Change
	(dollars in millions)
Three months ended
Adjusted operating income	$	8.8		$	(2.0	)	$	10.8		(540	)%
Adjusted operating margin	11		%	(3		)%	14		%	(467	)%
Nine months ended
Adjusted operating income	$	22.9		$	(10.7	)	$	33.6		(314	)%
Adjusted operating margin	9		%	(5		)%	14		%	(280	)%

The increase in adjusted operating income for the three and nine months ended July 31, 2019 compared to the same periods in fiscal 2018 was primarily due to the impact of higher revenue recognized under ASC 606 of $3.5 million and $4.7 million, respectively, and an increase in revenue from arrangements booked in prior periods.

Taxes

Our effective tax rate increased in the three months ended July 31, 2019 as compared to the same period in fiscal 2018, primarily due to the impact of the Altera Ninth Circuit decision. Our effective tax rate in the three months ended July 31, 2018 was lower primarily due to excess stock benefits. Our effective tax rate decreased in the nine months ended July 31, 2019, as compared to the same period in fiscal 2018, primarily due to accounting for the effects of the Tax Act in fiscal 2018.

For further discussion of the provision for income taxes and impacts related to the Tax Act, see Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements.

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.

As of July 31, 2019, we held an aggregate of $163.6 million in cash and cash equivalents in the United States and an aggregate of $523.2 million in our foreign subsidiaries. As a result of the Tax Act, if we decide to repatriate the undistributed earnings of our foreign subsidiaries for use in the U.S. in the future, the earnings that are made after December 31, 2017 would not be subject to further U.S. federal tax. We have provided state and foreign deferred taxes on our undistributed earnings sufficient to address the incremental tax that would be due on future foreign earnings.

The following sections discuss changes in our unaudited condensed consolidated balance sheets and statements of cash flows, and other commitments of our liquidity and capital resources during the nine months ended July 31, 2019.

Cash and Cash Equivalents

	July 31, 2019		October 31, 2018		$ Change			% Change
	(dollars in millions)
Cash and cash equivalents	$	686.8	$	723.1	$	(36.3	)	(5	)%

Cash and cash equivalents decreased primarily due to repayment of debt, stock repurchases, annual variable compensation payouts, and purchases of property and equipment. The decrease in cash and cash equivalents was partially offset by cash from our operations and net proceeds from our credit facilities.

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Cash Flows

	Nine Months Ended   July 31,
	2019			2018			$ Change
	(dollars in millions)
Cash provided by operating activities	$	579.3		$	293.5		$	285.8
Cash used in investing activities	(118.2		)	(705.9		)	587.7
Cash (used in) provided by financing activities	(502.3		)	109.3			(611.6		)

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.

Cash provided by operating activities. Cash provided by operating activities for the nine months ended July 31, 2019 was higher compared to the same period in fiscal 2018, primarily driven by higher net income and higher cash collections, partially offset by higher disbursements for operations, including vendors.

Cash used in investing activities. Cash used in investing activities for the nine months ended July 31, 2019 was lower compared to the same period in fiscal 2018, primarily due to higher cash paid for acquisitions in fiscal 2018 of $646.7 million.

Cash (used in) provided by financing activities. Cash used in financing activities for the nine months ended July 31, 2019 was higher compared to the same period in fiscal 2018, primarily due to higher debt repayments of $382.8 million and lower proceeds from credit facilities drawdowns of $422.1 million, partially offset by lower stock repurchase activities of $157.8 million.

Accounts Receivable, net

	July 31, 2019		October 31, 2018		$ Change			% Change
	(dollars in millions)
Accounts Receivable, net	$	457.4	$	554.2	$	(96.8	)	(17	)%

Changes in our accounts receivable balance are primarily driven by timing of customer billing, collection activities and to a lesser extent, customer receivables acquired through our acquisitions.

Working Capital

Working capital is comprised of current assets less current liabilities, as shown on our unaudited condensed consolidated balance sheets:

	July 31, 2019			October 31, 2018			$ Change			% Change
	(dollars in millions)
Current assets	$	1,617.6		$	1,543.8		$	73.8		5	%
Current liabilities	1,630.5			2,102.4			(471.9		)	(22	)%
Working capital deficit	$	(12.9	)	$	(558.6	)	$	545.7		(98	)%

Decreases in our working capital deficit were primarily due to a decrease in short-term debt of $327.1 million an increase in prepaid and other current assets of $221.1 million, and a decrease in accounts payable and accrued liabilities of $106.7 million, partially offset by a decrease in cash and cash equivalents of $36.3 million.

Other Commitments—Credit Facility

In July 2018, we entered into a 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 Chinese Central Bank rate plus 10% of such rate. As of July 31, 2019, we had $18.4 million outstanding under the agreement.

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On November 28, 2016, we 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 our 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, to 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 us by up to an additional $150.0 million. The Credit Agreement contains financial covenants requiring us to operate within a maximum leverage ratio and a minimum interest coverage ratio, as well as other non-financial covenants. As of July 31, 2019, we were in compliance with all financial covenants.

As of July 31, 2019, we had $123.5 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $106.9 million was classified as long-term liabilities. Outstanding principal payments under the Term Loan are due as follows:

Fiscal year	(in thousands)
Remainder of fiscal 2019	$	3,750
2020	17,813
2021	27,187
2022	75,000
Total	$	123,750

As of October 31, 2018, we had $133.8 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $120.0 million was classified as long-term liabilities, and $330.0 million outstanding balance under the Revolver.

There was no outstanding balance of the Revolver as of July 31, 2019. We expect the borrowings under the Revolver will fluctuate from quarter to quarter. 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 July 31, 2019, 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.

Other

As of July 31, 2019, 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 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 4 and 5 of the Notes to Unaudited Condensed 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.

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Contractual Obligations

The following table summarizes our contractual obligations as of July 31, 2019:

	Total		Remainder of Fiscal 2019		Fiscal 2020/ Fiscal 2021		Fiscal 2022/ Fiscal 2023		Thereafter		Other
	(in thousands)
Operating Leases	$	514,543	$	15,079	$	123,793	$	90,294	$	285,377
Purchase Obligations(1)	447,026		215,371		224,483		7,172
Other Obligations(2)	125,469		3,744		46,725		75,000
Long term accrued income taxes(3)	27,847		—		396		396		1,485		25,570
Total	$	1,114,885	$	234,194	$	395,397	$	172,862	$	286,862	$	25,570

(1) Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary course of business as of July 31, 2019. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule or adjust our requirements based on our business needs prior to the delivery of goods or performance of services.

(2) These other obligations include our Term Loan, Revolver, a credit facility, and associated fees.

(3) Long-term accrued income taxes represent uncertain tax benefits and transition tax liability as of July 31, 2019. Currently, a reasonably reliable estimate of timing of payments related to uncertain tax benefits in individual years beyond fiscal 2019 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 certain obligations.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

See Other Commitments—Credit Facility, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, regarding borrowings under our senior unsecured revolving credit facility.

As of July 31, 2019, our exposure to market risk has not changed materially since October 31, 2018. For more information on financial market risks related to changes in interest rates, reference is made to Item 7A. Quantitative and Qualitative Disclosure about Market Risk contained in Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, filed with the SEC on December 17, 2018.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. As of July 31, 2019, Synopsys carried out an evaluation under the supervision and with the participation of Synopsys’ management, including the co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of Synopsys’ disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives. Our co-Chief Executive Officers and Chief Financial Officer have concluded that, as of July 31, 2019, Synopsys’ disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports Synopsys files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required, and that such information is accumulated and communicated to Synopsys’ management, including the co-Chief Executive Officers and Chief Financial Officer, to allow timely decisions regarding its required disclosure.

(b) Changes in Internal Control over Financial Reporting. On November 4, 2018, Synopsys implemented new and modified existing internal controls for the adoption of the new revenue recognition accounting standard, ASC 606. There were no additional changes in Synopsys’ internal control over financial reporting during the three months ended July 31, 2019 that have materially affected, or are reasonably likely to materially affect, Synopsys’ internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate outcome of any litigation is often uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on Synopsys because of the defense costs, diversion of management resources and other factors.

We regularly review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount is estimable, we accrue 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.

In July 2017, the Hungarian Tax Authority (HTA) issued a final assessment against Synopsys' Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA has disallowed Synopsys Hungary's tax positions taken during these years regarding the timing of the deduction of research expenses and applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $44.5 million and interest and penalties of $18.0 million. On August 2, 2017, Synopsys Hungary filed a claim contesting the final assessment with the Hungarian Administrative Court. On November 16, 2017, Synopsys Hungary paid the assessment as required by law, while continuing its challenge to the assessment in court. Hearings were held in February and July 2018, February 26, 2019 and April 30, 2019. On December 10, 2018, Synopsys withdrew its claim contesting the final assessment with regard to the timing of the deduction of research expenses, resulting in a remaining disputed tax assessment of approximately $25.0 million and interest and penalties of $11.0 million. On April 30, 2019, the Hungarian Administrative Court ("Court") ruled against Synopsys Hungary. The Court's opinion was received on May 16, 2019. Synopsys Hungary 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 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.

For further discussion of the Hungary audit, see Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements under the heading "Non-U.S. Examinations."

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Item 1A. Risk Factors

We describe our risk factors below.

The growth of our business depends primarily on the semiconductor and electronics industries.

The growth of the electronic design automation (EDA) industry as a whole, our EDA and intellectual property (IP) product sales, and to some extent our Software Integrity platform sales, is dependent on the semiconductor and electronics industries. A substantial portion of our business and revenue depends upon the commencement of new design projects by semiconductor manufacturers and their customers. The increasing complexity of designs of systems-on-chips and integrated circuits, and customers’ concerns about managing costs, have previously led and in the future could lead to a decrease in design starts and design activity in general, with some customers focusing more on one discrete phase of the design process or opting for less advanced, but less risky, manufacturing processes that may not require the most advanced EDA products. Demand for our products and services could decrease and our financial condition and results of operations could be adversely affected if growth in the semiconductor and electronics industries slows or stalls. Additionally, as the EDA industry matures, consolidation may result in stronger competition from companies better able to compete as sole source vendors. This increased competition may cause our revenue growth rate to decline and exert downward pressure on our operating margins, which may have an adverse effect on our business and financial condition.

Furthermore, the semiconductor and electronics industries have become increasingly complex ecosystems. Many of our customers outsource the manufacture of their semiconductor designs to foundries. Our customers also frequently incorporate third-party IP, whether provided by us or other vendors, into their designs to improve the efficiency of their design process. We work closely with major foundries to ensure that our EDA, IP, and manufacturing solutions are compatible with their manufacturing processes. Similarly, we work closely with other major providers of semiconductor IP, particularly microprocessor IP, to optimize our EDA tools for use with their IP designs and to assure that their IP and our own IP products, which may each provide for the design of separate components on the same chip, work effectively together. If we fail to optimize our EDA and IP solutions for use with major foundries’ manufacturing processes or major IP providers’ products, or if our access to such foundry processes or third-party IP products is hampered, then our solutions may become less desirable to our customers, resulting in an adverse effect on our business and financial condition.

Consolidation among our customers and within the industries in which we operate, as well as our dependence on a relatively small number of large customers, may negatively impact our operating results.

A number of business combinations, including mergers, asset acquisitions and strategic partnerships, among our customers in the semiconductor and electronics industries have occurred over the last several years, and more could occur in the future. Consolidation among our customers could lead to fewer customers or the loss of customers, increased customer bargaining power, or reduced customer spending on software and services. Furthermore, we depend on a relatively small number of large customers, and on such customers continuing to renew licenses and purchase additional products from us, for a large portion of our revenue. Reduced customer spending or the loss of a small number of customers, particularly our large customers, could adversely affect our business and financial condition. In addition, we and our competitors from time to time acquire businesses and technologies to complement and expand our respective product offerings. If any of our competitors consolidate or acquire businesses and technologies which we do not offer, they may be able to offer a larger technology portfolio, additional support and service capability, or lower prices, which could negatively impact our business and operating results.

Uncertainty in the global economy, and its potential impact on the semiconductor and electronics industries in particular, may negatively affect our business, operating results and financial condition.

While the global economy has generally shown improvement in recent years, there are still uncertainties surrounding the prospects for growth in many regions. Uncertainty caused by challenging global economic conditions could lead some of our customers to postpone their decision-making, decrease their spending and/or delay their payments to us. Such caution by customers could, among other things, limit our ability to maintain or increase our sales or recognize revenue from committed contracts.

We cannot predict the stability of the economy as a whole or the industries in which we operate. Further economic instability could adversely affect the banking and financial services industry and result in credit downgrades of the banks we rely on for foreign currency forward contracts, credit and banking transactions, and deposit services, or cause them to default on their obligations. There is uncertainty regarding how proposed, contemplated or future changes to the complex laws and regulations governing our industry, the banking and financial services industry,

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and the economy could affect our business. In addition, economic conditions could deteriorate in the future, and, in particular, the semiconductor and electronics industries could fail to grow, including as the result of any disruption of international trade relationships. In the event of future improvements in economic conditions for our customers, the positive impact on our revenues and financial results may be deferred due to our business model. Any of the foregoing could cause adverse effects on our business, operating results and financial condition, and could cause our stock price to decline.

Our operating results may fluctuate in the future, which may adversely affect our stock price.

Our operating results are subject to quarterly and annual fluctuations, which may adversely affect our stock price. Our historical results should not be viewed as indicative of our future performance due to these periodic fluctuations.

Many factors may cause our revenue or earnings to fluctuate, including:

• Changes in demand for our products-especially products, such as hardware, generating upfront revenue-due to fluctuations in demand for our customers’ products and due to constraints in our customers’ budgets for research and development, EDA products and services, and Software Integrity solutions;

• Product competition in the semiconductor and electronics industries, which can change rapidly due to industry or customer consolidation and technological innovation;

• Our ability to innovate and introduce new products and services or effectively integrate products and technologies that we acquire;

• Failures or delays in completing sales due to our lengthy sales cycle, which often includes a substantial customer evaluation and approval process because of the complexity of our products and services;

• Our ability to implement effective cost control measures;

• Our dependence on a relatively small number of large customers, and on such customers continuing to renew licenses and purchase additional products from us, for a large portion of our revenue;

• Changes to the amount, composition and valuation of, and any impairments to or write-offs of, our inventory;

• Changes in the mix of our products sold, as increased sales of our products with lower gross margins, such as our hardware products, may reduce our overall margins;

• Expenses related to our acquisition and integration of businesses and technology;

• Changes in tax rules, as well as changes to our effective tax rate, including the tax effects of infrequent or unusual transactions and tax audit settlements;

• Delays, increased costs or quality issues resulting from our reliance on third parties to manufacture our hardware products, which includes a sole supplier for certain hardware components;

• General economic and political conditions that affect the industries in which we operate, such as disruptions to international trade relationships, including tariffs, export licenses, or other trade barriers affecting our or our suppliers' products; and

• Changes in accounting standards, such as ASC 606, as discussed in Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements, which, for example, could impact the expected realization of our backlog.

The timing of revenue recognition may also cause our revenue and earnings to fluctuate. The timing of revenue recognition is affected by factors that include:

• Cancellations or changes in levels of orders or the mix between upfront products revenue and time-based products revenue;

• Delay of one or more orders for a particular period, particularly orders generating upfront products revenue, such as hardware;

• Delay in the completion of professional services projects that require significant modification or customization and are accounted for using the percentage of completion method;

• Delay in the completion and delivery of IP products in development as to which customers have paid for early access;

• Customer contract amendments or renewals that provide discounts or defer revenue to later periods;

• The levels of our hardware revenues, which are recognized upfront and are primarily dependent upon our ability to provide the latest technology and meet customer requirements, and which may also impact our levels of excess and obsolete inventory expenses;

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• Changes in accounting standards, such as ASC 606, as discussed in Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements; and

• Changes in our revenue recognition model.

These factors, or any other factors or risks discussed herein, could negatively impact our revenue or earnings and cause our stock price to decline. Additionally, our results may fail to meet or exceed the expectations of securities analysts and investors, or such analysts may change their recommendation regarding our stock, which could cause our stock price to decline. Our stock price has been, and may continue to be, volatile, which may make it more difficult for our stockholders to sell their shares at a time or a price that is favorable to them.

We operate in highly competitive industries, and if we do not continue to meet our customers’ demand for innovative technology at lower costs, our products may become uncompetitive and obsolete, and our business and financial condition may be harmed.

We compete against EDA vendors that offer a variety of products and services, such as Cadence Design Systems, Inc. and Mentor Graphics Corporation (now part of Siemens AG). We also compete with other EDA vendors, including new entrants to the marketplace, that offer products focused on one or more discrete phases of the IC design process. Moreover, our customers internally develop design tools and capabilities that compete with our products, including internal designs that compete with our IP products.

In the area of IP products, we compete against numerous other IP providers as well as our customers' internally developed IP. In the area of software integrity solutions, we compete with numerous other solution providers, many of which focus on specific aspects of software security or quality analysis. We also compete with frequent new entrants, which include start-up companies and more established software companies.

The industries in which we operate are highly competitive and the demand for our products and services is dynamic and depends on a number of factors, including demand for our customers’ products, design starts and our customers’ budgetary constraints. Technology in these industries evolves rapidly and is characterized by frequent product introductions and improvements as well as changes in industry standards and customer requirements. For example, semiconductor device functionality requirements continually increase while feature widths decrease, substantially increasing the complexity, cost and risk of chip design and manufacturing. At the same time, our customers and potential customers continue to demand an overall lower total cost of design, which can lead to the consolidation of their purchases with one vendor. In order to succeed in this environment, we must successfully meet our customers’ technology requirements and increase the value of our products, while also striving to reduce their overall costs and our own operating costs.

We compete principally on the basis of technology, product quality and features (including ease-of-use), license or usage terms, post-contract customer support, interoperability among products, and price and payment terms. Specifically, we believe the following competitive factors affect our success:

• Our ability to anticipate and lead critical development cycles and technological shifts, innovate rapidly and efficiently, improve our existing products, and successfully develop or acquire new products;

• Our ability to offer products that provide both a high level of integration into a comprehensive platform and a high level of individual product performance;

• Our ability to enhance the value of our offerings through more favorable terms such as expanded license usage, future purchase rights, price discounts and other differentiating rights, such as multiple tool copies, post-contract customer support, “re-mix” rights that allow customers to exchange the software they initially licensed for other Synopsys products, and the ability to purchase pools of technology;

• Our ability to compete on the basis of payment terms; and

• Our ability to provide engineering and design consulting for our products.

If we fail to successfully manage these competitive factors, fail to successfully balance the conflicting demands for innovative technology and lower overall costs, or fail to address new competitive forces, our business and financial condition will be adversely affected.

The global nature of our operations exposes us to increased risks and compliance obligations that may adversely affect our business.

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We derive roughly half of our revenue from sales outside the United States, and we expect our orders and revenue to continue to depend on sales to customers outside the U.S. In addition, we have continually expanded our non-U.S. operations in the past several years. This strategy requires us to recruit and retain qualified technical and managerial employees, manage multiple remote locations performing complex software development projects and ensure intellectual property protection outside of the U.S. Our international operations and sales subject us to a number of increased risks, including:

• Ineffective or weaker legal protection of intellectual property rights;

• Uncertain economic and political conditions in countries where we do business;

• Difficulties in adapting to cultural differences in the conduct of business, which may include business practices in which we are prohibited from engaging by the Foreign Corrupt Practices Act or other anti-corruption laws;

• Financial risks such as longer payment cycles and difficulty in collecting accounts receivable;

• Inadequate local infrastructure that could result in business disruptions;

• Government trade restrictions, including tariffs, export licenses, or other trade barriers, and changes to existing trade arrangements between various countries;

• Additional taxes, interest, and potential penalties, and uncertainty around changes in tax laws of various countries; and

• Other factors beyond our control such as natural disasters, terrorism, civil unrest, war and infectious diseases.

