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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2022
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 0-19807
SYNOPSYS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
690 East Middlefield Road, Mountain View, California
(Address of principal executive offices)
56-1546236
(I.R.S. Employer
Identification No.)
94043
(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
Common Stock
Trading Symbol(s)
SNPS
Name of Each Exchange on Which Registered
Nasdaq Global Select Market
(par value of $0.01 per share)
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ 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 ☒ 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.
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Large accelerated filer
ý
Non-accelerated filer
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately
$32.2 billion. Aggregate market value excludes an aggregate of approximately 40.8 million shares of the registrant's common stock, par value of
$0.01 per share (Common Stock) held by the registrant’s executive officers and directors and by each person known by the registrant to own 5%
or more of the outstanding common stock on such date. Exclusion of shares held by any of these persons should not be construed to indicate
that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that
such person is controlled by or under common control with the registrant.
On December 7, 2022, 152,417,194 shares of Common Stock were outstanding.
Portions of the registrant’s definitive Proxy Statement relating to the registrant’s 2023 Annual Meeting of Stockholders, scheduled to be held on
April 12, 2023, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. Except as expressly incorporated
by reference, the registrant’s Proxy Statement shall not be deemed to be part of this report.
DOCUMENTS INCORPORATED BY REFERENCE
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SYNOPSYS, INC.
ANNUAL REPORT ON FORM 10-K
Fiscal year ended October 31, 2022
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director
Independence
Principal Accountant Fees and Services
PART IV
Item 15.
SIGNATURES
Exhibits and Financial Statement Schedules
Page No.
3
16
30
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31
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45
48
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100
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Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this Form 10-K) contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act), Section 21E of the Securities Exchange
Act of 1934, as amended (the Exchange Act), and the Private Securities Litigation Reform Act of 1995. Any
statements herein that are not statements of historical fact are forward-looking statements. Words such as “may,”
“will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,”
“forecast,” “likely,” “potential,” “seek,” or the negatives of such terms and similar expressions are intended to identify
forward-looking statements. This Form 10-K includes, among others, forward-looking statements regarding:
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our business, product and platform strategies and business outlook;
the impact of macroeconomic conditions, rising global interest rates, legislative developments, trade
disruptions, including export control restrictions, semiconductor shortages and supply chain
disruptions on our business and our customers’ businesses;
regulatory changes in the United States and other regions in which we operate;
the impact of the ongoing COVID-19 pandemic;
demand for our products and our customers’ products;
the expected realization of our contracted but unsatisfied or partially unsatisfied performance
obligations;
customer license renewals;
our ability to successfully compete in the markets in which we serve;
our license mix, business model and variability in our revenue;
the continuation of current industry trends towards customer and vendor consolidation, and the
impact of such consolidation;
prior and future acquisitions, including the expected benefits and risks of completed acquisitions;
the completion of development of our unfinished products, or further development or integration of
our existing products;
technological trends in integrated circuit design;
the status of litigation and/or regulatory investigations;
our ability to protect our intellectual property;
our ability to attract and retain senior management and key employees worldwide;
the impact of tax laws and changes in such laws on our business;
our cash, cash equivalents and cash generated from operations; and
our future liquidity requirements.
These statements are based on our current expectations about future events and 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. Accordingly, we caution readers
not to place undue reliance on these statements. Such risks and uncertainties include, among others, those listed in
Part I, Item 1A, Risk Factors and Item 3, Legal Proceedings; and Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, Item 7A, Quantitative and Qualitative Disclosures About
Market Risk and Item 9A, Controls and Procedures of this Form 10-K. 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, Inc. or persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements. Readers are urged to carefully review and
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consider the various disclosures made in this report 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.
Fiscal Year End
Our fiscal year ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that
approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional
week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2022, 2021 and 2020 were 52-week
years and ended on October 29, 2022, October 30, 2021 and October 31, 2020, respectively. Fiscal 2023 will be a
52-week year.
For presentation purposes, this Form 10-K refers to the closest calendar month end.
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Item 1. Business
Company and Segment Overview
PART I
Synopsys, Inc. (Synopsys, we, our or us) provides products and services used across the entire Silicon to Software
spectrum to bring Smart Everything to life. From engineers creating advanced semiconductors to product teams
developing advanced electronic systems to software developers seeking to ensure the security and quality of their
code, our customers trust that our technologies will enable them to meet new requirements for low power, reliability,
mobility, security and more.
We are a global leader in supplying the electronic design automation (EDA) software that engineers use to design
and test integrated circuits (ICs), also known as chips. We also offer semiconductor intellectual property (IP)
products, which are pre-designed circuits that engineers use as components of larger chip designs rather than
designing those circuits themselves. We provide software and hardware used to validate the electronic systems that
incorporate chips and the software that runs on them. To complement these offerings, we provide technical services
and support to help our customers develop advanced chips and electronic systems. These products and services
are part of our Semiconductor & System Design segment.
We are also a leading provider of software tools and services that improve the security, quality and compliance of
software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and
industrials. These tools and services are part of our Software Integrity segment.
Corporate Information
We incorporated in 1986 in North Carolina and reincorporated in 1987 in Delaware. Our headquarters are located at
690 East Middlefield Road, Mountain View, California 94043, and our headquarters’ telephone number is
(650) 584-5000. Our website is https://www.synopsys.com/. We have approximately 125 offices worldwide.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy
Statements, including those relating to our Annual Meeting of Stockholders, and any amendments to such reports or
other information filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available through the
Investor Relations page of our website (https://www.synopsys.com/company/investor-relations/financials.html) free
of charge as soon as reasonably practicable after we file them with, or furnish them to, the SEC (www.sec.gov). We
use our Investor Relations page as a routine channel for distribution of important information, including news
releases, investor presentations and financial information. The contents of our website are not part of this Form 10-
K and shall not be deemed incorporated by reference.
Background
In this era of Smart Everything, we have seen a remarkable proliferation of consumer and wireless electronic
products, particularly mobile devices. The growth of the Internet and cloud computing has provided people with new
ways to create, store, and share information. At the same time, the increasing use of electronics in cars, buildings,
appliances, and other consumer products is creating a connected landscape of smart devices. Numerous software
applications have been developed to expand the potential of these connected devices. The increasing impact of
artificial intelligence and machine learning is driving an increase in the activity of new and existing chip and system
design companies around the world.
These developments have been fueled by innovation in the semiconductor and software industries. It is now
common for a single chip to combine many components (processor, communications, memory, custom logic, input/
output) and embedded software into a single system-on-chip (SoC), necessitating highly complex chip designs. The
most complex chips today contain more than a billion transistors. Transistors are the basic building blocks for ICs,
each of which may have features that are less than 1/1,000th the diameter of a human hair.
These devices are manufactured using masks to direct beams of light onto a wafer of silicon. At such small
dimensions, the wavelength of light itself can become an obstacle to production, proving too big to create such
dense features and requiring creative and complicated new approaches. Designers have turned to new
manufacturing techniques to solve these problems, such as multiple-patterning lithography and FinFET 3D
transistors, which in turn have introduced new challenges to design and production.
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The popularity of mobile devices and other electronic products has increased demand for chips and systems with
greater functionality and performance, reduced size, and lower power consumption. Our customers, who design
those products, are facing intense pressure to deliver innovative offerings in shorter timeframes and at lower prices.
In other words, innovation in chip and system design often hinges on providing products “better,” “sooner,” and
“cheaper” than competitors. The design of these chips and systems is extremely complex and necessitates state-of-
the-art solutions. Over the past several years, market verticals including artificial intelligence (AI), 5G, automotive
and cloud computing infrastructure have contributed to the ongoing demand for our products and services.
A similar dynamic is at work in the software arena, whether the software is embedded on a chip or used in other
applications. The pace of innovation often requires developers to deliver more secure, high-quality software, which
can include millions of lines of code, in increasingly frequent release cycles. Bugs, defects and security
vulnerabilities in code can be difficult to detect and expensive to fix. Despite these challenges, it is crucial to have
high-quality, secure code to ensure consumers' privacy and safety, especially at a time when software is critical in
many industries across a growing array of smart devices.
Our Role—As the Silicon to Software Partner
Synopsys' Silicon to Software technologies and services are designed to help our customers—chip and system
engineers and software developers—to speed up time to market, achieve the highest quality of results, mitigate risk,
and maximize profitability.
Chip and system designers must determine how best to design, locate and connect the building blocks of chips, and
to verify that the resulting design behaves as intended and can be manufactured efficiently and cost-effectively. This
is a complex, multi-step process that is both expensive and time-consuming. Our wide range of products help at
different steps in the overall design process, from the design of individual ICs to the design of larger systems. Our
products increase designer productivity and efficiency by automating tasks, keeping track of large amounts of data,
adding intelligence to the design process, facilitating reuse of past designs and reducing errors. Our IP products
offer proven, high-quality pre-configured circuits that are ready to use in a chip design, saving customers time and
enabling them to direct resources to features that differentiate their products. Our global service and support
engineers also provide expert technical support and design assistance to our customers.
Software developers are responsible for writing code that not only accomplishes its goals as efficiently as possible,
but also runs securely and is free of defects. We offer products that can help developers write higher quality, more
secure code by analyzing code for quality defects and known security vulnerabilities, adding intelligence and
automation to the software testing process, and helping to eliminate defects in a systematic manner. As developers
make use of open source software in their code, our products can help developers better manage the composition
and security of the code. Our products enable software developers to catch flaws earlier in the development cycle,
when they are less costly to fix.
Products and Services
Semiconductor & System Design Segment
Our Semiconductor & System Design segment includes the EDA, IP and System Integration and Other revenue
categories.
EDA
Designing ICs involves many complex steps, including, among others architecture definition, register transfer level
(RTL) design, functional/RTL verification, logic design or synthesis, gate-level verification, floorplanning, place and
route, and physical verification. Designers use our EDA products to automate the IC design process, reduce errors
and enable more powerful and robust designs.
As the availability and amount of cloud-based data storage grows, customer interest in accessing EDA on the cloud
is also increasing as customers seek to benefit from the scalability and flexibility that cloud computing can offer to
their flows and engineering teams. While many of our solutions have been used in cloud-based environments for
years, such as in a customer’s own server and/or cloud environment, in fiscal 2022 we launched a new Synopsys
Cloud offering that provides customers additional options for accessing our EDA products.
Our solutions comprehensively address the design process, featuring a large number of EDA products that
generally fall into the following categories:
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Digital and custom IC design and field programmable gate array (FPGA) design, which includes
software tools to design an IC;
Verification, which includes technology to verify that an IC design behaves as intended; and
Manufacturing, which includes products that both enable early manufacturing process development
and convert IC design layouts into the masks used to manufacture the chips.
Digital and Custom IC Design
Our Digital Design Family provides customers with a comprehensive digital design implementation solution that
includes industry-leading products and redefines conventional design tool boundaries to deliver a more integrated
flow than ever before, with better quality and time to results. The platform gives designers the flexibility to integrate
internally developed tools as well as those from third parties. With innovative technologies, a common foundation,
and flexibility, our Digital Design Family helps reduce design times, decrease uncertainties in design steps, and
minimize the risks inherent in advanced, complex IC design. The platform supports multiple technology nodes,
including advanced nodes at 12nm, 10nm, 8/7nm, 6 nm, 5/4nm, and 3nm, with technology collaborations on next-
generation process technologies.
Key design products, available as part of the Digital Design Family, include Fusion Compiler RTL to GDSII design
implementation, Design Compiler® logic synthesis, IC Compiler II physical design, Synopsys TestMAX test and
diagnosis, PrimeTime® static timing analysis, StarRC parasitic extraction, IC Validator physical verification and 3DIC
Compiler, the industry’s first next-generation chip packaging solution, aimed at enabling customers to combine or
stack multiple dice on a single chip. Many of our EDA solutions are bolstered by AI and machine learning
capabilities. In addition, we offer DSO.ai, the first product in the market that brings AI to the entire design process.
This groundbreaking solution autonomously learns through quickly exploring potential design alternatives, enabling
engineers to develop superior design outcomes with our design tools.
Our Custom Design Family is a unified suite of design and verification tools that accelerates the transistor-level
design of robust analog, mixed-signal, and custom-digital ICs. The platform features visually assisted layout
automation, high-performance circuit simulation, reliability-aware verification, and natively integrated StarRC
extraction and physical verification. This product family includes Custom Compiler layout and schematic editor,
StarRC parasitic extraction, and IC Validator physical verification. It also includes PrimeSim, which was launched in
fiscal 2021. The PrimeSim solution integrates PrimeSim SPICE, PrimeSim HSPICE, PrimeSim Pro and PrimeSim
XA. The PrimeWave design environment is also included and provides comprehensive analysis and improved
productivity and ease of use across all tools in PrimeSim.
Our Silicon Lifecycle Management (SLM) Family is a new data analytics-driven platform that uses in-chip monitoring
and sensing to optimize all phases of the silicon lifecycle—from design and manufacturing to in-field deployment
and maintenance. The solution is integrated with the Digital Design Family for design calibration and analytics and
includes Yield Explorer® for product ramp analytics, SiliconDash for test and production analytics, TestMAX ALE
(adaptive learning engine) for intelligent data extraction and communication to the SLM database and DesignWare
PVT IP for in-chip monitoring and sensing.
FPGA Design
FPGAs are complex chips that can be customized or programmed to perform a specific function after they are
manufactured. For FPGA design, we offer Synplify® (Pro® and Premier) implementation and Identify® debug
software tools.
Verification
Our Verification Family is built from our industry-leading verification technologies, providing virtual prototyping, static
and formal verification, simulation, emulation, FPGA-based prototyping, and debug in a unified environment with
verification IP, planning, and coverage technology. By providing consistent compile, runtime and debug
environments across the flow of verification tasks and by enabling seamless transitions across functions, the
platform helps our customers accelerate chip verification, bring up software earlier, and get to market sooner with
advanced SoCs.