If any of the foreign economies in which we do business deteriorate or if we fail to effectively manage our global operations, our business and results of operations will be harmed.

As our business volume increases in the Asia Pacific region, there is inherent risk, based on the complex relationships between certain Asian countries and the United States, that political, diplomatic, or military events could result in trade disruptions, including tariffs, trade embargoes, and other trade barriers. A significant trade disruption or the establishment or increase of any trade barrier in any area where we do business could increase the cost of our products, which could adversely impact the margin that we earn on sales; make our products more expensive for customers, which could make our products less competitive and reduce consumer demand; adversely restrict or delay our suppliers of hardware components and products, which could adversely impact our future revenues and financial results; or otherwise have a materially adverse impact on our future revenue and profits, our and our customers’ and suppliers’ businesses, and our results of operations.

For example, beginning in May 2019, the United States government placed certain entities on the “Entity List,” restricting the sale of U.S. technologies to the named entities. As a result of this government action, we are not able to book new business with these entities, and revenue associated with these entities is put “on hold” until either the contract expires, or the restriction is lifted. In response to that action or similar actions taken by the United States, other countries may adopt tariffs and trade barriers that could limit our ability to offer our products and services. Current and potential customers who are concerned or affected by such tariffs or restrictions may respond by developing their own products or replacing our solutions, which would have an adverse effect on our business. Additionally, further political uncertainty surrounding international trade disputes could have a negative impact on consumer confidence and spending, which could adversely impact our business operations.

In addition to tariffs and other trade barriers, our global operations are subject to numerous U.S. and foreign laws and regulations, including those related to anti-corruption, tax, corporate governance, imports and exports, financial and other disclosures, privacy and labor relations. These laws and regulations are complex and may have differing or conflicting legal standards, making compliance difficult and costly. In addition, there is uncertainty regarding how proposed, contemplated or future changes to these complex laws and regulations could affect our business. We may incur substantial expense in complying with the new obligations to be imposed by these laws and regulations, and we may be required to make significant changes in our business operations, all of which may adversely affect our revenues and our business overall. If we violate these laws and regulations we could be subject to fines, penalties or criminal sanctions, and may be prohibited from conducting business in one or more countries. Although we have implemented policies and procedures to help ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, agents or partners will not violate such laws and regulations. Any violation individually or in the aggregate could have a material adverse effect on our operations and financial condition.

Our financial results are also affected by fluctuations in foreign currency exchange rates. A weakening U.S. dollar relative to other currencies increases expenses of our foreign subsidiaries when they are translated into U.S. dollars in our consolidated statement of operations. Likewise, a strengthening U.S. dollar relative to other currencies, especially the Japanese Yen, reduces revenue of our foreign subsidiaries upon translation and consolidation.

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Exchange rates are subject to significant and rapid fluctuations, and therefore we cannot predict the prospective impact of exchange rate fluctuations. Although we engage in foreign currency hedging activity, we may be unable to hedge all of our foreign currency risk, which could have a negative impact on our results of operations.

Cybersecurity threats or other security breaches could compromise sensitive information belonging to us or our customers and could harm our business and our reputation, particularly that of our Software Integrity solutions.

We store sensitive data, including intellectual property, our proprietary business information and that of our customers, and confidential employee information, in our data centers and on our networks. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions that could result in unauthorized disclosure or loss of sensitive information.

For example, in October 2015, we discovered unauthorized third-party access, which had begun in July 2015, to our products and product license files hosted on our SolvNet customer license and product delivery system. We determined that no customer project or design data had been accessed. No personally identifiable information or payment card information is stored on the system. While we identified and closed the method used to gain access, it is possible that our security measures may be circumvented again in the future, and such a breach could harm our business and reputation. The techniques used to obtain unauthorized access to networks, or to sabotage systems, change frequently and generally are not recognized until launched against a target. We may be unable to anticipate these techniques or to implement adequate preventative measures. Furthermore, in the operation of our business we also use third-party vendors that store certain sensitive data, including confidential information about our employees, and these third parties are subject to their own cybersecurity threats. While our standard vendor terms and conditions include provisions requiring the use of appropriate security measures to prevent unauthorized use or disclosure of our data, as well as other safeguards, a breach may still occur. Any security breach of our own or a third-party vendor’s systems could cause us to be non-compliant with applicable laws or regulations, subject us to legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, any of which could adversely affect our business.

Our software products, including our hosted solutions as well as our Software Integrity solutions, may also be vulnerable to cyber attack. An attack could disrupt the proper functioning of our software, cause errors in the output of our customers’ work, allow unauthorized access to our or our customers’ proprietary information, and other destructive outcomes. As a result, our reputation could suffer, customers could stop buying our products, we could face lawsuits and potential liability, and our financial performance could be negatively impacted.

We offer Software Integrity solutions. If we fail to identify new and increasingly sophisticated methods of cyber attack, or fail to invest sufficient resources in research and development regarding new threat vectors, our solutions may fail to detect vulnerabilities in our customers’ software code. An actual or perceived failure to identify security flaws may harm the perceived reliability of our solutions, and could result in a loss of customers or sales, or an increased cost to remedy a problem. Furthermore, our growth in the software security and quality testing space may increase our visibility as a security-focused company and may make us a more attractive target for attacks on our own information technology infrastructure. Successful attacks could damage our reputation as a security-focused company and lead to a loss in our customers' or potential customers' confidence in our products.

If we fail to protect our proprietary technology, our business will be harmed.

Our success depends in part upon protecting our proprietary technology. Our efforts to protect our technology may be costly and unsuccessful. We rely on agreements with customers, employees and other third-parties as well as intellectual property laws worldwide to protect our proprietary technology. These agreements may be breached, and we may not have adequate remedies for any breach. Additionally, despite our measures to prevent piracy, other parties may attempt to illegally copy or use our products, which could result in lost revenue. Some foreign countries do not currently provide effective legal protection for intellectual property and our ability to prevent the unauthorized use of our products in those countries is therefore limited. Our trade secrets may also be stolen, otherwise become known, or be independently developed by competitors.

We may need to commence litigation or other legal proceedings, or otherwise incur significant expense, in order to:

• Assert claims of infringement of our intellectual property;

• Defend our products from piracy;

• Protect our trade secrets or know-how; or

• Determine the enforceability, scope and validity of the propriety rights of others.

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If we do not obtain or maintain appropriate patent, copyright or trade secret protection, for any reason, or cannot fully defend our intellectual property rights in certain jurisdictions, our business and operating results would be harmed. In addition, intellectual property litigation is lengthy, expensive and uncertain. Legal fees related to such litigation and other expenses to protect our intellectual property will increase our operating expenses and may reduce our net income.

We may not be able to realize the potential financial or strategic benefits of the acquisitions we complete, or find suitable target businesses and technology to acquire, which could hurt our ability to grow our business, develop new products or sell our products.

Acquisitions are an important part of our growth strategy. We have completed a significant number of acquisitions in recent years. We expect to make additional acquisitions in the future, but we may not find suitable acquisition targets or we may not be able to consummate desired acquisitions due to unfavorable credit markets, commercially unacceptable terms, or other risks, which could harm our operating results. Acquisitions are difficult, time-consuming, and pose a number of risks, including:

• Potential negative impact on our earnings per share;

• Failure of acquired products to achieve projected sales;

• Problems in integrating the acquired products with our products;

• Difficulties entering into new markets in which we are not experienced or where competitors may have stronger positions;

• Potential downward pressure on operating margins due to lower operating margins of acquired businesses, increased headcount costs and other expenses associated with adding and supporting new products;

• Difficulties in retaining and integrating key employees;

• Substantial reductions of our cash resources and/or the incurrence of debt;

• Failure to realize expected synergies or cost savings;

• Difficulties in integrating or expanding sales, marketing and distribution functions and administrative systems, including information technology and human resources systems;

• Dilution of our current stockholders through the issuance of common stock as part of the merger consideration;

• Assumption of unknown liabilities, including tax and litigation, and the related expenses and diversion of resources;

• Disruption of ongoing business operations, including diversion of management’s attention and uncertainty for employees and customers, particularly during the post-acquisition integration process;

• Potential negative impacts on our relationships with customers, distributors and business partners;

• Exposure to new operational risks, regulations, and business customs to the extent acquired businesses are located in regions where we are not currently conducting business;

• The need to implement controls, processes and policies appropriate for a public company at acquired companies that may have lacked such controls, processes and policies;

• Negative impact on our net income resulting from acquisition-related costs; and

• Requirements imposed by government regulators in connection with their review of an acquisition, including required divestitures, required out-licenses of our intellectual property, or restrictions on the conduct of our business or the acquired business.

If we are unable to fully manage the foregoing risks, the acquisitions that we complete may have an adverse effect on our business and financial condition.

We pursue new product and technology initiatives from time to time, and if we fail to successfully carry out these initiatives, our business, financial condition, or results of operations could be adversely impacted.

As part of the evolution of our business, we have made substantial investments to develop new products and enhancements to existing products through our acquisitions and research and development efforts. If we are unable to anticipate technological changes in our industry by introducing new or enhanced products in a timely and cost-effective manner, or if we fail to introduce products that meet market demand, we may lose our competitive position, our products may become obsolete, and our business, financial condition or results of operations could be adversely affected.

Additionally, from time to time, we invest in expansion into adjacent markets. Most recently, we have focused our investment on expansion in the software quality, testing, and security solutions markets. Our success in any new markets into which we invest depends on a variety of factors, including the following:

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• Our ability to attract a new customer base, including in industries in which we have less experience;

• Our successful development of new sales and marketing strategies to meet customer requirements;

• Our ability to accurately predict, prepare for, and promptly respond to technological developments in new fields;

• Our ability to compete with new and existing competitors in these new industries, many of which may have more financial resources, industry experience, brand recognition, relevant intellectual property rights, or established customer relationships than we currently do, and could include free and open source solutions that provide similar software quality, testing, and security tools without fees;

• Our ability to skillfully balance our investment in adjacent markets with investment in our existing products and services;

• Our ability to attract and retain employees with expertise in new fields;

• Our ability to sell and support consulting services at profitable margins; and

• Our ability to manage our revenue model in connection with hybrid sales of licensed products and consulting services or other sales methods.

Difficulties in any of our new product development efforts or our efforts to enter adjacent markets could adversely affect our operating results and financial condition.

We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively affect our operating results.

We devote substantial resources to research and development. New competitors, technological advances by our competitors or in the industries in which we operate, our acquisitions, our entry into new markets, or other competitive factors may require us to invest significantly greater resources than we anticipate. If we are required to invest significantly greater resources than anticipated without a corresponding increase in revenue, our operating results could decline. Additionally, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact our financial results. Finally, there can be no guarantee that our research and development investments will result in products that create additional revenue.

Our hardware products, which primarily consist of prototyping and emulation systems, subject us to distinct risks.

The growth in sales of our hardware products subjects us to several risks, including:

• Increased dependence on a sole supplier for certain hardware components, which may reduce our control over product quality and pricing and may lead to delays in production and delivery of our hardware products, should our supplier fail to deliver sufficient quantities of acceptable components in a timely fashion;

• Increasingly variable revenue and decreasingly accurate revenue forecasts, due to fluctuations in hardware revenue, which is recognized upfront upon shipment, as opposed to most sales of software products for which revenue is recognized over time;

• Overall reductions in margins, as the gross margin for our hardware products is typically lower than those of our software products;

• Longer sales cycles, which create risks of insufficient, excess or obsolete inventory and variations in inventory valuation, which can adversely affect our operating results;

• Decreases or delays in customer purchases in favor of next-generation releases, which may lead to excess or obsolete inventory or require us to discount our older hardware products; and

• Longer warranty periods than those of our software products, which may require us to replace hardware components under warranty, thus increasing our costs.

Changes in United States Generally Accepted Accounting Principles (U.S. GAAP) could adversely affect our financial results and may require significant changes to our internal accounting systems and processes.

We prepare our consolidated financial statements in conformity with U.S. GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC) and various bodies formed to interpret and create appropriate accounting principles and guidance.

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The FASB periodically issues new accounting standards on a variety of topics, including, for example, revenue recognition and accounting for leases. For information regarding new accounting standards, please refer to Note 2 under the heading "Summary of Significant Accounting Policies" and Note 16 under the heading "Effect of New Accounting Pronouncements" in the Notes to Unaudited Condensed Consolidated Financial Statements. These and other such standards generally result in different accounting principles, which may significantly impact our reported results or could result in variability of our financial results. For example, the new revenue recognition standard became applicable to us at the beginning of fiscal 2019 and could lead to increased volatility in our total revenue, as some of our revenue may be recognized in different periods and with less predictability than is the case under current accounting standards.

Our results could be adversely affected by a change in our effective tax rate as a result of tax law changes and related new or revised guidance and regulations, changes in our geographical earnings mix, unfavorable government reviews of our tax returns, material differences between our forecasted and actual annual effective tax rates, future changes to our tax structure, or by evolving enforcement practices.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions. Because we have a wide range of statutory tax rates in the multiple jurisdictions in which we operate, any changes in our geographical earnings mix, including those resulting from our intercompany transfer pricing or from changes in the rules governing transfer pricing, could materially impact our effective tax rate. Furthermore, a change in the tax law of the jurisdictions where we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, could result in a material increase in our tax expense and impact our financial position and cash flows.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (Tax Act), which significantly changed prior U.S. tax law and includes numerous provisions that affect our business. The Tax Act includes certain new provisions that began to affect our income from foreign operations in the first quarter of fiscal 2019. The applicability and impact of these new tax provisions is dependent in part on changes to our tax structure that were implemented in response to the Tax Act at the end of fiscal 2018. The net impact of such changes is uncertain, and could adversely affect our tax rate and cash flow in future years. Since the beginning of fiscal 2019, the U.S. Treasury Department has issued proposed regulations that, if finalized as written, would have a material impact on our ability to claim certain tax benefits related to the Tax Act. While the Company continues to evaluate the potential impact on its estimated annual tax rate, certain of these regulations have not been finalized and are subject to change. As additional regulations and guidance evolve with respect to the Tax Act, and as we gather more information and perform more analysis, our results may materially differ from previous estimates, and those differences may materially affect our financial position.

Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting (BEPS) project undertaken by the Organisation for Economic Co-operation and Development (OECD), which represents a coalition of member countries. On October 5, 2015, the OECD issued a series of reports recommending changes to numerous long-standing tax principles. Many of these recommendations have been adopted by various countries in which we do business and may increase our taxes in these countries. Changes to these and other areas in relation to international tax reform, including future actions taken by foreign governments in response to the Tax Act, could increase uncertainty and may adversely affect our tax rate and cash flow in future years.

Our income and non-income tax filings are subject to review or audit by the Internal Revenue Service and state, local and foreign taxing authorities. We exercise significant judgment in determining our worldwide provision for income taxes and, in the ordinary course of our business, there may be transactions and calculations where the ultimate tax determination is uncertain. We are also liable for potential tax liabilities of businesses we acquire, including future taxes payable related to the transition tax on earnings from their foreign operations, if any, under the Tax Act. Although we believe our tax estimates are reasonable, the final determination in an audit may be materially different than the treatment reflected in our historical income tax provisions and accruals. An assessment of additional taxes because of an audit could adversely affect our income tax provision and net income in the periods for which that determination is made.

In July 2017, the Hungarian Tax Authority (HTA) issued a final assessment against our 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. We paid the tax assessments, penalties and interest in the first quarter of fiscal 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

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Court on July 5, 2019. For further discussion of the Hungary audit, see Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements under the heading "Non-U.S. Examinations."

We maintain significant deferred tax assets related to certain tax credits. Our ability to use these credits is dependent upon having sufficient future taxable income in the relevant jurisdiction and in the case of foreign tax credits, how such credits are treated under provisions of the Tax Act. Changes in our forecasts of future income could result in an adjustment to the deferred tax asset and a related charge to earnings that could materially affect our financial results.

Liquidity requirements in our U.S. operations may require us to raise cash in uncertain capital markets, which could negatively affect our financial condition.

As of July 31, 2019, approximately 76% of our worldwide cash and cash equivalents balance is held by our international subsidiaries. We intend to meet our U.S. cash spending needs through our existing U.S. cash balances, ongoing U.S. cash flows, and available credit under our term loan and revolving credit facilities. Should our cash spending needs in the U.S. rise and exceed these liquidity sources, we may be required to incur additional debt at higher than anticipated interest rates or access other funding sources, which could negatively affect our results of operations, capital structure or the market price of our common stock.

From time to time we are subject to claims that our products infringe on third-party intellectual property rights.

We are from time to time subject to claims alleging our infringement of third-party intellectual property rights, including patent rights. Under our customer agreements and other license agreements, we agree in many cases to indemnify our customers if our products infringe a third party’s intellectual property rights. Infringement claims can result in costly and time-consuming litigation, require us to enter into royalty arrangements, subject us to damages or injunctions restricting our sale of products, invalidate a patent or family of patents, require us to refund license fees to our customers or to forgo future payments or require us to redesign certain of our products, any one of which could harm our business and operating results.

We may be subject to litigation proceedings that could harm our business.

We may be subject to legal claims or regulatory matters involving stockholder, consumer, employment, customer, supplier, competition, and other issues on a global basis. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting us from manufacturing or selling one or more products. If we were to receive an unfavorable ruling on a matter, our business and results of operations could be materially harmed. Further information regarding certain of these matters is contained in Part II, Item 1, Legal Proceedings.

Product errors or defects could expose us to liability and harm our reputation and we could lose market share.

Software products frequently contain errors or defects, especially when first introduced, when new versions are released, or when integrated with technologies developed by acquired companies. Product errors, including those resulting from third-party suppliers, could affect the performance or interoperability of our products, could delay the development or release of new products or new versions of products and could adversely affect market acceptance or perception of our products. In addition, allegations of manufacturability issues resulting from use of our IP products could, even if untrue, adversely affect our reputation and our customers’ willingness to license IP products from us. Any such errors or delays in releasing new products or new versions of products or allegations of unsatisfactory performance could cause us to lose customers, increase our service costs, subject us to liability for damages and divert our resources from other tasks, any one of which could materially and adversely affect our business and operating results.

We may not be able to continue to obtain licenses to third-party software and intellectual property on reasonable terms or at all, which may disrupt our business and harm our financial results.

We license third-party software and other intellectual property for use in product research and development and, in several instances, for inclusion in our products. We also license third-party software, including the software of our competitors, to test the interoperability of our products with other industry products and in connection with our professional services. These licenses may need to be renegotiated or renewed from time to time, or we may need to obtain new licenses in the future. Third parties may stop adequately supporting or maintaining their technology, or they or their technology may be acquired by our competitors. If we are unable to obtain licenses to these third-party software and intellectual property on reasonable terms or at all, we may not be able to sell the affected products, our customers’ use of the products may be interrupted, or our product development processes and

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professional services offerings may be disrupted, which could in turn harm our financial results, our customers, and our reputation.