The individual products included in the Verification Family are reported in our EDA and IP and System Integration
revenue categories. The solutions reported in our EDA revenue include the following:
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VC SpyGlass family of static verification technologies including lint, CDC (clock domain crossing),
RDC (reset domain crossing), Constraint Checking, Synopsys TestMAX Advisor, and low-power
analysis and verification;
VCS® functional verification solution, our comprehensive RTL and gate-level simulation technology,
including Fine-Grained Parallelism;
Verdi® automated debug system, the industry’s most comprehensive SoC debug;
VC Formal, our next-generation formal verification product;
ZeBu® emulation systems, which use high-performance hardware to emulate SoC designs so that
designers can accelerate hardware, software and power verification of large complex SoCs and
perform earlier verification and optimization of the SoC together with software; and
Other principal individual verification solutions, including the PrimeSim solution and the PrimeWave
design environment.
The verification IP, virtual prototyping, and FPGA-based prototyping solutions that are part of our Verification Family
are included in our IP and System Integration category and further described below.
Manufacturing
Our manufacturing solutions include Sentaurus technology computer-aided design device and process simulation
products, Proteus mask synthesis tools, CATS® mask data preparation software, Yield Explorer® Odyssey, Yield-
Manager® yield management solutions and QuantumATK atomic-scale modeling software.
We also provide consulting and design services that address all phases of the SoC development process, as well
as a broad range of expert training and workshops on our latest tools and methodologies.
IP and System Integration
IP Products
As more functionality converges into a single chip or even a multi-die system, the number of third-party IP blocks
incorporated into designs is rapidly increasing. We provide the broadest, most comprehensive portfolio of high-
quality, silicon-proven IP solutions for SoCs. Our broad Synopsys IP portfolio includes:
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High-quality solutions for widely used wired and wireless interfaces such as USB, PCI Express,
DDR, Ethernet, MIPI, HDMI, and Bluetooth Low Energy;
Logic libraries and embedded memories, including memory compilers, non-volatile memory, and
standard cells with integrated test and repair;
Processor solutions, including configurable ARC® processors, Neural Network processors, Digital
Signal Processor cores, and software and application-specific instruction-set processor tools for
embedded applications;
Security IP solutions, including cryptographic cores and software, security subsystems, platform
security and secured interface IP;
An industry-leading IP offering for the automotive market, optimized for strict functional safety and
reliability standards such as ISO 26262; and
SoC infrastructure IP, datapath and building block IP, mathematical and floating-point components,
Arm® AMBA® interconnect fabric and peripherals, and verification IP.
Our IP Accelerated initiative augments our established, broad portfolio of silicon-proven Synopsys IP with IP
Prototyping Kits and customized IP subsystems to accelerate prototyping, software development, and integration of
IP into SoCs.
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We offer a broad portfolio of 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.
Our Verification IP portfolio, part of our Verification Family, is also part of the IP Products category.
System Integration Solutions
Our System Integration verification solutions include the following elements of our Verification Family:
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HAPS® FPGA-based prototyping systems, which are integrated and scalable hardware-software
solutions for early software development and faster time to market;
Virtualizer virtual prototyping solution, which addresses the increasing development challenges
associated with software-rich semiconductor and electronic products by accelerating both the
development and deployment of virtual prototypes; and
Platform Architect solution, which provides for early analysis and optimization of multi-core SoC
architectures for performance and power.
We also provide a series of tools used in the design of optical systems and photonic devices. Our CODE V® solution
enables engineers to model, analyze and optimize designs for optical imaging and communication systems. Our
LightTools® design and analysis software allows designers to simulate and improve the performance of a broad
range of illumination systems, from vehicle lighting to projector systems.
Other
Our Other revenue category includes revenue from sales of products to academic and research institutions.
Software Integrity Segment
Our Software Integrity segment helps organizations align people, processes and technology to intelligently address
software risks across their portfolio and at all stages of the application lifecycle. The testing tools, services, and
programs enable our customers to manage open source license compliance and detect, prioritize, and remediate
security vulnerabilities and defects across their entire software development lifecycle. Our offerings include security
and quality testing products, managed services, programs and professional services, and training offered as on-
premises and cloud-based delivery.
The Polaris Software Integrity Platform is designed to bring our products and services together into an integrated,
easy-to-use solution that enables security and development teams to build secure, high-quality software faster.
Key offerings in this space include:
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Intelligent Orchestration solution, which enables DevOps to build a testing pipeline that enables a
company to define—within its particular policy guidelines—the rules to determine which tests to run,
including the Synopsys portfolio tests, third party products, or open source tests;
Code Dx, which correlates and prioritizes findings from the Synopsys portfolio, third party products,
and open source tools, providing a comprehensive view of software security risk;
Coverity® static analysis tools, which analyze software code to find crash-causing bugs, incorrect
program behavior, the latest security vulnerabilities, memory leaks and other performance-
degrading flaws;
Black Duck software composition analysis tools, which scan binary and source code for license and
compliance issues and other known security vulnerabilities stemming from incorporated third-party
and open source code;
WhiteHat® Dynamic, our latest dynamic application security testing solution, which rapidly and
accurately finds vulnerabilities in websites and applications;
Seeker® IAST tool, which identifies exploitable security vulnerabilities while web applications are
running, thereby verifying results and eliminating false positives; and
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Defensics® fuzz testing tools, which examine security vulnerabilities in software binaries and
libraries, particularly network protocols and file formats, by systematically sending invalid or
unexpected inputs to the system under test.
Managed services allow developers to test code across many dimensions, and to rapidly respond to changing
testing requirements and evolving threats. This includes mobile application security testing services to find
vulnerabilities in mobile applications as well as dynamic application security testing services, which identify security
vulnerabilities while web applications are running, without the need for source code.
Programs and professional services address unique security and quality needs with specialized consulting by skilled
experts, including the Building Security in Maturity Mode, which measures the effectiveness of software security
initiatives by assessing the current state as compared to industry benchmarks, and the Black Duck on demand audit
services, which provides open source compliance and software vulnerability assessments as part of the due
diligence process for mergers and acquisitions.
Finally, training includes eLearning and instructor-led training that prepares developers and security professionals to
build security and quality into their software development process and remediate found vulnerabilities and defects.
Customer Service and Technical Support
A high level of customer service and support is critical to the adoption and successful use of our products. We
provide technical support for our products through both field-based and corporate-based application engineering
teams.
Post-contract customer support includes providing frequent updates to maintain the utility of the software due to
rapid changes in technology. In our Semiconductor & System Design segment, post-contract customer support for
our EDA and IP products also includes access to the SolvNet® Plus portal, where customers can explore our
complete design knowledge database. Updated daily, the SolvNet Plus portal includes technical documentation,
design tips and answers to user questions. Customers can also engage, for additional charges, with our worldwide
network of applications consultants for additional support needs.