The inclusion of third-party intellectual property in our products can also subject us and our customers to infringement claims. Although we seek to mitigate this risk contractually, we may not be able to sufficiently limit our potential liability. Regardless of outcome, infringement claims may require us to use significant resources and may divert management's attention.

Some of our products and technology, including those we acquire, may include software licensed under open source licenses. Some open source licenses could require us, under certain circumstances, to make available or grant licenses to any modifications or derivative works we create based on the open source software. Although we have tools and processes to monitor and restrict our use of open source software, the risks associated with open source usage may not be eliminated and may, if not properly addressed, result in unanticipated obligations that harm our business.

If we fail to timely recruit and retain senior management and key employees, our business may be harmed.

We depend in large part upon the services of key members of our senior management team to drive our future success. If we were to lose the services of any member of our senior management team, our business could be adversely affected. To be successful, we must also attract and retain key technical, sales and managerial employees, including those who join us in connection with acquisitions. There are a limited number of qualified EDA and IC design engineers, security experts, and software development engineers, and competition for these individuals is intense and has increased. Our employees are often recruited aggressively by our competitors and our customers. Any failure to recruit and retain key technical, sales and managerial employees could harm our business, results of operations and financial condition. Additionally, efforts to recruit and retain qualified employees could be costly and negatively impact our operating expenses.

We issue equity awards from employee equity plans as a key component of our overall compensation. We face pressure to limit the use of such equity-based compensation due to its dilutive effect on stockholders. If we are unable to grant attractive equity-based packages in the future, it could limit our ability to attract and retain key employees.

Our business is subject to evolving corporate governance and public disclosure regulations that have increased both our compliance costs and the risk of noncompliance, which could have an adverse effect on our stock price.

We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, the Nasdaq Stock Market, and the FASB. These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by Congress, making compliance more difficult and uncertain. For example, our efforts to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act and other regulations, including "conflict minerals" regulations affecting our hardware products, have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

There are inherent limitations on the effectiveness of our controls and compliance programs.

Regardless of how well designed and operated it is, a control system can provide only reasonable assurance that its objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Moreover, although we have implemented compliance programs and compliance training for employees, such measures may not prevent our employees, contractors or agents from breaching or circumventing our policies or violating applicable laws and regulations. Failure of our control systems and compliance programs to prevent error, fraud or violations of law could have a material adverse impact on our business.

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Our investment portfolio may be impaired by any deterioration of capital markets.

From time to time, our cash equivalent and short-term investment portfolio consists of investment-grade U.S. government agency securities, asset-backed securities, corporate debt securities, commercial paper, certificates of deposit, money market funds, municipal securities and other securities, and bank deposits. Our investment portfolio carries both interest rate risk and credit risk. Fixed rate debt securities may have their market value adversely impacted due to a credit downgrade or a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall or a credit downgrade occurs. As a result of capital pressures on certain banks, especially in Europe, and the continuing low interest rate environment, some of our financial instruments may become impaired.

Our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of investments held by us is judged to be other-than-temporary. In addition, we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in the issuer’s credit quality or changes in interest rates.

In preparing our financial statements we make certain assumptions, judgments and estimates that affect amounts reported in our consolidated financial statements, which, if not accurate, may significantly impact our financial results.

We make assumptions, judgments and estimates for a number of items, including the fair value of financial instruments, goodwill, long-lived assets and other intangible assets, the realizability of deferred tax assets, the recognition of revenue and the fair value of stock awards. We also make assumptions, judgments and estimates in determining the accruals for employee-related liabilities, including commissions and variable compensation, and in determining the accruals for uncertain tax positions, valuation allowances on deferred tax assets, allowances for doubtful accounts, and legal contingencies. These assumptions, judgments and estimates are drawn from historical experience and various other factors that we believe are reasonable under the circumstances as of the date of the consolidated financial statements. Actual results could differ materially from our estimates, and such differences could significantly impact our financial results.

Catastrophic events may disrupt our business and harm our operating results.

Due to the global nature of our business, our operating results may be negatively impacted by catastrophic events throughout the world. We rely on a global network of infrastructure applications, enterprise applications and technology systems for our development, marketing, operational, support and sales activities. A disruption or failure of these systems in the event of a major earthquake, fire, telecommunications failure, cybersecurity attack, terrorist attack, epidemic, or other catastrophic event could cause system interruptions, delays in our product development and loss of critical data and could prevent us from fulfilling our customers’ orders. Moreover, our corporate headquarters, a significant portion of our research and development activities, our data centers, and certain other critical business operations are located in California, near major earthquake faults. A catastrophic event that results in the destruction or disruption of our data centers or our critical business or information technology systems would severely affect our ability to conduct normal business operations and, as a result, our operating results would be adversely affected.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2019, we entered into an accelerated share repurchase agreement (the February 2019 ASR) to repurchase an aggregate of $100.0 million of our common stock. Pursuant to the February 2019 ASR, we made a prepayment of $100.0 million and received initial share deliveries valued at $80.0 million. The remaining balance of $20.0 million was settled in May 2019. Total shares repurchased under the February 2019 ASR were approximately 0.9 million shares, at an average purchase price of $114.01 per share.

In June 2019, the Company entered into an accelerated share repurchase agreement (the June 2019 ASR) to repurchase an aggregate of $100.0 million of the Company’s common stock. Pursuant to the June 2019 ASR, the Company made a prepayment of $100.0 million and received initial share deliveries valued at $80.0 million. The remaining balance of $20.0 million will be settled in August 2019. Total shares repurchased under the June 2019 ASR were approximately $0.8 million shares, at an average purchase price of $130.23 per share.

The table below sets forth information regarding our repurchases of our common stock during the three months ended July 31, 2019:

Period (1)	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced programs	Maximum dollar value of shares that may yet be purchased under the programs (1)
Month #1
May 5, 2019 through June 8, 2019	97,601	$	204.92	97,601	$	195,815,184
Month #2
June 9, 2019 through July 6, 2019	677,679	$	118.05	677,679	$	500,000,000
Month #3
July 7, 2019 through August 3, 2019	—	$	—	—	$	500,000,000
Total	775,280	$	128.99	775,280	$	500,000,000

(1) As of July 31, 2019, $500.0 million remained available for future repurchases under the program.

See Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding our stock repurchase program.

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Item  6. Exhibits

Exhibit Number		Incorporated By Reference				Filed Herewith
	Exhibit Description	Form	File No.	Exhibit	Filing Date
3.1	Amended and Restated Certificate of Incorporation	10-Q	000-19807	3.1	9/15/2003
3.2	Amended and Restated Bylaws	10-K	000-19807	3.2	12/17/2018
4.1	Specimen Common Stock Certificate(P)	S-1	33-45138	4.3	2/24/92 (effective date)
31.1	Certification of Co-Principal Executive Officer furnished pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act					X
31.2	Certification of Co-Principal Executive Officer furnished pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act					X
31.3	Certification of Principal Financial Officer furnished pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act					X
32.1	Certification of Co-Principal Executive Officers and Principal Financial Officer furnished pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code					X
101.INS	Inline XBRL Instance Document					X
101.SCH	Inline XBRL Taxonomy Extension Schema Document					X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document					X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

61

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SYNOPSYS, INC.
Date: August 26, 2019	By:	/s/    TRAC PHAM
		Trac Pham Chief Financial Officer (Principal Financial Officer)

62

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Aart J. de Geus, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Synopsys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 26, 2019	/s/ Aart J. de Geus
	Aart J. de Geus   Co-Chief Executive Officer and Chairman   (Co-Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Chi-Foon Chan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Synopsys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 26, 2019	/s/ Chi-Foon Chan
	Chi-Foon Chan   Co-Chief Executive Officer and President   (Co-Principal Executive Officer)

EX-31.3

Exhibit 31.3

CERTIFICATION

I, Trac Pham, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Synopsys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 26, 2019	/s/ Trac Pham
	Trac Pham   Chief Financial Officer   (Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350, Chapter 63 of Title 18 of the United States Code (18 U.S.C-§1350), each of Aart J. de Geus, Co-Chief Executive Officer and Chairman of Synopsys, Inc., a Delaware corporation (the “Company”), Chi-Foon Chan, Co-Chief Executive Officer and President of the Company, and Trac Pham, Chief Financial Officer of the Company, does hereby certify, to such officer’s knowledge that:

The Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2019 (the “Form 10-Q”) to which this Certification is attached as Exhibit 32.1 fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of August 26, 2019.

/s/ Aart J. de Geus

Aart J. de Geus

Co-Chief Executive Officer and Chairman

/s/ Chi-Foon Chan

Chi-Foon Chan

Co-Chief Executive Officer and President

/s/ Trac Pham

Trac Pham

Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not deemed filed with the Securities and Exchange Commission as part of the Form 10-Q or as a separate disclosure document and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - shares	9 Months Ended
	Jul. 31, 2019	Aug. 21, 2019
Document And Entity Information [Abstract]
Document Transition Report	false
Title of 12(b) Security	Common Stock($0.01 par value)
Entity Incorporation, State or Country Code	DE
Document Quarterly Report	true
Document Type	10-Q
Document Period End Date	Jul. 31, 2019
Amendment Flag	false
Entity File Number	000-19807
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Trading Symbol	SNPS
Entity Registrant Name	SYNOPSYS, INC.
Entity Address, Address Line One	690 EAST MIDDLEFIELD ROAD
Entity Address, City or Town	MOUNTAIN VIEW
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94043
City Area Code	650
Local Phone Number	584-5000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity Central Index Key	0000883241
Current Fiscal Year End Date	--10-31
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		150,286,586
Entity Tax Identification Number	56-1546236
Security Exchange Name	NASDAQ

XML

Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Current assets:
Cash and cash equivalents	$ 686,780	$ 723,115
Accounts receivable, net	457,390	554,217
Inventories	155,108	122,407
Income taxes receivable and prepaid taxes	29,751	76,525
Prepaid and other current assets	288,616	67,533
Total current assets	1,617,645	1,543,797
Property and equipment, net	372,566	309,310
Goodwill	3,143,056	3,143,249
Intangible assets, net	283,305	360,404
Long-term prepaid taxes	13,973	138,312
Deferred income taxes	339,354	404,166
Other long-term assets	383,509	246,736
Total assets	6,153,408	6,145,974
Current liabilities:
Accounts payable and accrued liabilities	471,629	578,326
Accrued income taxes	3,175	27,458
Deferred revenue	1,138,993	1,152,862
Short-term debt	16,653	343,769
Total current liabilities	1,630,450	2,102,415
Long-term accrued income taxes	27,847	50,590
Long-term deferred revenue	91,229	116,859
Long-term debt	125,285	125,535
Other long-term liabilities	338,928	265,560
Total liabilities	2,213,739	2,660,959
Stockholders’ equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding	0	0
Common stock, $0.01 par value: 400,000 shares authorized; 150,373 and 149,265 shares outstanding, respectively	1,504	1,493
Capital in excess of par value	1,597,629	1,644,830
Retained earnings	3,003,430	2,543,688
Treasury stock, at cost: 6,888 and 7,996 shares, respectively	(572,104)	(597,682)
Accumulated other comprehensive income (loss)	(96,653)	(113,177)
Total Synopsys stockholders’ equity	3,933,806	3,479,152
Non-controlling interest	5,863	5,863
Total stockholders’ equity	3,939,669	3,485,015
Total liabilities and stockholders’ equity	$ 6,153,408	$ 6,145,974

XML

Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jul. 31, 2019	Oct. 31, 2018
Statement of Financial Position [Abstract]
Preferred Stock, par value (in USD per share)	$ 0.01	$ 0.01
Preferred Stock, shares authorized (in shares)	2,000,000	2,000,000
Preferred Stock, shares outstanding (in shares)	0	0
Common Stock, par value (in USD per share)	$ 0.01	$ 0.01
Common Stock, shares authorized (in shares)	400,000,000	400,000,000
Common Stock, shares outstanding (in shares)	150,373,000	149,265,000
Treasury stock, shares (in shares)	6,888,000	7,996,000

XML

Unaudited Condensed Consolidated Statements Of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Revenue:
Total revenue	$ 852,970	$ 779,714	$ 2,509,613	$ 2,325,976
Cost of revenue:
Amortization of intangible assets	13,603	20,154	45,927	59,612
Total cost of revenue	186,632	185,381	570,203	545,316
Gross margin	666,338	594,333	1,939,410	1,780,660
Operating expenses:
Research and development	284,804	277,402	846,429	793,947
Sales and marketing	157,109	157,953	471,720	455,653
General and administrative	67,382	84,336	165,794	199,517
Amortization of intangible assets	10,111	10,651	31,211	30,926
Restructuring	19,338	23	33,746	1,917
Total operating expenses	538,744	530,365	1,548,900	1,481,960
Operating income	127,594	63,968	390,510	298,700
Other income (expense), net	5,317	7,925	23,373	12,595
Income before income taxes	132,911	71,893	413,883	311,295
Provision (benefit) for income taxes	32,982	(7,516)	42,230	133,105
Net income	$ 99,929	$ 79,409	$ 371,653	$ 178,190
Net income per share:
Basic (in USD per share)	$ 0.67	$ 0.53	$ 2.48	$ 1.20
Diluted (in USD per share)	$ 0.65	$ 0.52	$ 2.42	$ 1.16
Shares used in computing per share amounts:
Basic (shares)	150,123	148,490	149,708	148,760
Diluted (shares)	154,600	152,614	153,859	153,118
Time-based products
Revenue:
Total revenue	$ 537,569	$ 570,053	$ 1,649,590	$ 1,697,756
Cost of revenue:
Cost of revenue	113,533	115,437	346,163	335,030
Upfront products
Revenue:
Total revenue	177,552	99,579	451,466	291,143
Maintenance and service
Revenue:
Total revenue	137,849	110,082	408,557	337,077
Cost of revenue:
Cost of revenue	$ 59,496	$ 49,790	$ 178,113	$ 150,674

XML

Unaudited Condensed Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Statement of Comprehensive Income [Abstract]
Net income	$ 99,929	$ 79,409	$ 371,653	$ 178,190
Other comprehensive income:
Change in foreign currency translation adjustment	(2,123)	(18,231)	(67)	(8,273)
Cash flow hedges:
Deferred gains (losses), net of tax of $(464) and $(2,178), for the three and nine months ended July 31, 2019, respectively, and of $2,518 and $1,363 for each of the same periods in fiscal 2018, respectively.	(1,070)	(12,371)	4,844	(7,891)
Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $(702) and $(2,988), for the three and nine months ended July 31, 2019 respectively, and of $247 and $2,767 for each of the same periods in fiscal 2018, respectively.	3,260	(1,662)	11,747	(12,510)
Other comprehensive income (loss), net of tax effects	67	(32,264)	16,524	(28,674)
Comprehensive income	$ 99,996	$ 47,145	$ 388,177	$ 149,516

XML

Unaudited Condensed Consolidated Statements Of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Statement of Comprehensive Income [Abstract]
Deferred gains (losses), tax	$ (464)	$ 2,518	$ (2,178)	$ 1,363
Reclassification adjustment on deferred (gains) losses included in net income, tax	$ (702)	$ 247	$ (2,988)	$ 2,767

XML

Unaudited Condensed Consolidated Statements of Stockholders' Equity Statement - USD ($) shares in Thousands, $ in Thousands		Total	Common Stock	Capital in Excess of Par Value	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Total Synopsys Stockholders’ Equity	Non-controlling Interest
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect adjustment | Accounting Standards Update 2018-02		$ (293)			$ (293)			$ (293)
Balance (in shares) at Oct. 31, 2017			150,445
Beginning balance at Oct. 31, 2017		3,279,724	$ 1,505	$ 1,622,429	2,143,873	$ (426,208)	$ (65,979)	3,275,620	$ 4,104
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		178,190						178,190
Other comprehensive income (loss), net of tax effects		$ (28,674)					(28,674)	(28,674)
Purchases of treasury stock (in shares)		(4,411)	4,412
Purchases of treasury stock, value		$ (387,000)	$ 44	(44)		387,000		(387,000)
Equity forward contract		$ (13,000)		(13,000)				(13,000)
Common stock Issued, net of shares withheld for employee taxes (in shares)		2,527	2,523
Common stock issued, net of shares withheld for employee taxes		$ 31,597	$ 25	(119,879)	(25,224)	176,675		31,597
Stock-based compensation		101,699		101,699				101,699
Non-controlling interest in an equity investment		1,759						0	1,759
Balance (in shares) at Jul. 31, 2018			148,556
Ending balance at Jul. 31, 2018		3,164,002	$ 1,486	1,591,293	2,296,546	(636,533)	(94,653)	3,158,139	5,863
Balance (in shares) at Apr. 30, 2018			148,961
Beginning balance at Apr. 30, 2018		3,260,397	$ 1,490	1,678,921	2,223,287	(585,016)	(62,389)	3,256,293	4,104
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		79,409			79,409			79,409
Other comprehensive income (loss), net of tax effects		$ (32,264)					(32,264)	(32,264)
Purchases of treasury stock (in shares)		(1,509)	1,509
Purchases of treasury stock, value		$ (132,000)	$ 15	(15)		132,000		(132,000)
Equity forward contract		$ (33,000)		(33,000)				(33,000)
Common stock Issued, net of shares withheld for employee taxes (in shares)		1,107	1,104
Common stock issued, net of shares withheld for employee taxes		$ (17,236)	$ 11	(91,580)	(6,150)	80,483		(17,236)
Stock-based compensation		36,937		36,937				36,937
Non-controlling interest in an equity investment		1,759						0	1,759
Balance (in shares) at Jul. 31, 2018			148,556
Ending balance at Jul. 31, 2018		3,164,002	$ 1,486	1,591,293	2,296,546	(636,533)	(94,653)	3,158,139	5,863
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect adjustment | Accounting Standards Update 2014-09	[1]	257,594			257,594			257,594
Cumulative effect adjustment | Accounting Standards Update 2016-16	[2]	(130,544)			(130,544)			(130,544)
Balance (in shares) at Oct. 31, 2018			149,265
Beginning balance at Oct. 31, 2018		3,485,015	$ 1,493	1,644,830	2,543,688	(597,682)	(113,177)	3,479,152	5,863
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		371,653			371,653			371,653
Other comprehensive income (loss), net of tax effects		$ 16,524					16,524	16,524
Purchases of treasury stock (in shares)		(1,901)	1,901
Purchases of treasury stock, value		$ (209,185)	$ 19	(19)		209,185		(209,185)
Equity forward contract		$ (20,000)		(20,000)				(20,000)
Common stock Issued, net of shares withheld for employee taxes (in shares)		3,009	3,009
Common stock issued, net of shares withheld for employee taxes		$ 54,991	$ 30	(140,841)	(38,961)	234,763		54,991
Stock-based compensation		113,621		113,621				113,621
Balance (in shares) at Jul. 31, 2019			150,373
Ending balance at Jul. 31, 2019		3,939,669	$ 1,504	1,597,629	3,003,430	(572,104)	(96,653)	3,933,806	5,863
Balance (in shares) at Apr. 30, 2019			149,982
Beginning balance at Apr. 30, 2019		3,915,435	$ 1,500	1,659,484	2,912,811	(567,503)	(96,720)	3,909,572	5,863
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		99,929			99,929			99,929
Other comprehensive income (loss), net of tax effects		$ 67					67	67
Purchases of treasury stock (in shares)		(775)	775
Purchases of treasury stock, value		$ (100,000)	$ 8	(8)		100,000		(100,000)
Common stock Issued, net of shares withheld for employee taxes (in shares)		1,166	1,166
Common stock issued, net of shares withheld for employee taxes		$ (15,209)	$ 12	(101,310)	(9,310)	95,399		(15,209)
Stock-based compensation		39,447		39,447				39,447
Balance (in shares) at Jul. 31, 2019			150,373
Ending balance at Jul. 31, 2019		$ 3,939,669	$ 1,504	$ 1,597,629	$ 3,003,430	$ (572,104)	$ (96,653)	$ 3,933,806	$ 5,863

[1] See Note 2. Summary of Significant Accounting Policies for additional information on the retained earnings adjustment due to adoption of Accounting Standards Codification (ASC) 606 and ASC 340.

[2] See Note 14. Taxes for additional information on the retained earnings adjustment due to adoption of Accounting Standard Update (ASU) 2016-16.

XML

Unaudited Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Cash flow from operating activities:
Net income (loss)	$ 371,653	$ 178,190
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation	152,133	150,245
Amortization of capitalized costs to obtain revenue contracts	46,230	0
Stock compensation	114,826	102,540
Allowance for doubtful accounts	8,950	3,368
(Gain) loss on sale of property and investments	(4,052)	(93)
Deferred income taxes	(9,664)	5,509
Net changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable	89,370	(41,695)
Inventories	(39,431)	(48,440)
Prepaid and other current assets	(38,224)	(9,766)
Other long-term assets	(114,344)	(31,652)
Accounts payable and accrued liabilities	(45,200)	(56,491)
Income taxes	(6,963)	(35,014)
Deferred revenue	53,980	76,780
Net cash provided by operating activities	579,264	293,481
Cash flows from investing activities:
Proceeds from sales and maturities of short-term investments	0	12,449
Proceeds from Sale and Maturity of Other Investments	6,361	494
Proceeds from Sale of Property, Plant, and Equipment	0	1,662
Payments to Acquire Other Investments	0	645
Purchases of property and equipment	(122,358)	(70,469)
Cash paid for acquisitions and intangible assets, net of cash acquired	0	(646,687)
Capitalization of software development costs	(2,245)	(2,714)
Net cash used in investing activities	(118,242)	(705,910)
Cash flows from financing activities:
Proceeds from credit facilities	192,897	615,000
Repayment of debt	(520,312)	(137,500)
Issuances of common stock	107,354	72,722
Payments for taxes related to net share settlement of equity awards	(52,309)	(42,636)
Purchase of equity forward contract	(20,000)	(33,000)
Purchases of treasury stock	(209,185)	(367,000)
Other	(762)	1,759
Net cash (used in) provided by financing activities	(502,317)	109,345
Effect of exchange rate changes on cash, cash equivalents and restricted cash	4,975	(3,826)
Net change in cash, cash equivalents and restricted cash	(36,320)	(306,910)
Cash, cash equivalents and restricted cash, beginning of period	725,001	1,050,075
Cash, cash equivalents and restricted cash, end of period	$ 688,681	$ 743,165

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Description of Business

9 Months Ended

Jul. 31, 2019

Accounting Policies [Abstract]

Description of Business

Description of Business

Synopsys, Inc. (Synopsys or the Company) provides products and services used by designers 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 and quality of software code in a wide variety of industries, including electronics, financial services, media, automotive, medicine, energy and industrials. These tools and services are part of the Company’s Software Integrity segment.

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Summary of Significant Accounting Policies

9 Months Ended

Jul. 31, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its unaudited condensed consolidated balance sheets, results of operations, comprehensive income, stockholders' equity and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in Synopsys’ Annual Report on Form 10-K for the fiscal year ended October 31, 2018 as filed with the SEC on December 17, 2018.

Use of Estimates. To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the unaudited condensed 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.

Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.

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 every five or six 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 2019 is a 52-week year and will end on November 2, 2019. Fiscal 2018 was a 53-week year and ended on November 3, 2018.

The results of operations for the first nine months of fiscal 2019 and 2018 included 39 weeks and 40 weeks, respectively, and ended on August 3, 2019 and August 4, 2018, respectively. For presentation purposes, the unaudited condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.

Segment Reporting. Effective in fiscal 2019, the Company realigned its business to evaluate the results of its Software Integrity business separately from Synopsys’ traditional electronic design automation (EDA) and semiconductor IP business. The Chief Operating Decision Makers (CODMs) now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. Synopsys' CODMs are its two co-

Chief Executive Officers. Historical segment disclosures have been recast to retrospectively reflect the change from one to two reportable segments.

Goodwill. Effective in the first quarter of fiscal 2019, with the change in the Company’s reportable segments, the Company has determined there are now two reporting units, requiring goodwill to be allocated to the two reporting units using a relative fair value method. 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. As a result of changes to the Company's segment reporting, the Company conducted a quantitative impairment test for each of its reporting units and concluded that there was no impairment. The Company performs either a qualitative or quantitative 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 estimates the fair value of each reporting unit using a combination of a discounted cash flow analysis and a market approach based on market multiples. The discount rate used in an 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. Refer to Note 3. Goodwill and Intangible Assets for a discussion of the change in reporting units as related to the realignment of the Company’s segments.

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC 606), "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in “Revenue Recognition (ASC 605).” The new guidance creates a single, principle-based model for revenue recognition that is intended to expand and improve companies' revenue disclosures. For revenue recognition policies under ASC 605, refer to Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended October 31, 2018.

ASC 606 requires a company to recognize revenue when goods are transferred or services are provided to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. ASC 606 also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to ASC 606, including amendments that deferred the initially proposed adoption date and clarified accounting for licenses of intellectual property and identifying performance obligations.

The Company adopted ASC 606 at the beginning of fiscal 2019 using the modified retrospective transition method. Under this method, periods prior to the adoption date are not adjusted and continue to be reported under the revenue accounting literature in effect during those periods. The Company evaluated contracts that were in effect at the beginning of fiscal 2019 as if they had been accounted for under ASC 606 from the contract inception and summarized the most significant adoption impacts as follows:

• Revenue for certain ongoing contracts that was previously deferred would have been recognized in the periods prior to adoption under ASC 606. Therefore, upon adoption, the Company recorded the following adjustments to the beginning balances to reflect the amount of revenue that will no longer be recognized in future periods for such contracts: an increase to retained earnings of $265.1 million, a decrease to unbilled receivables of $27.4 million, an increase to contract assets of $126.9 million, and a decrease in deferred revenue of $165.6 million.

• The Company capitalized $73.8 million of incremental costs for obtaining contracts with customers at the adoption date with a corresponding adjustment to retained earnings and is amortizing these costs over the contract term.

• The Company recorded an increase in its opening deferred tax liability of $81.4 million, with a corresponding adjustment to retained earnings, to record the tax effect of the above adjustments.

The impacts of adopting ASC 606 on the Company's unaudited condensed consolidated financial statements for the nine months ended July 31, 2019 are summarized in the tables below.

Balance Sheet Accounts

The following table summarizes the effects of adopting ASC 606 on certain account balances of the unaudited condensed consolidated balance sheet that were impacted as of July 31, 2019:

	As reported under ASC 606		Adjustments			Adjusted balance under ASC 605
	(in thousands)
Receivables, net	$	457,390	$	64,122		$	521,512
Prepaid and other current assets	288,616		(205,822		)	82,794
Deferred income taxes	339,354		76,891			416,245
Other long-term assets	383,509		(94,626		)	288,883
Accounts payable and other accrued liabilities	471,629		(10,413		)	461,216
Deferred revenue	1,138,993		132,450			1,271,443
Long-term deferred revenue	91,229		41,585			132,814
Other long-term liabilities (1)	338,928		(16,671		)	322,257
Retained earnings	3,003,430		(306,386		)	2,697,044

(1) Includes long-term deferred tax liabilities.

Statements of Operations

The following table summarizes the effects of adopting ASC 606 on the unaudited condensed consolidated statements of operations for the three and nine months ended July 31, 2019:

	Three Months Ended   July 31, 2019							Nine Months Ended   July 31, 2019
	As reported under ASC 606		Adjustments			Adjusted under ASC 605		As reported under ASC 606		Adjustments			Adjusted under ASC 605
	(in thousands, except per share amounts)
Revenue:
Time-based products	$	537,569	$	55,604		$	593,173	$	1,649,590	$	158,222		$	1,807,812
Upfront products	177,552		(73,267		)	104,285		451,466		(151,110		)	300,356
Maintenance and service	137,849		(26,914		)	110,935		408,557		(57,707		)	350,850
Total revenue	852,970		(44,577		)	808,393		2,509,613		(50,595		)	2,459,018
Cost of Revenue:
Products	113,533		—			113,533		346,163		—			346,163
Maintenance and service	59,496		—			59,496		178,113		—			178,113
Amortization of intangible assets	13,603		—			13,603		45,927		—			45,927
Total cost of revenue	186,632		—			186,632		570,203		—			570,203
Gross margin	666,338		(44,577		)	621,761		1,939,410		(50,595		)	1,888,815
Operating expenses:
Research and development	284,804		—			284,804		846,429		—			846,429
Sales and marketing	157,109		(2,731		)	154,378		471,720		10,395			482,115
General and administrative	67,382		—			67,382		165,794		—			165,794
Amortization of intangible assets	10,111		—			10,111		31,211		—			31,211
Restructuring	19,338		—			19,338		33,746		—			33,746
Total operating expenses	538,744		(2,731		)	536,013		1,548,900		10,395			1,559,295
Operating income	127,594		(41,846		)	85,748		390,510		(60,990		)	329,520
Other income (expense), net	5,317		—			5,317		23,373		—			23,373
Income before provision for income taxes	132,911		(41,846		)	91,065		413,883		(60,990		)	352,893
Provision (benefit) for income taxes	32,982		(9,127		)	23,855		42,230		(12,198		)	30,032
Net income	$	99,929	$	(32,719	)	$	67,210	$	371,653	$	(48,792	)	$	322,861
Net income per share:
Basic	$	0.67	$	(0.22	)	$	0.45	$	2.48	$	(0.32	)	$	2.16
Diluted	$	0.65	$	(0.22	)	$	0.43	$	2.42	$	(0.32	)	$	2.10
Shares used in computing per share amounts:
Basic	150,123					150,123		149,708					149,708
Diluted	154,600					154,600		153,859					153,859

Statements of Cash Flows

Adoption of ASC 606 had no impact to cash from or used in operating, financing, or investing activities on the unaudited condensed consolidated cash flows statements.

Revenue Policy

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. 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 qualified 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.

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 delivered to the customer. The Company has concluded that control generally transfers upon delivery because the customer has title to the hardware, physical possession of the hardware, and a present

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

Our 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. Performance is generally measured using costs incurred or hours expended to measure progress. 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.

Disaggregated Revenue

The following table shows the percentage of revenue by product groups:

	Three Months Ended July 31,				Nine Months Ended July 31,
	2019		2018		2019		2018
EDA	57	%	64	%	59	%	63	%
IP & System Integration	33	%	27	%	31	%	28	%
Software Integrity Products & Services	10	%	9	%	10	%	9	%
Other	—	%	—	%	—	%	—	%
Total	100	%	100	%	100	%	100	%

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

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 unaudited condensed 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.

The contract assets indicated below are presented as prepaid and other current assets in the unaudited condensed consolidated balance sheet. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional.

Contract balances are as follows:

	As of July 31, 2019		As of October 31, 2018
			as adjusted
	(in thousands)
Contract assets	$	205,822	$	126,897
Unbilled receivables	38,965		36,699
Deferred revenue	1,230,222		1,104,110

During the three and nine months ended July 31, 2019, the Company recognized $470.6 million and $1,432.1 million, respectively, of revenue that were included in the deferred revenue balance at the beginning of the period, as adjusted for the adoption of ASC 606.

Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $4.3 billion as of July 31, 2019, which includes $463.5 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. The contracted unsatisfied performance obligations, excluding non-cancellable FSA, expected to be recognized over the next 12 months is approximately 56%, with the remainder recognized thereafter.

During the three and nine month periods ended July 31, 2019, the Company recognized $17.5 million and $64.8 million, respectively, from performance obligations satisfied from sales based royalties earned during the periods.

Costs of Obtaining a Contract with Customer

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 July 31, 2019 were $94.6 million and are included in other assets in the Company’s unaudited condensed consolidated balance sheet. Amortization of these assets was $17.8 million and $46.2 million during the three and nine months ended July 31, 2019, respectively, and are included in sales and marketing expense in the Company’s unaudited condensed consolidated statements of

operations.

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Goodwill and Intangible Assets

9 Months Ended

Jul. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Following the realignment of the Company’s operating segments during the first quarter of fiscal 2019, as described in Note 12. Segment Disclosure, 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. Previously, the Company operated as a single reporting segment and reporting unit. Goodwill was reallocated to the reporting units using a relative fair value method and assessed for impairment. No impairment of goodwill was identified for any periods presented.

In-process research and development (IPR&D) as of July 31, 2019 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 July 31, 2019 consisted of the following:

	Gross Assets		Accumulated Amortization		Net Assets
	(in thousands)
Core/developed technology	$	773,147	$	642,185	$	130,962
Customer relationships	358,667		232,784		125,883
Contract rights intangible	184,321		180,349		3,972
Trademarks and trade names	42,929		24,803		18,126
In-process research and development (IPR&D)	1,200		—		1,200
Capitalized software development costs	38,063		34,901		3,162
Total	$	1,398,327	$	1,115,022	$	283,305

Intangible assets as of October 31, 2018 consisted of the following:

	Gross Assets		Accumulated Amortization		Net Assets
	(in thousands)
Core/developed technology	$	773,147	$	598,956	$	174,191
Customer relationships	358,524		204,382		154,142
Contract rights intangible	183,953		177,191		6,762
Trademarks and trade names	42,929		21,944		20,985
In-process research and development (IPR&D)	1,200		—		1,200
Capitalized software development costs	35,818		32,694		3,124
Total	$	1,395,571	$	1,035,167	$	360,404

Amortization expense related to intangible assets consisted of the following:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Core/developed technology	$	12,825	$	18,692	$	43,229	$	55,745
Customer relationships	9,303		9,584		28,261		27,803
Contract rights intangible	808		1,357		2,790		3,619
Trademarks and trade names	778		1,172		2,858		3,371
Capitalized software development costs(1)	700		894		2,207		2,710
Total	$	24,414	$	31,699	$	79,345	$	93,248

(1) Amortization of capitalized software development costs is included in cost of products revenue in the unaudited condensed consolidated statements of operations.

The following table presents the estimated future amortization of the existing intangible assets as of July 31, 2019:

Fiscal Year	(in thousands)
Remainder of fiscal 2019	$	23,821
2020	79,195
2021	56,409
2022	44,014
2023	29,219
2024 and thereafter	49,447
IPR&D	1,200
Total	$	283,305

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Financial Assets and Liabilities

9 Months Ended

Jul. 31, 2019

Financial Assets And Liabilities [Abstract]

Financial Assets and Liabilities

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 July 31, 2019, the balances of the Company's cash equivalents are:

	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	$	130,437	$	—	$	—	$	—	$	130,437
Total:	$	130,437	$	—	$	—	$	—	$	130,437

(1) See Note 5. Fair Value Measures for further discussion on fair values of cash equivalents.

As of October 31, 2018, the balances of the Company's cash equivalents are:

	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	$	165,296	$	—	$	—	$	—	$	165,296
Total:	$	165,296	$	—	$	—	$	—	$	165,296

(1) See Note 5. Fair Value Measures for further discussion on fair values of cash equivalents.

Restricted Cash. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The Company adopted the standard in the first quarter of fiscal 2019 and applied it retrospectively for the periods presented. As required by ASU 2016-18, the Company included 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 unaudited condensed consolidated statement of cash flows.

The following table provides a reconciliation of cash, cash equivalents and restricted cash included in the unaudited condensed consolidated balance sheets:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Cash and cash equivalents	$	686,780	$	723,115
Restricted cash included in Prepaid expenses and other current assets	1,171		1,164
Restricted cash included in Other long-term assets	730		722
Total cash, cash equivalents and restricted cash	$	688,681	$	725,001

Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately-held companies. The securities accounted for under cost method investments are reported at cost net of impairment losses. Securities accounted for under 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. Refer to Note 5. Fair Value Measures.

Derivatives. The Company recognizes derivative instruments as either assets or liabilities in the unaudited condensed 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. Further, the Company 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 unaudited condensed 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.

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 effective portion of 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 (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 12 months.

Hedging effectiveness is evaluated monthly using spot rates, with any gain or loss caused by hedging ineffectiveness recorded in other income (expense), net. The premium/discount component of the forward contracts is recorded to other income (expense), net, and is not included in evaluating hedging effectiveness.

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 effect of the changes in the fair values of non-designated forward contracts is summarized as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Gain (loss) recorded in other income (expense), net	$	1,179	$	1,567	$	4,314	$	1,244

The notional amounts in the table below for derivative instruments provide one measure of the transaction volume outstanding:

	As of July 31, 2019			As of October 31, 2018
	(in thousands)
Total gross notional amount	$	779,127		$	1,135,549
Net fair value	$	(565	)	$	(18,120	)

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 losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The following table represents the unaudited condensed consolidated balance sheet 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)
As of July 31, 2019
Other current assets	$	6,487	$	77
Accrued liabilities	$	7,020	$	109
As of October 31, 2018
Other current assets	$	4,771	$	131
Accrued liabilities	$	22,890	$	132

The following table represents the unaudited condensed consolidated statement of operations location and amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax:

	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)
Three months ended   July 31, 2019
Foreign exchange contracts	Revenue	$	(994	)	Revenue	$	685
Foreign exchange contracts	Operating expenses	(76		)	Operating expenses	(3,945		)
Total		$	(1,070	)		$	(3,260	)
Three months ended   July 31, 2018
Foreign exchange contracts	Revenue	$	1,422		Revenue	$	(308	)
Foreign exchange contracts	Operating expenses	(13,793		)	Operating expenses	1,970
Total		$	(12,371	)		$	1,662
Nine months ended   July 31, 2019
Foreign exchange contracts	Revenue	$	(253	)	Revenue	$	1,048
Foreign exchange contracts	Operating expenses	5,097			Operating expenses	(12,795		)
Total		$	4,844			$	(11,747	)
Nine months ended   July 31, 2018
Foreign exchange contracts	Revenue	$	(542	)	Revenue	$	1,190
Foreign exchange contracts	Operating expenses	(7,349		)	Operating expenses	11,320
Total		$	(7,891	)		$	12,510

The following table represents the ineffective portions and portions excluded from effectiveness testing of the hedge gains (losses) for derivative instruments designated as hedging instruments, which are recorded in other income (expense), net:

Foreign exchange contracts	Amount of gain (loss) recognized in statement of operations on derivatives (ineffective portion)(1)			Amount of gain (loss) recognized in statement of operations on derivatives (excluded from effectiveness testing)(2)
	(in thousands)
For the three months ended July 31, 2019	$	232		$	1,077
For the three months ended July 31, 2018	$	(132	)	$	782
For the nine months ended July 31, 2019	$	148		$	358
For the nine months ended July 31, 2018	$	389		$	2,488

(1) The ineffective portion includes forecast inaccuracies.

(2)

The portion excluded from effectiveness testing includes the discount earned or premium paid for the contracts.