In our Software Integrity segment, post-contract customer support for our products includes access to our support
community portal, where customers can access our product documentation, self-service training materials,
customer forums and our product knowledge base. Customers can also raise support tickets, request replacement
license keys and validate the terms of their active license keys through the portal. Our support community portal is
frequently updated with new and supplemental materials on a variety of topics. Customers may engage dedicated
support engineers for an additional charge.
In addition, we offer training workshops designed to increase customer design proficiency and productivity with our
products. Workshops cover our EDA products and methodologies used in our design and verification flows, as well
as specialized modules addressing system design, logic design, physical design, simulation and testing. We offer
regularly scheduled public and private courses in a variety of locations worldwide, as well as online training (live or
on-demand) through our Virtual Classrooms.
Product Warranties
We generally warrant our products to be free from defects in media and to substantially conform to material
specifications for a period of 90 days for our software products and for up to six months for our hardware products.
In certain cases, we also provide our customers with limited indemnification with respect to claims that their use of
our software products infringes on patents, copyrights, trademarks or trade secrets. We have not experienced
material warranty or indemnity claims to date.
Support for Industry Standards
We actively create and support standards that help our EDA and IP customers increase productivity, facilitate
efficient design flows, improve interoperability of tools from different vendors and ensure connectivity, functionality
and interoperability of IP building blocks. Standards in the electronic design industry can be established by formal
accredited organizations, industry consortia, company licensing made available to all, de facto usage, or through
open source licensing.
In our Semiconductor & System Design segment, our EDA products support many standards, including the most
commonly used hardware description languages: SystemVerilog, Verilog, VHDL and SystemC®. Our products utilize
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numerous industry-standard data formats, APIs and databases for the exchange of design data among our tools,
other EDA vendors’ products and applications that customers develop internally. We also comply with a wide range
of industry standards within our IP product family to ensure usability and interconnectivity.
In our Software Integrity segment, our solutions support several existing and emerging industry standards for
software coding and security, such as the Motor Industry Software Reliability Association coding standards for the
automotive industry. In addition, our products support multiple major programming languages, including C/C++,
Objective C, C#, JavaScript (including many commonly used frameworks), and others. In addition, we support many
common compilers, development environments, frameworks, and data and file formats.
Sales and Distribution
Our Semiconductor & System Design segment customers are primarily semiconductor and electronics systems
companies. The customers for products in our Software Integrity segment include many of these companies as well
as companies from a wider array of industries, including electronics, financial services, automotive, medicine,
energy and industrials.
We market our products and services principally through direct sales in the United States and our principal foreign
markets. Our Software Integrity segment continues to grow its indirect sales partner program, enabling our Software
Integrity segment to engage geographies beyond the reach of our direct sales force and opening opportunities in
targeted vertical markets. We typically distribute our software products and documentation to customers
electronically, but provide physical media (e.g., DVD-ROMs) when requested by the customer.
We maintain sales and support centers throughout the United States. Outside the United States, we maintain sales,
support or service offices in Canada, multiple countries in Europe, Israel and throughout Asia, including Japan,
China, Korea, and Taiwan. Our offices are further described under Part I, Item 2, Properties.
Information relating to domestic and foreign operations, including revenue and long-lived assets by geographic
area, is contained in Part II, Item 8, Financial Statements and Supplementary Data. Risks related to our foreign
operations are described in Part I, Item 1A, Risk Factors.
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Revenue Attributable to Product Categories and Segments
Revenue attributable to each of our four product categories (with EDA, IP & Systems Integration, and Other
comprising our Semiconductor & System Design segment) is shown below as a percentage of our total revenue for
those fiscal years.
Aggregate revenue derived from one of our customers and its subsidiaries through multiple agreements accounted
for 11.7%, 10.6% and 12.4% of our total revenue in fiscal 2022, 2021 and 2020, respectively. In each such year, the
revenue derived from such customer and its subsidiaries was primarily attributable to our Semiconductor & System
Design segment.
Product Sales and Licensing Agreements
We typically license our software to customers under non-exclusive license agreements that restrict use of our
software to specified purposes within specified geographical areas. The majority of licenses to our EDA products
are network licenses that allow a number of individual users to access the software on a defined network, including,
in some cases, regional or global networks. The majority of licenses to our Software Integrity products are capacity
or user licenses that allow a number of users to access the software based on a specified number of team members
or specified code-bases in a defined territory. License fees depend on the type of license, product mix, and number
of copies of each product licensed.
For a full discussion of our software product offerings, see Part II, Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
We typically license Synopsys IP products under nonexclusive license agreements that provide usage rights for
specific designs. Fees under these licenses are typically charged on a per design basis plus, in some cases,
royalties. See Note 2 of the Notes to Consolidated Financial Statements for further information.
Our hardware products, which principally consist of our prototyping and emulation systems, are either sold or leased
to our customers. Risks related to disruptions in our supply chain affecting our business are described in Part I, Item
1A, Risk Factors.
10
Revenue by Product Category51%56%57%39%35%33%9%9%10%EDAIP and System IntegrationSoftware IntegrityOtherFiscal 2022Fiscal 2021Fiscal 20200%10%20%30%40%50%60%70%80%90%100% Table of Contents
Our professional services team typically provides design consulting services to our customers under consulting
agreements with statements of work specific to each project.
Competition
The EDA industry is highly competitive. We compete against other EDA vendors and against our customers’ own
design tools and internal design capabilities. In general, we compete principally on technology leadership, product
quality and features (including ease-of-use), license terms, price and payment terms, post-contract customer
support, flexibility of tool use, and interoperability with our own and other vendors’ products. We also deliver a
significant amount of engineering and design consulting for our products. No single factor drives an EDA customer’s
buying decision, and we compete on all fronts to capture a higher portion of our customers’ budgets. Our
competitors include EDA vendors that offer varying ranges of products and services, such as Cadence Design
Systems, Inc. and Siemens EDA. 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, as well as with
customers’ internally developed design tools and capabilities.
Within our Semiconductor & System Design segment, Synopsys also competes against numerous other IP
providers, including Cadence Design Systems, Inc., and our customers' internally developed IP. We generally
compete on the basis of product quality, reliability, features, availability of titles for new manufacturing processes,
ease of integration with customer designs, compatibility with design tools, license terms, price and payment terms,
and customer support.
Our Software Integrity segment competes 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. For example, competitors named in the Gartner Magic
Quadrant for Application Security Testing include Checkmarx Ltd., Veracode, Inc. and Micro Focus International plc
(now a part of Open Text Corporation).
Risks related to competitive factors affecting our business are described in Part I, Item 1A, Risk Factors.
Proprietary Rights
We primarily rely upon a combination of copyright, patent, trademark, and trade secret laws and license and non-
disclosure agreements to establish and protect our proprietary rights. We have a diversified portfolio of more than
3,400 United States and foreign patents issued, and we will continue to pursue additional patents in the future. Our
issued patents have expiration dates through 2041. Our patents primarily relate to our products and the technology
used in connection with our products. Our source code is protected both as a trade secret and as an unpublished
copyrighted work. However, third parties may independently develop similar technology. In addition, effective
copyright and trade secret protection may be unavailable or limited in some foreign countries. While protecting our
proprietary technology is important to our success, our business as a whole is not significantly dependent upon any
single patent, copyright, trademark, or license.