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Fair Value Measures

9 Months Ended

Jul. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measures

Fair Value Measures

Accounting standards require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Accounting standards also establish 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.

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. Refer to Note 7. Credit Facility for more information on these borrowings.

Assets and 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 July 31, 2019:

			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	$	130,437	$	130,437	$	—	$	—
Prepaid and other current assets:
Foreign currency derivative contracts	6,564		—		6,564		—
Other long-term assets:
Deferred compensation plan assets	248,510		248,510		—		—
Total assets	$	385,511	$	378,947	$	6,564	$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts	$	7,129	$	—	$	7,129	$	—
Other long-term liabilities:
Deferred compensation plan liabilities	248,510		248,510		—		—
Total liabilities	$	255,639	$	248,510	$	7,129	$	—

Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2018:

			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	$	165,296	$	165,296	$	—	$	—
Prepaid and other current assets:
Foreign currency derivative contracts	4,902		—		4,902		—
Other long-term assets:
Deferred compensation plan assets	212,165		212,165		—		—
Total assets	$	382,363	$	377,461	$	4,902	$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts	$	23,022	$	—	$	23,022	$	—
Other long-term liabilities:
Deferred compensation plan liabilities	212,165		212,165		—		—
Total liabilities	$	235,187	$	212,165	$	23,022	$	—

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 cost 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 an other-than-temporary decline in value has occurred. 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.

The Company did not recognize any impairment during the three and nine months ended July 31, 2019.

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Liabilities and Restructuring Charges

9 Months Ended

Jul. 31, 2019

Liabilities and Restructuring Charges [Abstract]

Liabilities and Restructuring Charges

Liabilities and Restructuring Charges

In the second quarter of fiscal 2019, the Company initiated restructuring plans 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 plans are expected to be $43 million to $65 million and consist primarily of severance, termination, and retirement benefits under the 2019 Voluntary Retirement Program (VRP). The actual total charges depend, in part, on the number of eligible employees accepting offers of the VRP. The 2019 restructuring plans are anticipated to be completed by the second quarter of fiscal 2020.

During the three and nine months ended July 31, 2019, the Company incurred restructuring charges of approximately $19.3 million and $33.7 million, respectively, for involuntary employee termination actions and the VRP. These charges consist primarily of severance, termination, and retirement benefits. As of July 31, 2019, $20.8 million remained outstanding and was recorded in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets.

During the nine months ended July 31, 2018, the Company incurred restructuring charges of approximately $1.9 million as part of a business realignment. Total charges under this realignment were expected to be $8 million to $10 million consisting of severance and benefits. The outstanding balance as of July 31, 2019 was immaterial. As of October 31, 2018, $8.1 million remained outstanding and was recorded in accounts payable and accrued liabilities in the consolidated balance sheets.

Accounts payable and accrued liabilities consist of:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Payroll and related benefits	$	391,593	$	413,307
Other accrued liabilities	65,190		79,973
Accounts payable	14,846		85,046
Total	$	471,629	$	578,326

Other long-term liabilities consist of:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Deferred compensation liability	$	248,510	$	212,165
Other long-term liabilities	90,418		53,395
Total	$	338,928	$	265,560

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Credit Facility

9 Months Ended

Jul. 31, 2019

Debt Disclosure [Abstract]

Credit Facility

Credit Facility

In July 2018, the Company entered into a 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 Chinese Central Bank rate plus 10% of such rate. As of July 31, 2019, the Company had $18.4 million outstanding under the agreement.

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 (the 2015 agreement), in order to increase the size of the revolving credit facility from $500.0 million to $650.0 million, to 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 a minimum interest coverage ratio, as well as other non-financial covenants. As of July 31, 2019, the Company was in compliance with all financial covenants.

As of July 31, 2019, the Company had $123.5 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $106.9 million was classified as long-term liabilities. Outstanding principal payments under the Term Loan are due as follows:

Fiscal year	(in thousands)
Remainder of fiscal 2019	$	3,750
2020	17,813
2021	27,187
2022	75,000
Total	$	123,750

As of October 31, 2018, the Company had $133.8 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $120.0 million was classified as long-term liabilities, and $330.0 million outstanding balance under the Revolver.

There was no outstanding balance of the Revolver as of July 31, 2019. The Company expects its borrowings under the Revolver will fluctuate from quarter to quarter. 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 July 31, 2019, 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.

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.

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Jul. 31, 2019

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss), on an after-tax basis where applicable, were as follows:

	As of July 31, 2019			As of October 31, 2018
	(in thousands)
Cumulative currency translation adjustments	$	(89,355	)	$	(89,289	)
Unrealized gain (loss) on derivative instruments, net of taxes	(7,298		)	(23,888		)
Total accumulated other comprehensive income (loss)	$	(96,653	)	$	(113,177	)

The effect of amounts reclassified out of each component of accumulated other comprehensive income (loss) (AOCI) into net income was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Reclassifications from AOCI to unaudited condensed consolidated statement of operations:
Gain (loss) on cash flow hedges, net of taxes
Revenues	$	685		$	(308	)	$	1,048		$	1,190
Operating expenses	(3,945		)	1,970			(12,795		)	11,320
Total reclassifications into net income	$	(3,260	)	$	1,662		$	(11,747	)	$	12,510

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Stock Repurchase Program

9 Months Ended

Jul. 31, 2019

Stock Repurchase Program [Abstract]

Stock Repurchase Program

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 14, 2019. 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 July 31, 2019, $500.0 million remained available for further repurchases under the program.

In February 2019, the Company entered into an accelerated share repurchase agreement (the February 2019 ASR) to repurchase an aggregate of $100.0 million of the Company’s common stock. Pursuant to the February 2019 ASR, the Company made a prepayment of $100.0 million and received initial share deliveries valued at $80.0 million. The remaining balance of $20.0 million was settled in May 2019. Total shares repurchased under the February 2019 ASR were approximately 0.9 million shares, at an average purchase price of $114.01 per share.

In June 2019, the Company entered into an accelerated share repurchase agreement (the June 2019 ASR) to repurchase an aggregate of $100.0 million of the Company’s common stock. Pursuant to the June 2019 ASR, the Company made a prepayment of $100.0 million and received initial share deliveries valued at $80.0 million. The remaining balance of $20.0 million was settled in August 2019. Total shares repurchased under the June 2019 ASR were approximately 0.8 million shares, at an average purchase price of $130.23 per share.

Stock repurchase activities are as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019 (1)		2018		2019 (1)(2)		2018
	(in thousands)
Total shares repurchased(3)(4)	775		1,509		1,901		4,411
Total cost of the repurchased shares (4)	$	100,000	$	132,000	$	209,185	$	387,000
Reissuance of treasury stock	1,166		1,107		3,009		2,527

(1) Does not include the 90,202 shares or $20.0 million equity forward contract from the June 2019 ASR settled in August 2019.

(2) The third quarter of fiscal 2019 includes the settlement of the 97,601 shares or $20.0 million equity forward contract from the February 2019 ASR settled in May 2019.

(3) The first quarter of fiscal 2018 includes the settlement of the $20.0 million equity forward contract related to the Company's accelerated share repurchase agreement entered into in September 2017.

(4)

The Company also repurchased 0.4 million shares at an average price of $82.61 per share, for an aggregate purchase price of $35.0 million during the second quarter of fiscal 2018.

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Stock Compensation

9 Months Ended

Jul. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Compensation

Stock Compensation

The compensation cost recognized in the unaudited condensed consolidated statements of operations for the Company’s stock compensation arrangements was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Cost of products	$	4,493		$	3,820		$	12,684		$	10,663
Cost of maintenance and service	1,694			1,442			4,675			3,979
Research and development expense	19,383			18,412			55,802			48,958
Sales and marketing expense	7,360			7,317			21,790			20,813
General and administrative expense	6,523			6,261			19,876			18,127
Stock compensation expense before taxes	39,453			37,252			114,827			102,540
Income tax benefit	(6,593		)	(7,111		)	(19,188		)	(19,574		)
Stock compensation expense after taxes	$	32,860		$	30,141		$	95,639		$	82,966

As of July 31, 2019, there was $298.1 million of unamortized share-based compensation expense relating to options and restricted stock units and awards, which is expected to be amortized over a weighted-average period of approximately 2.4 years.

The intrinsic values of equity awards exercised during the periods are as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Intrinsic value of awards exercised	$	37,436	$	19,283	$	96,014	$	50,075

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Net Income per Share

9 Months Ended

Jul. 31, 2019

Earnings Per Share [Abstract]

Net Income per Share

Net Income per Share

The Company computes basic net income per share by dividing net income available to common stockholders 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:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands, except per share amounts)
Numerator:
Net income	$	99,929	$	79,409	$	371,653	$	178,190
Denominator:
Weighted-average common shares for basic net income per share	150,123		148,490		149,708		148,760
Dilutive effect of potential common shares from equity-based compensation	4,477		4,124		4,151		4,358
Weighted-average common shares for diluted net income per share	154,600		152,614		153,859		153,118
Net income per share:
Basic	$	0.67	$	0.53	$	2.48	$	1.20
Diluted	$	0.65	$	0.52	$	2.42	$	1.16
Anti-dilutive employee stock-based awards excluded(1)	152		1,063		798		774

(1)

These employee stock-based awards 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.

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Segment Disclosure

9 Months Ended

Jul. 31, 2019

Segment Reporting [Abstract]

Segment Disclosure

Segment Disclosure

Certain disclosures are required for operating segments, products and services, geographic areas of operation and major customers. 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 Chief Operating Decision Makers (CODMs) in deciding how to allocate resources and in assessing performance. Synopsys’ CODMs are its two co-Chief Executive Officers.

In prior periods, the Company operated in a single segment. Effective in fiscal 2019, the Company realigned its business to evaluate the results of its Software Integrity business separately from the Company’s traditional EDA and semiconductor IP business. The CODMs now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. The Company’s historical results have been recast to retrospectively reflect the change from one to two reportable segments.

As a result of the change in reporting structure, 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 revenues by geographic region.

Information by reportable segment was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Total Segments:
Revenues	$	852,970		$	779,714		$	2,509,613		$	2,325,976
Adjusted operating income	216,581			167,847			627,369			553,909
Adjusted operating margin	25		%	22		%	25		%	24		%
Semiconductor & System Design:
Revenues	$	769,411		$	708,413		$	2,260,372		$	2,122,780
Adjusted operating income	207,773			169,798			604,497			564,656
Adjusted operating margin	27		%	24		%	27		%	27		%
Software Integrity:
Revenues	$	83,559		$	71,301		$	249,241		$	203,196
Adjusted operating income	8,808			(1,951		)	22,872			(10,747		)
Adjusted operating margin	11		%	(3		)%	9		%	(5		)%

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:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Total segment adjusted operating income	$	216,581		$	167,847		$	627,369		$	553,909
Reconciling items:
Amortization of intangible expense	(23,714		)	(30,805		)	(77,138		)	(90,538		)
Stock-based compensation expense	(39,453		)	(37,252		)	(114,827		)	(102,540		)
Other	(25,820		)	(35,822		)	(44,894		)	(62,131		)
Total operating income	$	127,594		$	63,968		$	390,510		$	298,700

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.

Revenue by Geography

The CODMs consider where individual “seats” or licenses to the Company’s products are located in allocating revenue to particular geographic areas. Revenue is defined as revenues from external customers. Revenues related to operations in the United States and other geographic areas were: 

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Revenue:
United States	$	407,408	$	365,414	$	1,231,951	$	1,126,624
Europe	90,074		90,657		257,502		273,136
Japan	65,709		71,981		203,486		210,805
Asia-Pacific and Other	289,779		251,662		816,675		715,411
Consolidated	$	852,970	$	779,714	$	2,509,613	$	2,325,976

Geographic revenue data for multi-region, multi-product transactions reflect internal allocations and are therefore subject to certain assumptions and the Company’s methodology.

For the three and nine months ended July 31, 2019 and 2018, one customer, including its subsidiaries, through multiple agreements accounted for greater than 10% of the Company's total revenues.

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Other Income (Expense), net

9 Months Ended

Jul. 31, 2019

Other Income and Expenses [Abstract]

Other Income (Expense), net

Other Income (Expense), net

The following table presents the components of other income (expense), net:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Interest income	$	1,789		$	1,096		$	5,280		$	3,659
Interest expense	(2,214		)	(4,558		)	(10,608		)	(11,281		)
Gain (loss) on assets related to executive deferred compensation plan assets	4,686			8,397			25,201			14,592
Foreign currency exchange gain (loss)	696			1,627			2,999			1,725
Other, net	360			1,363			501			3,900
Total	$	5,317		$	7,925		$	23,373		$	12,595

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Taxes

9 Months Ended

Jul. 31, 2019

Income Tax Disclosure [Abstract]

Taxes

Taxes

Effective Tax Rate

The Company estimates its annual effective tax rate at the end of each fiscal quarter. The effective tax rate takes into account the Company's estimations of annual pre-tax income, the geographic mix of pre-tax income and interpretations of tax laws and possible outcomes of audits.

The following table presents the provision (benefit) for income taxes and the effective tax rates:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Income before income taxes	$	132,911		$	71,893		$	413,883		$	311,295
Provision (benefit) for income taxes	$	32,982		$	(7,516	)	$	42,230		$	133,105
Effective tax rate	24.8		%	(10.5		)%	10.2		%	42.8		%

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

the first quarter of 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.

In the first, second and third quarters of fiscal 2019, the U.S. Treasury Department issued proposed regulations that could impact the calculation of taxes related to these provisions. While the Company continues to evaluate the potential impact on its estimated annual tax rate, certain regulations have not been finalized and are subject to change.

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 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 a tax restructuring.

The Company’s effective tax rate for the nine months ended July 31, 2019 is lower than the statutory federal corporate tax rate of 21.0% primarily due to U.S. federal and California research credits, foreign-derived intangible income deduction, excess tax benefits from stock-based compensation, and a decrease in unrecognized foreign tax benefits, partially offset by state taxes, the effect of non-deductible stock-based compensation, higher taxes on certain foreign earnings, and the impact of the Altera Ninth Circuit decision.

The Company's effective tax rate increased in the three months ended July 31, 2019 as compared to the same period in fiscal 2018, primarily due to the impact of the Altera Ninth Circuit decision. The Company's effective tax rate in the three months ended July 31, 2018 was lower primarily due to excess stock benefits.

The Company's effective tax rate decreased in the nine months ended July 31, 2019, as compared to the same period in fiscal 2018, primarily due to accounting for the effects of the Tax Act in fiscal 2018.

The timing of the resolution of income tax examinations is highly uncertain, as are the amounts and timing of various tax payments that are part of the settlement process. This 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 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 and $6 million. In addition, a settlement or changes in guidance could result in changes to the Company's valuation allowance.

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 statement of income in the period when the transaction takes place.

Non-U.S. Examinations

In July 2017, the Hungarian Tax Authority (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 ("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 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.  

In the fourth quarter of 2018, the Company made significant changes to its international tax structure by transferring intangible assets between certain foreign subsidiaries, including its Hungarian subsidiary. In the first quarter of fiscal 2019, the Company received a ruling from the Hungarian authorities, which provided guidance on determining the tax associated with the gain recognized on the transfer, resulting in a benefit of $22.8 million recognized in the first quarter of fiscal 2019. The Company recorded an additional benefit of $10.3 million in the second quarter of fiscal 2019 upon the filing of its fiscal 2018 Hungarian return.

The Company is undergoing an audit by the HTA for fiscal years 2014 through 2018. No material assessments have been proposed in these examinations.

In the first quarter of fiscal 2019, the Company reached final settlement with Taiwanese tax authorities for fiscal year 2017 and recognized $5.5 million in previously unrecognized tax benefits.

The Company is also under examination by the tax authorities in certain other jurisdictions. No material assessments have been proposed in these examinations.

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Contingencies

9 Months Ended

Jul. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Contingencies

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.

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 from the Company to Mentor. 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. As of July 31, 2019, there has been no change to the status of the contingent charges.

Tax Matters

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 14. Taxes.

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Effect of New Accounting Pronouncements	9 Months Ended
	Jul. 31, 2019
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Effect of New Accounting Pronouncements	Effect of New Accounting PronouncementsIn February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)," which supersedes the lease requirements in "Leases (Topic 840)." This ASU requires a lessee to recognize a right-of-use asset and a lease payment liability for most leases in the consolidated balance sheets. This ASU also makes minor changes to lessor accounting and aligns with the new revenue recognition guidance. This ASU will be effective for fiscal 2020, including interim periods within that reporting period, and earlier adoption is permitted. The Company is currently evaluating its lease portfolio and the impact of adoption is expected to be material to the consolidated balance sheets.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Jul. 31, 2019

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates. To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the unaudited condensed 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.

Principles of Consolidation

Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.

Fiscal Year End

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 every five or six 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 2019 is a 52-week year and will end on November 2, 2019. Fiscal 2018 was a 53-week year and ended on November 3, 2018.

The results of operations for the first nine months of fiscal 2019 and 2018 included 39 weeks and 40 weeks, respectively, and ended on August 3, 2019 and August 4, 2018, respectively. For presentation purposes, the unaudited condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.

Segment Reporting

Segment Reporting. Effective in fiscal 2019, the Company realigned its business to evaluate the results of its Software Integrity business separately from Synopsys’ traditional electronic design automation (EDA) and semiconductor IP business. The Chief Operating Decision Makers (CODMs) now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. Synopsys' CODMs are its two co-

Chief Executive Officers. Historical segment disclosures have been recast to retrospectively reflect the change from one to two reportable segments.

Goodwill

Goodwill. Effective in the first quarter of fiscal 2019, with the change in the Company’s reportable segments, the Company has determined there are now two reporting units, requiring goodwill to be allocated to the two reporting units using a relative fair value method. 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. As a result of changes to the Company's segment reporting, the Company conducted a quantitative impairment test for each of its reporting units and concluded that there was no impairment. The Company performs either a qualitative or quantitative 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 estimates the fair value of each reporting unit using a combination of a discounted cash flow analysis and a market approach based on market multiples. The discount rate used in an 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. Refer to Note 3. Goodwill and Intangible Assets for a discussion of the change in reporting units as related to the realignment of the Company’s segments.

Revenue Recognition

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC 606), "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in “Revenue Recognition (ASC 605).” The new guidance creates a single, principle-based model for revenue recognition that is intended to expand and improve companies' revenue disclosures. For revenue recognition policies under ASC 605, refer to Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended October 31, 2018.

ASC 606 requires a company to recognize revenue when goods are transferred or services are provided to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. ASC 606 also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to ASC 606, including amendments that deferred the initially proposed adoption date and clarified accounting for licenses of intellectual property and identifying performance obligations.

The Company adopted ASC 606 at the beginning of fiscal 2019 using the modified retrospective transition method. Under this method, periods prior to the adoption date are not adjusted and continue to be reported under the revenue accounting literature in effect during those periods. The Company evaluated contracts that were in effect at the beginning of fiscal 2019 as if they had been accounted for under ASC 606 from the contract inception and summarized the most significant adoption impacts as follows:

• Revenue for certain ongoing contracts that was previously deferred would have been recognized in the periods prior to adoption under ASC 606. Therefore, upon adoption, the Company recorded the following adjustments to the beginning balances to reflect the amount of revenue that will no longer be recognized in future periods for such contracts: an increase to retained earnings of $265.1 million, a decrease to unbilled receivables of $27.4 million, an increase to contract assets of $126.9 million, and a decrease in deferred revenue of $165.6 million.