In many cases, under our customer agreements and other license agreements, we offer to indemnify our customers
if the licensed products infringe on a third party’s intellectual property rights. As a result, we may from time to time
need to defend claims that our customers’ use of our products infringes on these third-party rights. We license
software and other intellectual property from third parties, including, in several instances, for inclusion in our
products. Risks related to our use of third-party technology are described in Part I, Item 1A, Risk Factors.
Corporate Social Responsibility at Synopsys
Sustainable, just and secure business practices are at the core of who we are as a company and influence our
behavior as individuals. Our "Smart Future" Corporate Social Responsibility (CSR) strategy provides a framework
for how we manage our own operational impact, so that we can conduct business in a manner that we believe both
drives commercial success and contributes to a better world. Through CSR, we are taking action on important
Environmental, Social and Governance (ESG) matters to build a more sustainable business, including initiatives to
procure more renewable energy and to reduce our operational footprint, as well as driving a culture of inclusion and
diversity throughout our workforce and on our Board of Directors.
We aim to influence positive social and environmental change across our ecosystem by applying our
resources, competencies, and team-based problem-solving approach. Our technology is in action in countless
ways, from bringing safety and security to the driverless car revolution to enabling the technologies that are an
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increasingly vital component of protecting human health and well-being. As the role of computing increases
exponentially, the Internet of things (IoT), 5G and machine learning applications risk driving similarly exponential
energy consumption and carbon emissions. This makes our work to enable low-power computing at the device level
and in the cloud especially critical to the industry’s sustainability.
Additional information about our approach to CSR and ESG issues is available on our CSR website, including our
Environmental Policy, our CSR Report, and our CDP Climate Change Questionnaire. The contents of our website,
CSR Report and CDP Climate Change Questionnaire are referenced for general information only and are not
incorporated into this Form 10-K.
Human Capital Resources
At Synopsys, we are helping our employees pursue their passion and make their mark on the world of Smart
Everything. We believe this creates value for us, our stockholders, and the lives of the people we impact every day.
Our commitment to attracting, developing and retaining the brightest and best talent makes this goal possible. As of
our fiscal year-end, Synopsys had approximately 19,000 employees, with approximately 26% in the United States
and 74% in other locations around the world. Approximately 80% of our employees are engineers, and over half of
those employees hold Masters’ or PhD degrees. The human capital measures and objectives that we focus on
include employee health, safety and wellbeing, talent acquisition and retention, employee engagement,
development and training, inclusion and diversity, and compensation and pay equity.
Risks related to our human capital are described in Part I, Item 1A, Risk Factors.
Health, Safety and Wellbeing
The health and safety of our employees and their families remains a top priority. In fiscal 2022, we held employee
vaccination clinics in our offices and as the year progressed our focus shifted from supporting our employees during
a pandemic to helping them thrive in the new hybrid work environment.
With employee wellness at the forefront of our efforts, we provided our employees with a variety of benefits and
resources to address the inherent challenges of working remotely, transitioning to a hybrid work environment, or
returning to the office full-time. This included a focus on building skills to navigate a hybrid work environment in a
way that enables employees to be successful at work and in their personal lives. We also continued our Stronger
Through Wellbeing campaign, focused on the importance of employees prioritizing their health and overall
wellbeing. As part of this campaign, employees were encouraged to participate in four global recharge days which
were designed to help them unplug and unwind.
Recruitment and Retention
Our workforce is representative of the industry we serve. In fiscal 2022, we increased our employee headcount by
approximately 16%, with a continued focus on increasing the number of women in technical positions and ensuring
a vibrant talent pipeline with early career hiring and investment in training and development. As with many other
companies in the technology industry, we experienced an increase in total employee turnover in fiscal 2022. As of
our fiscal year-end, our undesired turnover rate was 6.9%. We calculate undesired turnover rate by dividing the
number of undesired exits from Synopsys by the average headcount for fiscal 2022, and we define undesired
turnover as exits by high-performing employees who resigned from Synopsys (or its subsidiaries) to pursue other
work opportunities. Undesired turnover does not include employees with low performance or whose resignation was
mutual or due to personal reasons, such as retirement and returning to school. We attribute the strong retention of
our talented workforce to a number of factors, including exciting and challenging assignments, strong leadership
and management, a culture of integrity, the opportunity to learn new skills and advance careers, our commitment to
inclusion and diversity, and the strength of our technology and customer relationships, along with competitive and
equitable total rewards.
Inclusion and Diversity
Inclusion and diversity run through our corporate values at every level—from our foundation of integrity to our
execution excellence, from our dedicated leadership to our united passion for a better tomorrow. We have always
strived to be a company where different perspectives and backgrounds are celebrated, which we believe helps
make Synopsys stronger. We care deeply about the diversity of our teams, talent pipelines and pay and
development programs, with a goal to ensure inclusive, equitable practices. We carefully study retention trends and
feedback from diverse groups to identify areas where we can improve.
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In fiscal 2022, we continued to increase the representation of women in our workforce globally and increased
representation of Black, Latinx and Indigenous individuals in our U.S. employee base. As of our fiscal year-end:
•
•
•
Women comprised 24.9% of our global organization;
Women in senior level positions comprised 12.4% of all senior level positions at the company; and
U.S. Black, Latinx, and Indigenous persons comprised 5.8% of our U.S. workforce.
We provide leadership training designed to promote inclusion and diversity in attracting, retaining and developing
our workforce. In addition, the employee resource groups continue to meet regularly, host events and implement
actions to attract diverse talent and foster an inclusive workplace.
In fiscal 2022, we added workforce metrics such as diversity, employee retention and leadership succession
planning as performance criteria that are considered by our Compensation and Organizational Development
Committee when establishing incentive goals for our executive officers. This reinforces that inclusion and diversity
are a key part of our culture and amplifies the importance of executive involvement to advance our progress.
Total Rewards
To ensure a compelling total rewards philosophy, we have practices in place to deliver fair and equitable
compensation for employees based on their contribution and performance. We benchmark market practices and
regularly review our compensation against the market to ensure it remains competitive. We also offer a
comprehensive and tailored set of benefits for employees and their families, providing protection from unexpected
losses or medical expenses. Our compensation and benefit programs are tailored to the various geographies in
which we operate, and for eligible employees, may include:
•
•
•
•
•
•
•
•
•
•
Market-competitive salary and cash bonus opportunity;
Robust medical, dental, vision, and wellness benefits;
Financial planning tools and employee assistance plans;
Comprehensive leave alternatives;
Employee Stock Purchase Plan;
Equity compensation for eligible employees;
Life insurance options;
Retirement plans and associated benefits;
Student loan repayment assistance; and
Parental resources and adoption benefits.
Employee Engagement
We use employee feedback to drive and improve processes that support our customers and ensure a deep
understanding of our culture and vision among our employees. Through our semi-annual SHAPE Synopsys
surveys, we obtain employee insights on our values, manager effectiveness, ability to innovate, perceptions on
inclusion and diversity, and other critical factors. By inviting employees to share their experiences, we create space
for important conversations about who we are, where we are going, and how we can connect with each other and
our work.
At mid-year fiscal 2022, approximately 90% of our employee population participated in the SHAPE survey. Results
showed our global workforce to be highly engaged, with our overall score outpacing the industry engagement
benchmark. We saw strong scores from our people regarding their connection to our culture, their personal
investment in Synopsys’ strategies and objectives, and their team’s ability to innovate. As we grow, we aspire to
maintain our results-oriented culture by balancing productivity with smart investments in our people’s development,
while also supporting individual wellbeing.
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Ongoing performance feedback encourages greater engagement in our business and improved individual
performance. Each year, our employees participate in our performance development process that summarizes key
accomplishments for the preceding year, establishes new stretch goals, and identifies critical capabilities for
development. As part of this process, we encourage managers to solicit and share supportive multi-rater feedback,
further strengthening the focus on teamwork and team success.
Talent Development and Succession Planning
We provide several leadership programs to address the career advancement and associated business impact of our
employees. Through our digital learning platform, which was heavily utilized in fiscal 2022, we foster and support an
“always learning” culture where employees can access training, external articles, videos and blogs. In addition, we
hosted a series of in-person and on-demand learning sessions designed to build capability and adaptability required
for the future. As employees advance in their careers, our training framework builds new capabilities on established
foundational skills.
Based upon the belief that our employees deserve great managers, our management training is designed to
increase capability in the areas of communication, engagement, coaching, inclusion and diversity, hiring and on-
boarding, business skills and ensuring an ethical and supportive work environment free from bias and harassment.
In fiscal 2022, we also focused on training and resources for our managers to help them effectively manage and
lead hybrid teams to enable effective team dynamics as more team members transition back to the office. In
addition, our regions and business teams customize development programs for their specific needs.
We remain committed to equipping leaders for the future. Because the depth and readiness of our leadership
pipeline is critically important to our business, in fiscal 2022 we identified key roles across our enterprise, ensured
qualified successors were in place for those roles and have committed to establishing development plans that will
be tracked, assessed for effectiveness, and adjusted as we move ahead. We believe these actions will enable us to
sustain a culture that honors the importance of learning, leading and growing.
Information about our Executive Officers
The executive officers of Synopsys and their ages as of December 12, 2022 were as follows:
Name
Aart J. de Geus
Sassine Ghazi
Shelagh Glaser
Richard Mahoney
John F. Runkel, Jr.
Age Position
68
Chief Executive Officer and Chairman of the Board of Directors
52
58
60
67
President and Chief Operating Officer
Chief Financial Officer
Chief Revenue Officer
General Counsel and Corporate Secretary
Aart J. de Geus co-founded Synopsys and has served as Chairman of our Board of Directors since February 1998
and Chief Executive Officer since January 1994. He served as Co-Chief Executive Officer with Dr. Chi-Foon Chan
from May 2012 until April 2022. Since the inception of Synopsys in December 1986, Dr. de Geus has held a variety
of positions, including President, Senior Vice President of Engineering and Senior Vice President of Marketing. He
has served as a member of Synopsys’ Board of Directors since 1986, and served as Chairman of our Board of
Directors from 1986 to 1992 and again from 1998 until present. Dr. de Geus has also served on the board of
directors of Applied Materials, Inc. since July 2007. Dr. de Geus holds an M.S.E.E. from the Swiss Federal Institute
of Technology in Lausanne, Switzerland and a Ph.D. in Electrical Engineering from Southern Methodist University.
Sassine Ghazi has served as our Chief Operating Officer since August 2020 and became our President in
November 2021. Mr. Ghazi joined Synopsys in March 1998 as an Application Engineer and most recently served as
General Manager of the Design Group. Prior to joining Synopsys, Mr. Ghazi was a design engineer at Intel
Corporation. Mr. Ghazi received his bachelor’s degree in Business Administration from Lebanese American
University; a B.S.E.E from the Georgia Institute of Technology in 1993; and an M.S.E.E. from the University of
Tennessee in 1995.
Shelagh Glaser joined Synopsys as our Chief Financial Officer on December 2, 2022 and succeeds Trac Pham, our
former Chief Financial Officer. Prior to joining Synopsys, Ms. Glaser served as Chief Financial Officer of Zendesk,
Inc. from May 2021 to November 2022. Ms. Glaser previously served in senior finance roles at Intel Corporation, a
multinational technology company, including serving as its Corporate Vice President and Chief Financial Officer and
Chief Operating Officer for its Data Platform Group since July 2019 and serving as its Corporate Vice President and
Chief Financial Officer and in various other senior roles in its Client Computing Group from December 2013 to July
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2019. Ms. Glaser has served as a director and member of the Audit Committee at PubMatic, Inc. since June 2022.
Ms. Glaser holds a B.A. in Economics from the University of Michigan and an M.B.A. in Finance from Carnegie
Mellon University.
Richard Mahoney has served as our Chief Revenue Officer since November 2022. Mr. Mahoney succeeds Joseph
W. Logan, who served as our Chief Revenue Officer during fiscal 2022. Mr. Mahoney joined Synopsys as a Special
Projects Advisor in May 2022. Prior to joining Synopsys, Mr. Mahoney held several senior management positions
with Ansys, Inc. from 2016 to 2022, including most recently as Senior Vice President of Worldwide Sales, Marketing
and Customer Excellence from December 2016 to May 2022. Prior to joining Ansys, from 2014 to 2016, Mr.
Mahoney was Senior Vice President, Design Enablement and International Sales, at Global Foundries, a
semiconductor manufacturing company. Mr. Mahoney holds an A.S. in Computer Science from the Maxwell Institute
of Technology.
John F. Runkel, Jr. has served as our General Counsel and Corporate Secretary since May 2014. From October
2008 to March 2013, he was Executive Vice President, General Counsel, and Corporate Secretary of Affymetrix,
Inc. He served as Senior Vice President, General Counsel and Corporate Secretary of Intuitive Surgical, Inc. from
2006 to 2007. Mr. Runkel served in several roles at VISX, Inc. from 2001 to 2005, most recently as Senior Vice
President of Business Development and General Counsel. Mr. Runkel was also a partner at the law firm of
Sheppard, Mullin, Richter & Hampton LLP for 11 years. Mr. Runkel holds a Bachelor of Arts and a Juris Doctorate
from the University of California, Los Angeles.
There are no family relationships among any Synopsys executive officers or directors.
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Item 1A. Risk Factors
A description of the risk factors associated with our business is set forth below. Some of these risks are highlighted
in the following discussion, and in Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Legal Proceedings, and Quantitative and Qualitative Disclosures About Market Risk. The occurrence of
any of these risks or additional risks and uncertainties not presently known to us or that we currently believe to be
immaterial could materially and adversely affect our business, financial condition, operating results and stock price.