• The Company capitalized $73.8 million of incremental costs for obtaining contracts with customers at the adoption date with a corresponding adjustment to retained earnings and is amortizing these costs over the contract term.

• The Company recorded an increase in its opening deferred tax liability of $81.4 million, with a corresponding adjustment to retained earnings, to record the tax effect of the above adjustments.

The impacts of adopting ASC 606 on the Company's unaudited condensed consolidated financial statements for the nine months ended July 31, 2019 are summarized in the tables below.

Balance Sheet Accounts

The following table summarizes the effects of adopting ASC 606 on certain account balances of the unaudited condensed consolidated balance sheet that were impacted as of July 31, 2019:

	As reported under ASC 606		Adjustments			Adjusted balance under ASC 605
	(in thousands)
Receivables, net	$	457,390	$	64,122		$	521,512
Prepaid and other current assets	288,616		(205,822		)	82,794
Deferred income taxes	339,354		76,891			416,245
Other long-term assets	383,509		(94,626		)	288,883
Accounts payable and other accrued liabilities	471,629		(10,413		)	461,216
Deferred revenue	1,138,993		132,450			1,271,443
Long-term deferred revenue	91,229		41,585			132,814
Other long-term liabilities (1)	338,928		(16,671		)	322,257
Retained earnings	3,003,430		(306,386		)	2,697,044

(1) Includes long-term deferred tax liabilities.

Statements of Operations

The following table summarizes the effects of adopting ASC 606 on the unaudited condensed consolidated statements of operations for the three and nine months ended July 31, 2019:

	Three Months Ended   July 31, 2019							Nine Months Ended   July 31, 2019
	As reported under ASC 606		Adjustments			Adjusted under ASC 605		As reported under ASC 606		Adjustments			Adjusted under ASC 605
	(in thousands, except per share amounts)
Revenue:
Time-based products	$	537,569	$	55,604		$	593,173	$	1,649,590	$	158,222		$	1,807,812
Upfront products	177,552		(73,267		)	104,285		451,466		(151,110		)	300,356
Maintenance and service	137,849		(26,914		)	110,935		408,557		(57,707		)	350,850
Total revenue	852,970		(44,577		)	808,393		2,509,613		(50,595		)	2,459,018
Cost of Revenue:
Products	113,533		—			113,533		346,163		—			346,163
Maintenance and service	59,496		—			59,496		178,113		—			178,113
Amortization of intangible assets	13,603		—			13,603		45,927		—			45,927
Total cost of revenue	186,632		—			186,632		570,203		—			570,203
Gross margin	666,338		(44,577		)	621,761		1,939,410		(50,595		)	1,888,815
Operating expenses:
Research and development	284,804		—			284,804		846,429		—			846,429
Sales and marketing	157,109		(2,731		)	154,378		471,720		10,395			482,115
General and administrative	67,382		—			67,382		165,794		—			165,794
Amortization of intangible assets	10,111		—			10,111		31,211		—			31,211
Restructuring	19,338		—			19,338		33,746		—			33,746
Total operating expenses	538,744		(2,731		)	536,013		1,548,900		10,395			1,559,295
Operating income	127,594		(41,846		)	85,748		390,510		(60,990		)	329,520
Other income (expense), net	5,317		—			5,317		23,373		—			23,373
Income before provision for income taxes	132,911		(41,846		)	91,065		413,883		(60,990		)	352,893
Provision (benefit) for income taxes	32,982		(9,127		)	23,855		42,230		(12,198		)	30,032
Net income	$	99,929	$	(32,719	)	$	67,210	$	371,653	$	(48,792	)	$	322,861
Net income per share:
Basic	$	0.67	$	(0.22	)	$	0.45	$	2.48	$	(0.32	)	$	2.16
Diluted	$	0.65	$	(0.22	)	$	0.43	$	2.42	$	(0.32	)	$	2.10
Shares used in computing per share amounts:
Basic	150,123					150,123		149,708					149,708
Diluted	154,600					154,600		153,859					153,859

Statements of Cash Flows

Adoption of ASC 606 had no impact to cash from or used in operating, financing, or investing activities on the unaudited condensed consolidated cash flows statements.

Revenue Policy

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. 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 qualified 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.

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 delivered to the customer. The Company has concluded that control generally transfers upon delivery because the customer has title to the hardware, physical possession of the hardware, and a present

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

Our 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. Performance is generally measured using costs incurred or hours expended to measure progress. 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.

Disaggregated Revenue

The following table shows the percentage of revenue by product groups:

	Three Months Ended July 31,				Nine Months Ended July 31,
	2019		2018		2019		2018
EDA	57	%	64	%	59	%	63	%
IP & System Integration	33	%	27	%	31	%	28	%
Software Integrity Products & Services	10	%	9	%	10	%	9	%
Other	—	%	—	%	—	%	—	%
Total	100	%	100	%	100	%	100	%

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

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 unaudited condensed 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.

The contract assets indicated below are presented as prepaid and other current assets in the unaudited condensed consolidated balance sheet. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional.

Contract balances are as follows:

	As of July 31, 2019		As of October 31, 2018
			as adjusted
	(in thousands)
Contract assets	$	205,822	$	126,897
Unbilled receivables	38,965		36,699
Deferred revenue	1,230,222		1,104,110

During the three and nine months ended July 31, 2019, the Company recognized $470.6 million and $1,432.1 million, respectively, of revenue that were included in the deferred revenue balance at the beginning of the period, as adjusted for the adoption of ASC 606.

Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $4.3 billion as of July 31, 2019, which includes $463.5 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. The contracted unsatisfied performance obligations, excluding non-cancellable FSA, expected to be recognized over the next 12 months is approximately 56%, with the remainder recognized thereafter.

During the three and nine month periods ended July 31, 2019, the Company recognized $17.5 million and $64.8 million, respectively, from performance obligations satisfied from sales based royalties earned during the periods.

Costs of Obtaining a Contract with Customer

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 July 31, 2019 were $94.6 million and are included in other assets in the Company’s unaudited condensed consolidated balance sheet. Amortization of these assets was $17.8 million and $46.2 million during the three and nine months ended July 31, 2019, respectively, and are included in sales and marketing expense in the Company’s unaudited condensed consolidated statements of

operations.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Jul. 31, 2019

Accounting Policies [Abstract]

Schedule of Topic 606 Impact

The following table summarizes the effects of adopting ASC 606 on certain account balances of the unaudited condensed consolidated balance sheet that were impacted as of July 31, 2019:

	As reported under ASC 606		Adjustments			Adjusted balance under ASC 605
	(in thousands)
Receivables, net	$	457,390	$	64,122		$	521,512
Prepaid and other current assets	288,616		(205,822		)	82,794
Deferred income taxes	339,354		76,891			416,245
Other long-term assets	383,509		(94,626		)	288,883
Accounts payable and other accrued liabilities	471,629		(10,413		)	461,216
Deferred revenue	1,138,993		132,450			1,271,443
Long-term deferred revenue	91,229		41,585			132,814
Other long-term liabilities (1)	338,928		(16,671		)	322,257
Retained earnings	3,003,430		(306,386		)	2,697,044

(1) Includes long-term deferred tax liabilities.

The following table summarizes the effects of adopting ASC 606 on the unaudited condensed consolidated statements of operations for the three and nine months ended July 31, 2019:

	Three Months Ended   July 31, 2019							Nine Months Ended   July 31, 2019
	As reported under ASC 606		Adjustments			Adjusted under ASC 605		As reported under ASC 606		Adjustments			Adjusted under ASC 605
	(in thousands, except per share amounts)
Revenue:
Time-based products	$	537,569	$	55,604		$	593,173	$	1,649,590	$	158,222		$	1,807,812
Upfront products	177,552		(73,267		)	104,285		451,466		(151,110		)	300,356
Maintenance and service	137,849		(26,914		)	110,935		408,557		(57,707		)	350,850
Total revenue	852,970		(44,577		)	808,393		2,509,613		(50,595		)	2,459,018
Cost of Revenue:
Products	113,533		—			113,533		346,163		—			346,163
Maintenance and service	59,496		—			59,496		178,113		—			178,113
Amortization of intangible assets	13,603		—			13,603		45,927		—			45,927
Total cost of revenue	186,632		—			186,632		570,203		—			570,203
Gross margin	666,338		(44,577		)	621,761		1,939,410		(50,595		)	1,888,815
Operating expenses:
Research and development	284,804		—			284,804		846,429		—			846,429
Sales and marketing	157,109		(2,731		)	154,378		471,720		10,395			482,115
General and administrative	67,382		—			67,382		165,794		—			165,794
Amortization of intangible assets	10,111		—			10,111		31,211		—			31,211
Restructuring	19,338		—			19,338		33,746		—			33,746
Total operating expenses	538,744		(2,731		)	536,013		1,548,900		10,395			1,559,295
Operating income	127,594		(41,846		)	85,748		390,510		(60,990		)	329,520
Other income (expense), net	5,317		—			5,317		23,373		—			23,373
Income before provision for income taxes	132,911		(41,846		)	91,065		413,883		(60,990		)	352,893
Provision (benefit) for income taxes	32,982		(9,127		)	23,855		42,230		(12,198		)	30,032
Net income	$	99,929	$	(32,719	)	$	67,210	$	371,653	$	(48,792	)	$	322,861
Net income per share:
Basic	$	0.67	$	(0.22	)	$	0.45	$	2.48	$	(0.32	)	$	2.16
Diluted	$	0.65	$	(0.22	)	$	0.43	$	2.42	$	(0.32	)	$	2.10
Shares used in computing per share amounts:
Basic	150,123					150,123		149,708					149,708
Diluted	154,600					154,600		153,859					153,859

Schedule of Disaggregation of Revenue

The following table shows the percentage of revenue by product groups:

	Three Months Ended July 31,				Nine Months Ended July 31,
	2019		2018		2019		2018
EDA	57	%	64	%	59	%	63	%
IP & System Integration	33	%	27	%	31	%	28	%
Software Integrity Products & Services	10	%	9	%	10	%	9	%
Other	—	%	—	%	—	%	—	%
Total	100	%	100	%	100	%	100	%

Schedule of Contract Assets and Liabilities

Contract balances are as follows:

	As of July 31, 2019		As of October 31, 2018
			as adjusted
	(in thousands)
Contract assets	$	205,822	$	126,897
Unbilled receivables	38,965		36,699
Deferred revenue	1,230,222		1,104,110

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Jul. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Summary of Intangible Assets

Intangible assets as of July 31, 2019 consisted of the following:

	Gross Assets		Accumulated Amortization		Net Assets
	(in thousands)
Core/developed technology	$	773,147	$	642,185	$	130,962
Customer relationships	358,667		232,784		125,883
Contract rights intangible	184,321		180,349		3,972
Trademarks and trade names	42,929		24,803		18,126
In-process research and development (IPR&D)	1,200		—		1,200
Capitalized software development costs	38,063		34,901		3,162
Total	$	1,398,327	$	1,115,022	$	283,305

Intangible assets as of October 31, 2018 consisted of the following:

	Gross Assets		Accumulated Amortization		Net Assets
	(in thousands)
Core/developed technology	$	773,147	$	598,956	$	174,191
Customer relationships	358,524		204,382		154,142
Contract rights intangible	183,953		177,191		6,762
Trademarks and trade names	42,929		21,944		20,985
In-process research and development (IPR&D)	1,200		—		1,200
Capitalized software development costs	35,818		32,694		3,124
Total	$	1,395,571	$	1,035,167	$	360,404

Amortization Expense Related to Intangible Assets

Amortization expense related to intangible assets consisted of the following:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Core/developed technology	$	12,825	$	18,692	$	43,229	$	55,745
Customer relationships	9,303		9,584		28,261		27,803
Contract rights intangible	808		1,357		2,790		3,619
Trademarks and trade names	778		1,172		2,858		3,371
Capitalized software development costs(1)	700		894		2,207		2,710
Total	$	24,414	$	31,699	$	79,345	$	93,248

(1)

Amortization of capitalized software development costs is included in cost of products revenue in the unaudited condensed consolidated statements of operations.

Estimated Future Amortization of Intangible Assets

The following table presents the estimated future amortization of the existing intangible assets as of July 31, 2019:

Fiscal Year	(in thousands)
Remainder of fiscal 2019	$	23,821
2020	79,195
2021	56,409
2022	44,014
2023	29,219
2024 and thereafter	49,447
IPR&D	1,200
Total	$	283,305

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Financial Assets and Liabilities (Tables)

9 Months Ended

Jul. 31, 2019

Financial Assets And Liabilities [Abstract]

Summary of Available-for-Sale Securities

As of July 31, 2019, the balances of the Company's cash equivalents are:

	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	$	130,437	$	—	$	—	$	—	$	130,437
Total:	$	130,437	$	—	$	—	$	—	$	130,437

(1) See Note 5. Fair Value Measures for further discussion on fair values of cash equivalents.

As of October 31, 2018, the balances of the Company's cash equivalents are:

	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	$	165,296	$	—	$	—	$	—	$	165,296
Total:	$	165,296	$	—	$	—	$	—	$	165,296

(1)

See Note 5. Fair Value Measures for further discussion on fair values of cash equivalents.

Schedule of Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash included in the unaudited condensed consolidated balance sheets:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Cash and cash equivalents	$	686,780	$	723,115
Restricted cash included in Prepaid expenses and other current assets	1,171		1,164
Restricted cash included in Other long-term assets	730		722
Total cash, cash equivalents and restricted cash	$	688,681	$	725,001

Effects on Changes in Fair Values of Non-Designated Forward Contracts

The effect of the changes in the fair values of non-designated forward contracts is summarized as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Gain (loss) recorded in other income (expense), net	$	1,179	$	1,567	$	4,314	$	1,244

Notional Amounts of Derivative Instruments

The notional amounts in the table below for derivative instruments provide one measure of the transaction volume outstanding:

	As of July 31, 2019			As of October 31, 2018
	(in thousands)
Total gross notional amount	$	779,127		$	1,135,549
Net fair value	$	(565	)	$	(18,120	)

Fair Values of Derivative Instrument Designated and Non-Designated as Hedging Instruments in Balance Sheet

The following table represents the unaudited condensed consolidated balance sheet 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)
As of July 31, 2019
Other current assets	$	6,487	$	77
Accrued liabilities	$	7,020	$	109
As of October 31, 2018
Other current assets	$	4,771	$	131
Accrued liabilities	$	22,890	$	132

Income Statement Location and Amount of Gains and Losses on Derivative Instrument Fair Values for Designated Hedge Instruments, Net of Tax

The following table represents the unaudited condensed consolidated statement of operations location and amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax:

	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)
Three months ended   July 31, 2019
Foreign exchange contracts	Revenue	$	(994	)	Revenue	$	685
Foreign exchange contracts	Operating expenses	(76		)	Operating expenses	(3,945		)
Total		$	(1,070	)		$	(3,260	)
Three months ended   July 31, 2018
Foreign exchange contracts	Revenue	$	1,422		Revenue	$	(308	)
Foreign exchange contracts	Operating expenses	(13,793		)	Operating expenses	1,970
Total		$	(12,371	)		$	1,662
Nine months ended   July 31, 2019
Foreign exchange contracts	Revenue	$	(253	)	Revenue	$	1,048
Foreign exchange contracts	Operating expenses	5,097			Operating expenses	(12,795		)
Total		$	4,844			$	(11,747	)
Nine months ended   July 31, 2018
Foreign exchange contracts	Revenue	$	(542	)	Revenue	$	1,190
Foreign exchange contracts	Operating expenses	(7,349		)	Operating expenses	11,320
Total		$	(7,891	)		$	12,510

Ineffective Portion and Portion Excluded from Effectiveness Testing of Derivative Hedge Gains (Losses)

The following table represents the ineffective portions and portions excluded from effectiveness testing of the hedge gains (losses) for derivative instruments designated as hedging instruments, which are recorded in other income (expense), net:

Foreign exchange contracts	Amount of gain (loss) recognized in statement of operations on derivatives (ineffective portion)(1)			Amount of gain (loss) recognized in statement of operations on derivatives (excluded from effectiveness testing)(2)
	(in thousands)
For the three months ended July 31, 2019	$	232		$	1,077
For the three months ended July 31, 2018	$	(132	)	$	782
For the nine months ended July 31, 2019	$	148		$	358
For the nine months ended July 31, 2018	$	389		$	2,488

(1) The ineffective portion includes forecast inaccuracies.

(2)

The portion excluded from effectiveness testing includes the discount earned or premium paid for the contracts.

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Fair Value Measures (Tables)

9 Months Ended

Jul. 31, 2019

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below as of July 31, 2019:

			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	$	130,437	$	130,437	$	—	$	—
Prepaid and other current assets:
Foreign currency derivative contracts	6,564		—		6,564		—
Other long-term assets:
Deferred compensation plan assets	248,510		248,510		—		—
Total assets	$	385,511	$	378,947	$	6,564	$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts	$	7,129	$	—	$	7,129	$	—
Other long-term liabilities:
Deferred compensation plan liabilities	248,510		248,510		—		—
Total liabilities	$	255,639	$	248,510	$	7,129	$	—

Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2018:

			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	$	165,296	$	165,296	$	—	$	—
Prepaid and other current assets:
Foreign currency derivative contracts	4,902		—		4,902		—
Other long-term assets:
Deferred compensation plan assets	212,165		212,165		—		—
Total assets	$	382,363	$	377,461	$	4,902	$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts	$	23,022	$	—	$	23,022	$	—
Other long-term liabilities:
Deferred compensation plan liabilities	212,165		212,165		—		—
Total liabilities	$	235,187	$	212,165	$	23,022	$	—

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Liabilities and Restructuring Charges (Tables)

9 Months Ended

Jul. 31, 2019

Liabilities and Restructuring Charges [Abstract]

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Payroll and related benefits	$	391,593	$	413,307
Other accrued liabilities	65,190		79,973
Accounts payable	14,846		85,046
Total	$	471,629	$	578,326

Other Long-Term Liabilities

Other long-term liabilities consist of:

	As of July 31, 2019		As of October 31, 2018
	(in thousands)
Deferred compensation liability	$	248,510	$	212,165
Other long-term liabilities	90,418		53,395
Total	$	338,928	$	265,560

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Credit Facility (Tables)

9 Months Ended

Jul. 31, 2019

Debt Disclosure [Abstract]

Schedule of Maturities of Term Loan

Outstanding principal payments under the Term Loan are due as follows:

Fiscal year	(in thousands)
Remainder of fiscal 2019	$	3,750
2020	17,813
2021	27,187
2022	75,000
Total	$	123,750

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Jul. 31, 2019

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Components of Accumulated Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss), on an after-tax basis where applicable, were as follows:

	As of July 31, 2019			As of October 31, 2018
	(in thousands)
Cumulative currency translation adjustments	$	(89,355	)	$	(89,289	)
Unrealized gain (loss) on derivative instruments, net of taxes	(7,298		)	(23,888		)
Total accumulated other comprehensive income (loss)	$	(96,653	)	$	(113,177	)

Effect of Amounts Reclassified out of Each Component of Accumulated Other Comprehensive Income (Loss) into Net Income

The effect of amounts reclassified out of each component of accumulated other comprehensive income (loss) (AOCI) into net income was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Reclassifications from AOCI to unaudited condensed consolidated statement of operations:
Gain (loss) on cash flow hedges, net of taxes
Revenues	$	685		$	(308	)	$	1,048		$	1,190
Operating expenses	(3,945		)	1,970			(12,795		)	11,320
Total reclassifications into net income	$	(3,260	)	$	1,662		$	(11,747	)	$	12,510

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Stock Repurchase Program (Tables)

9 Months Ended

Jul. 31, 2019

Stock Repurchase Program [Abstract]

Stock Repurchase And Reissuance Activities

Stock repurchase activities are as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019 (1)		2018		2019 (1)(2)		2018
	(in thousands)
Total shares repurchased(3)(4)	775		1,509		1,901		4,411
Total cost of the repurchased shares (4)	$	100,000	$	132,000	$	209,185	$	387,000
Reissuance of treasury stock	1,166		1,107		3,009		2,527

(1) Does not include the 90,202 shares or $20.0 million equity forward contract from the June 2019 ASR settled in August 2019.