These risks and uncertainties could cause our actual results to differ materially from the results contemplated by the
forward-looking statements contained in this report. Investors should carefully consider all relevant risks and
uncertainties before investing in our common stock.
Industry Risks
Uncertainty in the global economy, and its potential impact on the semiconductor and electronics
industries, may negatively affect our business, operating results and financial condition.
Uncertainty caused by the recent challenging global economic conditions, including due to the effects of the recent
rise in inflation and interest rates and the continuing COVID-19 pandemic, 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.
Economic conditions could continue to deteriorate in the future, and, in particular, the semiconductor and electronics
industries could fail to grow, including as a result of the effects of, among other things, rising inflation and interest
rates, a sustained global semiconductor shortage, supply chain disruptions, the COVID-19 pandemic, and any
disruption of international trade relationships such as tariffs, export licenses or other government trade restrictions.
Furthermore, China’s stated policy of becoming a global leader in the semiconductor industry may lead to increased
competition and further disruption of international trade relationships, including, but not limited to, additional
government trade restrictions. For more on risks related to government export and import restrictions such as the
U.S. government’s Entity List and Export Regulations (as defined below), see “Industry Risks – We are subject to
governmental export and import requirements that could subject us to liability and restrict our ability to sell our
products and services, which could impair our ability to compete in international markets.”
Adverse economic conditions affect demand for devices that our products help create, such as the ICs incorporated
in personal computers, smartphones, automobiles and servers. Longer-term reduced demand for these or other
products could result in reduced demand for design solutions and significant decreases in our average selling prices
and product sales over time. Future economic downturns could also adversely affect our business. In addition, if our
customers or distributors build elevated inventory levels, we could experience a decrease in short-term and/or long-
term demand for our products. If any of these events or disruptions were to occur, the demand for our products and
services could be adversely affected along with our business, operating results and financial condition. Further, the
negative impact of these events or disruptions may be deferred due to our business model.
Further economic instability could also 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. Additionally, the banking and financial services
industries are subject to complex laws and are heavily regulated. There is uncertainty regarding how proposed,
contemplated or future changes to the laws, policies and regulations governing our industry, the banking and
financial services industry and the economy could affect our business, including rising global interest rates. A
deterioration of conditions in worldwide credit markets could limit our ability to obtain external financing to fund our
operations and capital expenditures. In addition, difficult economic conditions may also result in a higher rate of
losses on our accounts receivable due to credit defaults. Any of the foregoing could cause adverse effects on our
business, operating results and financial condition, and could cause our stock price to decline.
The growth of our business depends primarily on the semiconductor and electronics industries.
The growth of the EDA industry as a whole, our Semiconductor & System Design segment product sales, and, to
some extent, our Software Integrity segment product sales, are 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, systems companies and their customers. The increasing complexity of
designs of SoCs, ICs, electronic systems and customers’ concerns about managing costs have previously led to,
and in the future could lead to, a decrease in design starts and design activity in general. For example, in response
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to this increasing complexity, some customers may choose to focus on one discrete phase of the design process or
opt 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,
including due to rising inflation and global interest rates, a continued or worsening global supply chain disruption, or
the impact of the COVID-19 pandemic. Additionally, as the EDA industry has matured, consolidation has resulted 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 manufacturing 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 work effectively together, as we may each provide for
the design of separate components on the same chip. 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.
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 not be competitive or may become obsolete.
In our Semiconductor & System Design segment, we compete against EDA vendors that offer a variety of products
and services, such as Cadence Design Systems, Inc. and Siemens EDA. 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 a growing number of IP providers as well as our customers’ internally developed IP.
In our Software Integrity segment, 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, with new competitors entering these markets both
domestically and internationally. For example, China has implemented national policies and investment funds to try
to build independent EDA capabilities and compete internationally in the semiconductor industry. 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, the adoption of cloud computing and artificial intelligence technologies
can bring new demands and also challenges in terms of disruption to both business models and our existing
technology offerings. 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 software and hardware products and successfully develop or acquire such
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;
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• 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 manage an efficient supply chain to ensure availability of hardware products;
• 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.
We are subject to governmental export and import requirements that could subject us to liability and
restrict our ability to sell our products and services, which could impair our ability to compete in
international markets.
We are subject to export controls, laws and regulations that restrict selling, shipping or transmitting certain of our
products and services and transferring certain of our technology outside the United States. These requirements also
restrict domestic release of software and technology to certain foreign nationals. In addition, we are subject to
customs and other import requirements that regulate imports that may be important for our business.
If we fail to comply with the U.S. Export Administration Regulations or other U.S. or non-U.S. export requirements
(collectively, the Export Regulations), we could be subject to substantial civil and criminal penalties, including fines
for the company and the possible loss of the ability to engage in exporting and other international transactions. Due
to the nature of our business and technology, the Export Regulations may also subject us to governmental inquiries
regarding transactions between us and certain foreign entities. For example, we have received administrative
subpoenas from the U.S. Bureau of Industry and Security (the BIS) requesting production of information and
documentation relating to transactions with certain Chinese entities. We believe that we are in full compliance with
all applicable regulations and are working with the BIS to respond to its subpoenas. However, we cannot predict the
outcome of the inquiries or their potential effect on our operations or financial condition.
We believe that current Export Regulations do not materially impact our business at this time, but we cannot predict
the impact that additional regulatory changes may have on our business in the future. The United States has
published significant changes to Export Regulations with respect to Russia and China, and we anticipate additional
changes to the Export Regulations in the future. For example, the United States government has implemented
controls on advanced computing ICs, computer commodities that contain such ICs, and certain semiconductor
manufacturing items, as well as controls on transactions involving items for supercomputer and semiconductor
manufacturing end-users. The new controls expand the scope of foreign-produced items subject to license
requirements for certain entities on the U.S. government's Entity List. Future changes in the Export Regulations,
including changes in the enforcement and scope of such regulations, may create delays in the introduction of our
products or services in international markets or could prevent our customers with international operations from
deploying our products or services globally. In some cases, such changes could prevent the export or import of our
products.
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 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. Further, 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 revenues. Consolidation among our customers could also reduce demand for our products
and services if customers streamline research and development or operations, or reduce or delay purchasing
decisions.
Reduced customer spending or the loss of customers, particularly our large customers, could adversely affect our
business and financial condition. In addition, we and our competitors may acquire businesses and technologies to
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complement and expand our respective product offerings. Consolidated competitors could have considerable
financial resources and channel influence as well as broad geographic reach, which would enable them to be more
competitive in product differentiation, pricing, marketing, services, support and more. If our competitors consolidate
or acquire businesses and technologies that 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.
Business Operations Risks
The global nature of our operations exposes us to increased risks and compliance obligations that may
adversely affect our business.