(2) The third quarter of fiscal 2019 includes the settlement of the 97,601 shares or $20.0 million equity forward contract from the February 2019 ASR settled in May 2019.

(3) The first quarter of fiscal 2018 includes the settlement of the $20.0 million equity forward contract related to the Company's accelerated share repurchase agreement entered into in September 2017.

(4)

The Company also repurchased 0.4 million shares at an average price of $82.61 per share, for an aggregate purchase price of $35.0 million during the second quarter of fiscal 2018.

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Stock Compensation (Tables)

9 Months Ended

Jul. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Compensation Arrangements

The compensation cost recognized in the unaudited condensed consolidated statements of operations for the Company’s stock compensation arrangements was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Cost of products	$	4,493		$	3,820		$	12,684		$	10,663
Cost of maintenance and service	1,694			1,442			4,675			3,979
Research and development expense	19,383			18,412			55,802			48,958
Sales and marketing expense	7,360			7,317			21,790			20,813
General and administrative expense	6,523			6,261			19,876			18,127
Stock compensation expense before taxes	39,453			37,252			114,827			102,540
Income tax benefit	(6,593		)	(7,111		)	(19,188		)	(19,574		)
Stock compensation expense after taxes	$	32,860		$	30,141		$	95,639		$	82,966

Schedule of Intrinsic Value of Equity Awards Exercised

The intrinsic values of equity awards exercised during the periods are as follows:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Intrinsic value of awards exercised	$	37,436	$	19,283	$	96,014	$	50,075

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Net Income per Share (Tables)

9 Months Ended

Jul. 31, 2019

Earnings Per Share [Abstract]

Reconciliation of Weighted-Average Common Shares Used to Calculate Net Income Per Share

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:

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands, except per share amounts)
Numerator:
Net income	$	99,929	$	79,409	$	371,653	$	178,190
Denominator:
Weighted-average common shares for basic net income per share	150,123		148,490		149,708		148,760
Dilutive effect of potential common shares from equity-based compensation	4,477		4,124		4,151		4,358
Weighted-average common shares for diluted net income per share	154,600		152,614		153,859		153,118
Net income per share:
Basic	$	0.67	$	0.53	$	2.48	$	1.20
Diluted	$	0.65	$	0.52	$	2.42	$	1.16
Anti-dilutive employee stock-based awards excluded(1)	152		1,063		798		774

(1)

These employee stock-based awards 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.

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Segment Disclosure (Tables)

9 Months Ended

Jul. 31, 2019

Segment Reporting [Abstract]

Schedule of Segment Reporting Information

Information by reportable segment was as follows:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Total Segments:
Revenues	$	852,970		$	779,714		$	2,509,613		$	2,325,976
Adjusted operating income	216,581			167,847			627,369			553,909
Adjusted operating margin	25		%	22		%	25		%	24		%
Semiconductor & System Design:
Revenues	$	769,411		$	708,413		$	2,260,372		$	2,122,780
Adjusted operating income	207,773			169,798			604,497			564,656
Adjusted operating margin	27		%	24		%	27		%	27		%
Software Integrity:
Revenues	$	83,559		$	71,301		$	249,241		$	203,196
Adjusted operating income	8,808			(1,951		)	22,872			(10,747		)
Adjusted operating margin	11		%	(3		)%	9		%	(5		)%

Reconciliation of Operating Income From Segment Consolidation

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:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Total segment adjusted operating income	$	216,581		$	167,847		$	627,369		$	553,909
Reconciling items:
Amortization of intangible expense	(23,714		)	(30,805		)	(77,138		)	(90,538		)
Stock-based compensation expense	(39,453		)	(37,252		)	(114,827		)	(102,540		)
Other	(25,820		)	(35,822		)	(44,894		)	(62,131		)
Total operating income	$	127,594		$	63,968		$	390,510		$	298,700

Revenues Related to Operations by Geographic Areas

Revenues related to operations in the United States and other geographic areas were: 

	Three Months Ended   July 31,				Nine Months Ended   July 31,
	2019		2018		2019		2018
	(in thousands)
Revenue:
United States	$	407,408	$	365,414	$	1,231,951	$	1,126,624
Europe	90,074		90,657		257,502		273,136
Japan	65,709		71,981		203,486		210,805
Asia-Pacific and Other	289,779		251,662		816,675		715,411
Consolidated	$	852,970	$	779,714	$	2,509,613	$	2,325,976

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Other Income (Expense), net (Tables)

9 Months Ended

Jul. 31, 2019

Other Income and Expenses [Abstract]

Components of Other Income (Expense), Net

The following table presents the components of other income (expense), net:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Interest income	$	1,789		$	1,096		$	5,280		$	3,659
Interest expense	(2,214		)	(4,558		)	(10,608		)	(11,281		)
Gain (loss) on assets related to executive deferred compensation plan assets	4,686			8,397			25,201			14,592
Foreign currency exchange gain (loss)	696			1,627			2,999			1,725
Other, net	360			1,363			501			3,900
Total	$	5,317		$	7,925		$	23,373		$	12,595

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Taxes (Tables)

9 Months Ended

Jul. 31, 2019

Income Tax Disclosure [Abstract]

Provision for Income Taxes and Effective Tax Rates

The following table presents the provision (benefit) for income taxes and the effective tax rates:

	Three Months Ended   July 31,						Nine Months Ended   July 31,
	2019			2018			2019			2018
	(in thousands)
Income before income taxes	$	132,911		$	71,893		$	413,883		$	311,295
Provision (benefit) for income taxes	$	32,982		$	(7,516	)	$	42,230		$	133,105
Effective tax rate	24.8		%	(10.5		)%	10.2		%	42.8		%

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Summary of Significant Accounting Policies - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Jul. 31, 2019	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Retained earnings	$ 3,003,430	$ 3,003,430		$ 2,543,688
Decrease to unbilled receivables	(38,965)	(38,965)		(36,699)
Contract assets	205,822	205,822		126,897
Decrease in deferred revenue	(1,230,222)	(1,230,222)		(1,104,110)
Capitalized incremental costs to obtain contracts	94,600	94,600
Revenue recognized	470,600	1,432,100
Unsatisfied or partly unsatisfied performance obligations	4,300,000	4,300,000
Non-cancellable FSA commitments	$ 463,500	$ 463,500
Performance obligations recognized over next 12 months	56.00%	56.00%
Amortization of capitalized costs to obtain revenue contracts	$ 17,800	$ 46,230	$ 0
Adjustments | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Retained earnings	(306,386)	(306,386)		265,100
Decrease to unbilled receivables				27,400
Contract assets				126,900
Decrease in deferred revenue				165,600
Capitalized incremental costs to obtain contracts				73,800
Deferred tax liabilities				$ 81,400
Sales Based Royalties
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue recognized	$ 17,500	$ 64,800

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Summary of Significant Accounting Policies - Schedule of Topic 606 Impact Balance Sheet (Details) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Accounts receivable, net	$ 457,390	$ 554,217
Prepaid and other current assets	288,616	67,533
Deferred income taxes	339,354	404,166
Other long-term assets	383,509	246,736
Accounts payable and accrued liabilities	471,629	578,326
Deferred revenue	1,138,993	1,152,862
Long-term deferred revenue	91,229	116,859
Other long-term liabilities	338,928	265,560
Retained earnings	3,003,430	2,543,688
Adjusted balance under ASC 605
Balance Sheet Related Disclosures [Abstract]
Accounts receivable, net	521,512
Prepaid and other current assets	82,794
Deferred income taxes	416,245
Other long-term assets	288,883
Accounts payable and accrued liabilities	461,216
Deferred revenue	1,271,443
Long-term deferred revenue	132,814
Other long-term liabilities	322,257
Retained earnings	2,697,044
Accounting Standards Update 2014-09 | Adjustments
Balance Sheet Related Disclosures [Abstract]
Accounts receivable, net	64,122
Prepaid and other current assets	(205,822)
Deferred income taxes	76,891
Other long-term assets	(94,626)
Accounts payable and accrued liabilities	(10,413)
Deferred revenue	132,450
Long-term deferred revenue	41,585
Other long-term liabilities	(16,671)
Retained earnings	$ (306,386)	$ 265,100

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Summary of Significant Accounting Policies - Schedule of Topic 606 Impact Income Statement (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	$ 852,970	$ 779,714	$ 2,509,613	$ 2,325,976
Amortization of intangible assets	13,603	20,154	45,927	59,612
Total cost of revenue	186,632	185,381	570,203	545,316
Gross margin	666,338	594,333	1,939,410	1,780,660
Research and development	284,804	277,402	846,429	793,947
Sales and marketing	157,109	157,953	471,720	455,653
General and administrative	67,382	84,336	165,794	199,517
Amortization of intangible assets	10,111	10,651	31,211	30,926
Restructuring	19,338	23	33,746	1,917
Total operating expenses	538,744	530,365	1,548,900	1,481,960
Operating income	127,594	63,968	390,510	298,700
Other income (expense), net	5,317	7,925	23,373	12,595
Income before income taxes	132,911	71,893	413,883	311,295
Provision (benefit) for income taxes	32,982	(7,516)	42,230	133,105
Net income	$ 99,929	$ 79,409	$ 371,653	$ 178,190
Basic (in USD per share)	$ 0.67	$ 0.53	$ 2.48	$ 1.20
Diluted (in USD per share)	$ 0.65	$ 0.52	$ 2.42	$ 1.16
Basic (shares)	150,123	148,490	149,708	148,760
Diluted (shares)	154,600	152,614	153,859	153,118
Time-based products
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	$ 537,569	$ 570,053	$ 1,649,590	$ 1,697,756
Cost of revenue	113,533	115,437	346,163	335,030
Upfront products
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	177,552	99,579	451,466	291,143
Maintenance and service
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	137,849	110,082	408,557	337,077
Cost of revenue	59,496	$ 49,790	178,113	$ 150,674
Adjustments | Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	(44,577)		(50,595)
Amortization of intangible assets	0		0
Total cost of revenue	0		0
Gross margin	(44,577)		(50,595)
Research and development	0		0
Sales and marketing	(2,731)		10,395
General and administrative	0		0
Amortization of intangible assets	0		0
Restructuring	0		0
Total operating expenses	(2,731)		10,395
Operating income	(41,846)		(60,990)
Other income (expense), net	0		0
Income before income taxes	(41,846)		(60,990)
Provision (benefit) for income taxes	(9,127)		(12,198)
Net income	$ (32,719)		$ (48,792)
Basic (in USD per share)	$ (0.22)		$ (0.32)
Diluted (in USD per share)	$ (0.22)		$ (0.32)
Adjustments | Accounting Standards Update 2014-09 | Time-based products
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	$ 55,604		$ 158,222
Cost of revenue	0		0
Adjustments | Accounting Standards Update 2014-09 | Upfront products
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	(73,267)		(151,110)
Adjustments | Accounting Standards Update 2014-09 | Maintenance and service
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	(26,914)		(57,707)
Cost of revenue	0		0
Adjusted balance under ASC 605
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	808,393		2,459,018
Amortization of intangible assets	13,603		45,927
Total cost of revenue	186,632		570,203
Gross margin	621,761		1,888,815
Research and development	284,804		846,429
Sales and marketing	154,378		482,115
General and administrative	67,382		165,794
Amortization of intangible assets	10,111		31,211
Restructuring	19,338		33,746
Total operating expenses	536,013		1,559,295
Operating income	85,748		329,520
Other income (expense), net	5,317		23,373
Income before income taxes	91,065		352,893
Provision (benefit) for income taxes	23,855		30,032
Net income	$ 67,210		$ 322,861
Basic (in USD per share)	$ 0.45		$ 2.16
Diluted (in USD per share)	$ 0.43		$ 2.10
Basic (shares)	150,123		149,708
Diluted (shares)	154,600		153,859
Adjusted balance under ASC 605 | Time-based products
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	$ 593,173		$ 1,807,812
Cost of revenue	113,533		346,163
Adjusted balance under ASC 605 | Upfront products
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	104,285		300,356
Adjusted balance under ASC 605 | Maintenance and service
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Total revenue	110,935		350,850
Cost of revenue	$ 59,496		$ 178,113

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Summary of Significant Accounting Policies - Schedule of Disaggregation of Revenue (Details)	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Disaggregation of Revenue [Line Items]
Revenue percentage by product group	100.00%	100.00%	100.00%	100.00%
EDA
Disaggregation of Revenue [Line Items]
Revenue percentage by product group	57.00%	64.00%	59.00%	63.00%
IP & System Integration
Disaggregation of Revenue [Line Items]
Revenue percentage by product group	33.00%	27.00%	31.00%	28.00%
Software Integrity Products & Services
Disaggregation of Revenue [Line Items]
Revenue percentage by product group	10.00%	9.00%	10.00%	9.00%
Other
Disaggregation of Revenue [Line Items]
Revenue percentage by product group	0.00%	0.00%	0.00%	0.00%

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Summary of Significant Accounting Policies - Schedule of Contract Assets and Liabilities (Details) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Accounting Policies [Abstract]
Contract assets	$ 205,822	$ 126,897
Unbilled receivables	38,965	36,699
Deferred revenue	$ 1,230,222	$ 1,104,110

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Goodwill and Intangible Assets - Summary of Intangible Assets (Detail) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Gross Assets	$ 1,398,327	$ 1,395,571
Accumulated Amortization	1,115,022	1,035,167
Net Assets	283,305	360,404
Core/developed technology
Finite-Lived Intangible Assets [Line Items]
Gross Assets	773,147	773,147
Accumulated Amortization	642,185	598,956
Net Assets	130,962	174,191
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Gross Assets	358,667	358,524
Accumulated Amortization	232,784	204,382
Net Assets	125,883	154,142
Contract rights intangible
Finite-Lived Intangible Assets [Line Items]
Gross Assets	184,321	183,953
Accumulated Amortization	180,349	177,191
Net Assets	3,972	6,762
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Gross Assets	42,929	42,929
Accumulated Amortization	24,803	21,944
Net Assets	18,126	20,985
In Process Research and Development
Finite-Lived Intangible Assets [Line Items]
Gross Assets	1,200	1,200
Accumulated Amortization	0	0
Net Assets	1,200	1,200
Capitalized software development costs
Finite-Lived Intangible Assets [Line Items]
Gross Assets	38,063	35,818
Accumulated Amortization	34,901	32,694
Net Assets	$ 3,162	$ 3,124

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Goodwill and Intangible Assets - Amortization Expense Related to Intangible Assets (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Finite Lived Intangible Assets Amortization Expense [Line Items]
Amortization expense of intangible assets	$ 24,414	$ 31,699	$ 79,345	$ 93,248
Core/developed technology
Finite Lived Intangible Assets Amortization Expense [Line Items]
Amortization expense of intangible assets	12,825	18,692	43,229	55,745
Customer relationships
Finite Lived Intangible Assets Amortization Expense [Line Items]
Amortization expense of intangible assets	9,303	9,584	28,261	27,803
Contract rights intangible
Finite Lived Intangible Assets Amortization Expense [Line Items]
Amortization expense of intangible assets	808	1,357	2,790	3,619
Trademarks and trade names
Finite Lived Intangible Assets Amortization Expense [Line Items]
Amortization expense of intangible assets	778	1,172	2,858	3,371
Capitalized software development costs
Finite Lived Intangible Assets Amortization Expense [Line Items]
Amortization expense of intangible assets	$ 700	$ 894	$ 2,207	$ 2,710

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Goodwill and Intangible Assets - Estimated Future Amortization of Intangible Assets (Detail) $ in Thousands	Jul. 31, 2019 USD ($)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Remainder of fiscal 2019	$ 23,821
2020	79,195
2021	56,409
2022	44,014
2023	29,219
2024 and thereafter	49,447
IPR&D	1,200
Total	$ 283,305

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Financial Assets and Liabilities - Short-term investments (Details) - Cash equivalents - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Available-for-sale securities, cost	$ 130,437	$ 165,296
Gross unrealized gains	0	0
Gross unrealized losses less than 12 months	0	0
Gross unrealized losses 12 months or longer	0	0
Estimated fair value	130,437	165,296
Money market funds
Debt Securities, Available-for-sale [Line Items]
Available-for-sale securities, cost	130,437	165,296
Gross unrealized gains	0	0
Gross unrealized losses less than 12 months	0	0
Gross unrealized losses 12 months or longer	0	0
Estimated fair value	$ 130,437	$ 165,296

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Financial Assets and Liabilities - Schedule of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018	Jul. 31, 2018	Oct. 31, 2017
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 686,780	$ 723,115
Total cash, cash equivalents and restricted cash	688,681	725,001	$ 743,165	$ 1,050,075
Restricted cash included in Prepaid expenses and other current assets
Cash and Cash Equivalents [Line Items]
Restricted cash	1,171	1,164
Restricted cash included in Other long-term assets
Cash and Cash Equivalents [Line Items]
Restricted cash	$ 730	$ 722

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Financial Assets and Liabilities - Additional Information (Details)	9 Months Ended
	Jul. 31, 2019
Financial Assets and Liabilities [Line Items]
Shipments period using hedges (in months)	1 month
Period for hedge balance in OCI to be reclassified to statement of operations (in months)	12 months
Non-Designated Hedging Instrument
Financial Assets and Liabilities [Line Items]
Forward contracts terms (in months)	1 month
Foreign currency derivative contracts | Minimum
Financial Assets and Liabilities [Line Items]
Derivative maturity period	1 month
Foreign currency derivative contracts | Maximum
Financial Assets and Liabilities [Line Items]
Derivative maturity period	22 months
Foreign currency derivative contracts | Cash Flow Hedging | Maximum
Financial Assets and Liabilities [Line Items]
Derivative maturity period	3 years
Foreign Exchange Forward | Cash Flow Hedging | Maximum
Financial Assets and Liabilities [Line Items]
Derivative maturity period	22 months
Foreign Exchange Contracts | Maximum
Financial Assets and Liabilities [Line Items]
Duration of foreign exchange forward contracts	1 year

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Financial Assets and Liabilities - Effects on Changes in Fair Values of Non-Designated Forward Contracts (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Financial Assets And Liabilities [Abstract]
Gain (loss) recorded in other income (expense), net	$ 1,179	$ 1,567	$ 4,314	$ 1,244

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Financial Assets and Liabilities - Notional Amounts of Derivative Instruments (Detail) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Financial Assets And Liabilities [Abstract]
Total gross notional amount	$ 779,127	$ 1,135,549
Net fair value	$ (565)	$ (18,120)

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Financial Assets and Liabilities - Fair Values of Derivative Instrument Designated and Non-Designated as Hedging Instruments in Unaudited Condensed Consolidated Balance Sheet (Detail) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Designated As Hedging Instrument | Other current assets
Financial Assets and Liabilities [Line Items]
Fair values of derivative instruments, assets	$ 6,487	$ 4,771
Designated As Hedging Instrument | Accrued liabilities
Financial Assets and Liabilities [Line Items]
Fair values of derivative instruments, liabilities	7,020	22,890
Non-Designated Hedging Instrument | Other current assets
Financial Assets and Liabilities [Line Items]
Fair values of derivative instruments, assets	77	131
Non-Designated Hedging Instrument | Accrued liabilities
Financial Assets and Liabilities [Line Items]
Fair values of derivative instruments, liabilities	$ 109	$ 132

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Financial Assets and Liabilities - Unaudited Condensed Consolidated Statement of Operations Location and Amount of Gains and Losses on Derivative Instrument Fair Values for Designated Hedge Instruments, Net of Tax (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Financial Assets and Liabilities [Line Items]
Amount of gain (loss) recognized in OCI on derivatives (effective portion)	$ (1,070)	$ (12,371)	$ 4,844	$ (7,891)
Amount of gain (loss) reclassified from OCI (effective portion)	(3,260)	1,662	(11,747)	12,510
Foreign Exchange Contracts | Revenues
Financial Assets and Liabilities [Line Items]
Amount of gain (loss) recognized in OCI on derivatives (effective portion)	(994)	1,422	(253)	(542)
Amount of gain (loss) reclassified from OCI (effective portion)	685	(308)	1,048	1,190
Foreign Exchange Contracts | Operating expenses
Financial Assets and Liabilities [Line Items]
Amount of gain (loss) recognized in OCI on derivatives (effective portion)	(76)	(13,793)	5,097	(7,349)
Amount of gain (loss) reclassified from OCI (effective portion)	$ (3,945)	$ 1,970	$ (12,795)	$ 11,320

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Financial Assets and Liabilities - Ineffective Portion and Portion Excluded from Effectiveness Testing of Derivative Hedge Gains (Losses) (Detail) - Foreign Exchange Contracts - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Financial Assets and Liabilities [Line Items]
Amount of gain (loss) recognized in statement of operations on derivatives (ineffective portion)	$ 232	$ (132)	$ 148	$ 389
Amount of gain (loss) recognized in statement of operations on derivatives (excluded from effectiveness testing)	$ 1,077	$ 782	$ 358	$ 2,488

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Fair Value Measures - Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total assets	$ 385,511	$ 382,363
Total liabilities	255,639	235,187
Foreign currency derivative contracts
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Prepaid and other current assets	6,564	4,902
Accounts payable and accrued liabilities	7,129	23,022
Deferred compensation plan liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term liabilities	248,510	212,165
Deferred compensation plan assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term assets	248,510	212,165
Money market funds | Cash equivalents
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	130,437	165,296
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total assets	378,947	377,461
Total liabilities	248,510	212,165
Quoted Prices in Active Markets for Identical Assets (Level 1) | Foreign currency derivative contracts
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Prepaid and other current assets	0	0
Accounts payable and accrued liabilities	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Deferred compensation plan liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term liabilities	248,510	212,165
Quoted Prices in Active Markets for Identical Assets (Level 1) | Deferred compensation plan assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term assets	248,510	212,165
Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market funds | Cash equivalents
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	130,437	165,296
Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total assets	6,564	4,902
Total liabilities	7,129	23,022
Significant Other Observable Inputs (Level 2) | Foreign currency derivative contracts
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Prepaid and other current assets	6,564	4,902
Accounts payable and accrued liabilities	7,129	23,022
Significant Other Observable Inputs (Level 2) | Deferred compensation plan liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term liabilities	0	0
Significant Other Observable Inputs (Level 2) | Deferred compensation plan assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term assets	0	0
Significant Other Observable Inputs (Level 2) | Money market funds | Cash equivalents
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	0	0
Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total assets	0	0
Total liabilities	0	0
Significant Unobservable Inputs (Level 3) | Foreign currency derivative contracts
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Prepaid and other current assets	0	0
Accounts payable and accrued liabilities	0	0
Significant Unobservable Inputs (Level 3) | Deferred compensation plan liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term liabilities	0	0
Significant Unobservable Inputs (Level 3) | Deferred compensation plan assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Other long-term assets	0	0
Significant Unobservable Inputs (Level 3) | Money market funds | Cash equivalents
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	$ 0	$ 0

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Fair Value Measures - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Fair Value Disclosures [Abstract]
Write-down of long-term investments	$ 0	$ 0	$ 0	$ 0

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Liabilities and Restructuring Charges - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Restructuring Cost and Reserve [Line Items]
Restructuring	$ 19,338	$ 23	$ 33,746	$ 1,917
Employee Severance and Benefits
Restructuring Cost and Reserve [Line Items]
Restructuring	19,300		33,700	1,900
Employee related restructuring liabilities	20,800		20,800		$ 8,100
Minimum | Employee Severance and Benefits
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Expected Cost	43,000	8,000	43,000	8,000
Maximum | Employee Severance and Benefits
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Expected Cost	$ 65,000	$ 10,000	$ 65,000	$ 10,000

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Liabilities and Restructuring Charges - Components of Accounts Payable and Accrued Liabilities (Detail) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Payables and Accruals [Abstract]
Payroll and related benefits	$ 391,593	$ 413,307
Other accrued liabilities	65,190	79,973
Accounts payable	14,846	85,046
Total	$ 471,629	$ 578,326

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Liabilities and Restructuring Charges - Components of Other Long Term Liabilities (Detail) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Liabilities, Other than Long-term Debt, Noncurrent [Abstract]
Deferred compensation liability	$ 248,510	$ 212,165
Other long-term liabilities	90,418	53,395
Total	$ 338,928	$ 265,560

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Credit Facility - Additional Information (Detail) ¥ in Millions		1 Months Ended	9 Months Ended
	Nov. 28, 2016 USD ($)	Jul. 31, 2018 USD ($)	Jul. 31, 2019 USD ($)	Jul. 31, 2018 USD ($)	Oct. 31, 2018 USD ($)	Jul. 31, 2018 CNY (¥)	May 19, 2015 USD ($)
Debt Instrument [Line Items]
Long-term debt			$ 125,285,000		$ 125,535,000
Proceeds from credit facilities			192,897,000	$ 615,000,000
Revolving Credit Facility
Debt Instrument [Line Items]
Remaining borrowing capacity			0
The Credit Agreement
Debt Instrument [Line Items]
Remaining borrowing capacity			$ 18,400,000
Foreign Line of Credit
Debt Instrument [Line Items]
Credit facility maximum borrowing capacity		$ 33,000,000.0		$ 33,000,000.0		¥ 220.0
Foreign Line of Credit | Chinese Central Bank Rate
Debt Instrument [Line Items]
Borrowings, interest rate		10.00%
Unsecured Debt | The Credit Agreement | Revolving Credit Facility
Debt Instrument [Line Items]
Credit facility maximum borrowing capacity	$ 650,000,000.0						$ 500,000,000.0
Additional borrowings from credit facility	150,000,000.0
Current portion of line of credit					330,000,000.0
Unsecured Debt | The Credit Agreement | Revolving Credit Facility | Minimum
Debt Instrument [Line Items]
Commitment fees percentage			0.125%
Unsecured Debt | The Credit Agreement | Revolving Credit Facility | Maximum
Debt Instrument [Line Items]
Commitment fees percentage			0.20%
Unsecured Debt | The Credit Agreement | Revolving Credit Facility | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Borrowings, interest rate			1.00%
Unsecured Debt | The Credit Agreement | Term Loan
Debt Instrument [Line Items]
Senior unsecured term loan facility, face amount	$ 150,000,000.0
Long-term Debt			$ 123,500,000		133,800,000
Long-term debt			$ 106,900,000		$ 120,000,000.0
Unsecured Debt | The Credit Agreement | Term Loan | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Borrowings, interest rate			1.125%

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Credit Facility - Schedule of Maturities of Term Loan (Details) - Term Loan - Unsecured Debt - The Credit Agreement $ in Thousands	Jul. 31, 2019 USD ($)
Long-term Debt, Fiscal Year Maturity [Abstract]
Remainder of fiscal 2019	$ 3,750
2020	17,813
2021	27,187
2022	75,000
Total	$ 123,750

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Accumulated Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands	Jul. 31, 2019	Oct. 31, 2018
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Cumulative currency translation adjustments	$ (89,355)	$ (89,289)
Unrealized gain (loss) on derivative instruments, net of taxes	(7,298)	(23,888)
Total accumulated other comprehensive income (loss)	$ (96,653)	$ (113,177)

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Accumulated Other Comprehensive Income (Loss) - Effect of Amounts Reclassified out of Each Component of Accumulated Other Comprehensive Income (Loss) into Net Income (Detail) - Reclassification out of accumulated other comprehensive income (loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassifications into net income	$ (3,260)	$ 1,662	$ (11,747)	$ 12,510
Revenues | Gain (loss) on cash flow hedges, net of taxes
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassifications into net income	685	(308)	1,048	1,190
Operating expenses | Gain (loss) on cash flow hedges, net of taxes
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassifications into net income	$ (3,945)	$ 1,970	$ (12,795)	$ 11,320

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Stock Repurchase Program - Additional Information (Detail) - USD ($)	1 Months Ended				3 Months Ended					4 Months Ended	9 Months Ended
	Aug. 31, 2019	Jun. 30, 2019	May 31, 2019	Feb. 28, 2019	Aug. 31, 2019	Jul. 31, 2019	Jul. 31, 2018	Apr. 30, 2018	Jan. 31, 2018	May 31, 2019	Jul. 31, 2019	Jul. 31, 2018	Jun. 14, 2019
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program authorized amount						$ 500,000,000.0					$ 500,000,000.0		$ 500,000,000.0
Remaining amount available for further repurchases						$ 500,000,000.0					$ 500,000,000.0
Purchases of treasury stock (in shares)						775,000	1,509,000				1,901,000	4,411,000
Accelerated Share Repurchase Program February 2019 ASR
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program authorized amount				$ 100,000,000.0
Prepayment to repurchase stock				100,000,000.0
Initial share delivery				$ 80,000,000.0
Stock repurchase program, prepayment during prior period, derivative settlement			$ 20,000,000.0
Purchases of treasury stock (in shares)			97,601							900,000
Shares repurchased average price per share (in USD per share)										$ 114.01
Accelerated Share Repurchase Program June 2019 ASR
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program authorized amount		$ 100,000,000.0
Prepayment to repurchase stock		100,000,000.0
Initial share delivery		$ 80,000,000.0
Accelerated Share Repurchase Program September 2017
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, prepayment during prior period, derivative settlement									$ 20,000,000.0
Open Market Share Repurchase
Equity, Class of Treasury Stock [Line Items]
Purchases of treasury stock (in shares)								400,000
Shares repurchased average price per share (in USD per share)								$ 82.61
Shares repurchased during period								$ 35,000,000.0
Subsequent Event | Accelerated Share Repurchase Program June 2019 ASR
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, prepayment during prior period, derivative settlement	$ 20,000,000.0
Purchases of treasury stock (in shares)	90,202				800,000
Shares repurchased average price per share (in USD per share)					$ 130.23

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Stock Repurchase Program - Stock Repurchase Activities (Detail) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Stock Repurchase Program [Abstract]
Purchases of treasury stock (in shares)	775	1,509	1,901	4,411
Aggregate purchased shares	$ 100,000	$ 132,000	$ 209,185	$ 387,000
Reissuance of treasury stock	1,166	1,107	3,009	2,527

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Stock Compensation - Stock Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock compensation expense before taxes	$ 39,453	$ 37,252	$ 114,827	$ 102,540
Income tax benefit	(6,593)	(7,111)	(19,188)	(19,574)
Stock compensation expense after taxes	32,860	30,141	95,639	82,966
Cost of products
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock compensation expense before taxes	4,493	3,820	12,684	10,663
Cost of maintenance and service
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock compensation expense before taxes	1,694	1,442	4,675	3,979
Research and development expense
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock compensation expense before taxes	19,383	18,412	55,802	48,958
Sales and marketing expense
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock compensation expense before taxes	7,360	7,317	21,790	20,813
General and administrative expense
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock compensation expense before taxes	$ 6,523	$ 6,261	$ 19,876	$ 18,127

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Stock Compensation - Additional Information (Detail) $ in Millions	3 Months Ended
	Jul. 31, 2019 USD ($)
New Accounting Pronouncement, Early Adoption [Line Items]
Unamortized share-based compensation expense	$ 298.1
Weighted-average period of total compensation costs to be recognized in years	2 years 4 months 24 days

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Stock Compensation - Schedule of Intrinsic Value of Equity Awards Exercised (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Stock Compensation [Abstract]
Intrinsic value of awards exercised	$ 37,436	$ 19,283	$ 96,014	$ 50,075

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Net Income per Share - Reconciliation of Weighted Average Common Shares Used to Calculate Basic Net Income Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Numerator:
Net income (loss)	$ 99,929	$ 79,409	$ 371,653	$ 178,190
Denominator:
Weighted-average common shares for basic net income per share (shares)	150,123	148,490	149,708	148,760
Dilutive effect of potential common shares from equity-based compensation (shares)	4,477	4,124	4,151	4,358
Weighted-average common shares for diluted net income per share (shares)	154,600	152,614	153,859	153,118
Net income per share:
Basic (in USD per share)	$ 0.67	$ 0.53	$ 2.48	$ 1.20
Diluted (in USD per share)	$ 0.65	$ 0.52	$ 2.42	$ 1.16
Anti-dilutive employee stock-based awards excluded (shares)	152	1,063	798	774

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Segment Disclosure - Additional information (Detail)	3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 31, 2019 Customer	Jul. 31, 2018 Customer	Jul. 31, 2019 Segment Customer	Jul. 31, 2018 Customer	Oct. 31, 2018 Segment
Segment Reporting Information [Line Items]
Number of reportable operating segment | Segment			2		1
Customer concentration risk | Sales revenue
Segment Reporting Information [Line Items]
Number of major customers | Customer	1	1	1	1

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Segment Disclosure - Revenues Related to Operations by Geographic Areas (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 852,970	$ 779,714	$ 2,509,613	$ 2,325,976
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	407,408	365,414	1,231,951	1,126,624
Europe
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	90,074	90,657	257,502	273,136
Japan
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	65,709	71,981	203,486	210,805
Asia-Pacific and Other
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 289,779	$ 251,662	$ 816,675	$ 715,411

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Segment Disclosure - Schedule of Segment Reporting Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Segment Reporting Information [Line Items]
Total revenue	$ 852,970	$ 779,714	$ 2,509,613	$ 2,325,976
Adjusted operating income	127,594	63,968	390,510	298,700
Operating Segments
Segment Reporting Information [Line Items]
Adjusted operating income	$ 216,581	$ 167,847	$ 627,369	$ 553,909
Adjusted operating margin	25.00%	22.00%	25.00%	24.00%
Operating Segments | Semiconductor & System Design:
Segment Reporting Information [Line Items]
Total revenue	$ 769,411	$ 708,413	$ 2,260,372	$ 2,122,780
Adjusted operating income	$ 207,773	$ 169,798	$ 604,497	$ 564,656
Adjusted operating margin	27.00%	24.00%	27.00%	27.00%
Operating Segments | Adjusted operating margin
Segment Reporting Information [Line Items]
Total revenue	$ 83,559	$ 71,301	$ 249,241	$ 203,196
Adjusted operating income	$ 8,808	$ (1,951)	$ 22,872	$ (10,747)
Adjusted operating margin	11.00%	(3.00%)	9.00%	(5.00%)

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Segment Disclosure - Schedule of Segment Reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Segment Reporting Information [Line Items]
Operating income	$ 127,594	$ 63,968	$ 390,510	$ 298,700
Amortization of intangible expense	(24,414)	(31,699)	(79,345)	(93,248)
Stock-based compensation expense	(39,453)	(37,252)	(114,827)	(102,540)
Operating Segments
Segment Reporting Information [Line Items]
Operating income	216,581	167,847	627,369	553,909
Reconciling items:
Segment Reporting Information [Line Items]
Amortization of intangible expense	23,714	30,805	77,138	90,538
Stock-based compensation expense	39,453	37,252	114,827	102,540
Other	$ (25,820)	$ (35,822)	$ (44,894)	$ (62,131)

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Other Income (Expense), net - Components of Other Income (Expense), Net (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Other Income (Expense)
Interest income	$ 1,789	$ 1,096	$ 5,280	$ 3,659
Interest expense	(2,214)	(4,558)	(10,608)	(11,281)
Gain (loss) on assets related to executive deferred compensation plan assets	4,686	8,397	25,201	14,592
Foreign currency exchange gain (loss)	696	1,627	2,999	1,725
Other, net	360	1,363	501	3,900
Total	$ 5,317	$ 7,925	$ 23,373	$ 12,595

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Taxes - Provision for Income Taxes and Effective Tax Rates (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Income Tax Disclosure [Abstract]
Income before income taxes	$ 132,911	$ 71,893	$ 413,883	$ 311,295
Provision (benefit) for income taxes	$ 32,982	$ (7,516)	$ 42,230	$ 133,105
Effective tax rate	24.80%	(10.50%)	10.20%	42.80%

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Taxes - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended				9 Months Ended
	Jul. 31, 2017	Jul. 31, 2019	Apr. 30, 2019	Jan. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Nov. 01, 2018	Oct. 31, 2018
Taxes [Line Items]
Income tax expense, income tax examination related to prior tax years		$ 18,300,000
Statutory federal income tax rate						21.00%
Deferred income taxes		339,354,000				$ 339,354,000			$ 404,166,000
Provision (benefit) for income taxes		32,982,000			$ (7,516,000)	42,230,000	$ 133,105,000
Unrecognized tax benefits			$ 17,400,000
Minimum
Taxes [Line Items]
Estimated potential decrease in underlying unrecognized tax benefits		0				0
Maximum
Taxes [Line Items]
Estimated potential decrease in underlying unrecognized tax benefits		$ 6,000,000				$ 6,000,000
Retained Earnings | Accounting Standards Update 2016-16
Taxes [Line Items]
Cumulative effect adjustment								$ 130,500,000
Foreign Tax Authority | Hungarian Tax Authority
Taxes [Line Items]
Unrecognized tax benefits from settlement with tax authorities			$ 10,300,000	$ 22,800,000
Synopsys Hungary | Foreign Tax Authority | Tax Year 2011 - Tax Year 2013 | Hungarian Tax Authority
Taxes [Line Items]
Aggregate tax assessment	$ 25,000,000.0
Estimate of additional penalties and interest	$ 11,000,000.0
snps_FiscalYear2017 | TAIWAN, PROVINCE OF CHINA
Taxes [Line Items]
Unrecognized tax benefits from settlement with tax authorities				$ 5,500,000

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Contingencies (Details)	Jun. 29, 2018 USD ($)
Loss Contingencies [Line Items]
Patent cross-license	7 years
Mentor Patent Litigation
Loss Contingencies [Line Items]
Payments for legal settlements	$ 65,000,000.0
Minimum | Mentor Patent Litigation
Loss Contingencies [Line Items]
Potential one-time termination charge	0.0
Maximum | Mentor Patent Litigation
Loss Contingencies [Line Items]
Potential one-time termination charge	$ 25,000,000.0