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. We have also continually expanded our non-U.S.
operations. 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, legal and political conditions in China, Europe and other regions where we do
business, including, for example, changes in China-Taiwan relations, the military conflict between Russia
and Ukraine and the related sanctions and other penalties imposed on Russia by the United States, the
European Union, the United Kingdom and other countries;
Economic recessions or uncertainty in financial markets, including the impact of rising inflation and global
interest rates;
• Government trade restrictions, including tariffs, export controls or other trade barriers, and changes to
existing trade arrangements between various countries such as China;
•
•
•
•
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, changes in currency exchange rates and difficulty in
collecting accounts receivable;
Inadequate local infrastructure that could result in business disruptions;
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 and pandemics, including COVID-19 and its variants.
Furthermore, 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.
There is inherent risk, based on the complex relationships between certain Asian countries such as China, where
we derive a growing percentage of our revenue, and the United States, that political, diplomatic or military events
could result in trade disruptions, including tariffs, trade embargoes, export restrictions and other trade barriers. A
significant trade disruption, export restriction, or the establishment or increase of any trade barrier in any area where
we do business could reduce customer demand and cause customers to search for substitute products and
services, make our products and services more expensive or unavailable for customers, increase the cost of our
products and services, have a negative impact on customer confidence and spending, make our products less
competitive, or otherwise have a materially adverse impact on our future revenue and profits, our customers’ and
suppliers’ businesses, and our results of operations. For example, the ongoing geopolitical and economic
uncertainty between the U.S. and China, the unknown impact of current and future U.S. and Chinese trade
regulations as described above, and other geopolitical risks with respect to China and Taiwan may cause
disruptions in the markets and industries we serve and our supply chain, decrease demand from customers for
products using our solutions or cause other disruptions which could, directly or indirectly, materially harm our
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business, financial condition and results of operations. For more on risks related to government export and import
restrictions such as the U.S. government’s Entity List and Export Regulations see “Industry Risks – We are subject
to governmental export and import requirements that could subject us to liability and restrict our ability to sell our
products and services, which could impair our ability to compete in international markets.”
In response to the U.S. adopting tariffs and trade barriers or taking other actions, other countries may also 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. In addition, government or
customer efforts, attitudes, laws or policies regarding technology independence may lead to non-U.S. customers
favoring their domestic technology solutions that could compete with or replace our products, which would also have
an adverse effect on our business.
In addition to tariffs and other trade barriers, our global operations are subject to numerous U.S. and foreign laws
and regulations such as 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 statements of income. Likewise, a strengthening U.S. dollar relative to other currencies,
including the renminbi or Yen, reduces revenue of our foreign subsidiaries upon translation and consolidation.
Exchange rates are subject to significant and rapid fluctuations due to a number of factors, including interest rate
changes and political and economic uncertainty. 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.
The ongoing COVID-19 pandemic could have a material adverse effect on our business, operations and
financial condition.
The ongoing COVID-19 pandemic has caused minor disruptions to our business operations to date, but could have
a material adverse effect on our business, operations and financial condition in the future. For example, we have
previously experienced limited hardware supply chain and logistical challenges as well as a slowdown in customer
commitments in our Software Integrity segment. In response to the COVID-19 pandemic, governments and
businesses imposed restrictions, which significantly curtailed global, regional and national economic activity and
have caused substantial volatility and disruption in global financial markets. We are continuing to transition
employees back into offices worldwide while maintaining compliance with applicable local, state and national
requirements. Although we have been able to navigate workplace restrictions and limitations with minimal
disruptions to our business operations to date, we cannot be certain that these measures will continue to be
successful and we may need to further modify our business practices and real estate needs in response to the risks
and negative impacts caused by the COVID-19 pandemic.
The extent to which the COVID-19 pandemic impacts our business operations in future periods will depend on
multiple uncertain factors, including the duration and scope of the pandemic, its overall negative impact on the
global economy and, in some cases, the regional and national economies of areas experiencing localized surges in
COVID-19 cases, continued responses by governments and businesses to COVID-19 and its variants, acceptance
and effectiveness of vaccines, the ability of our business partners and third-party providers to fulfill their
responsibilities and commitments, the ability to secure adequate and timely supply of equipment and materials from
suppliers for our hardware products, and the ability to develop and deliver our products. In addition, continued and
worsening weak economic conditions may result in impairment in value of our tangible and intangible assets. The
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impact of the ongoing COVID-19 pandemic may also have the effect of heightening many of the other risks and
uncertainties described in this Risk Factors section.
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 and EDA products and services;
Changes in demand for our products due to customers reducing their expenditures, whether as a cost-
cutting measure or a result of their insolvency or bankruptcy, and whether due to inflationary pressures,
rising global interest rates, a sustained global semiconductor shortage, the ongoing COVID-19 pandemic or
other reasons;
Product competition in the EDA industry, 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 technologies;
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;
Natural variability in the timing of IP drawdowns, which can be difficult to predict;
• General economic and political conditions that affect the semiconductor and electronics industries, such as
disruptions to international trade relationships, including tariffs, export licenses, or other trade barriers
affecting our or our suppliers’ products, as well as impacts due to the ongoing COVID-19 pandemic; and
•
Changes in accounting standards, which may impact the way we recognize our revenue and costs and
impact our earnings.
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;
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•
•
•
•
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; and
The levels of our hardware and IP revenues, which are recognized upfront and are primarily dependent
upon our ability to provide the latest technology and meet customer requirements.
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.
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 security testing
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, on our networks or on the cloud. These
systems may be vulnerable to attacks by hackers or compromised due to employee error, malfeasance or other
disruptions that could result in unauthorized disclosure or loss of sensitive information. Many employees continue to
work remotely based on a hybrid work model, which magnifies the importance of maintaining the integrity of our
remote access security measures.
For example, we discovered unauthorized third-party access to our products and product license files hosted on our
SolvNet Plus customer license and product delivery system in 2015. While we identified and remediated the
incident, it is possible that our security measures may be circumvented again in the future, and any such breach
could adversely impact our business, operations 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, react in a timely manner or implement adequate
preventative measures. Furthermore, in the operation of our business we also use third-party vendors that have
access to our network and store certain sensitive data, including confidential information about our employees, and
these third parties are subject to their own cybersecurity threats. 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. However, that is no guarantee that a breach will not still occur. In addition, if we select
a vendor that uses cloud storage of information as part of their service or product offerings, or if we are selected as
a vendor for our cloud-based solutions, our proprietary information could be misappropriated by third parties despite
our attempts to validate the security of such services. 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 and our ability to sell our products and services.
Our software products, hosted solutions, and software security and quality testing solutions may also be vulnerable
to attacks, including phishing, exploits of our code or our system configurations, malicious code (such as viruses
and worms), distributed denial-of-service attacks, sophisticated attacks conducted or sponsored by nation-states,
advanced persistent threat intrusions, ransomware and other malware. Furthermore, the risk of state-supported and
geopolitical-related cybersecurity incidents may increase due to geopolitical incidents, such as the Russia-Ukraine
conflict. 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 or cause other destructive
outcomes.
We also offer software security and quality testing solutions. If we fail to identify new and increasingly sophisticated
methods of cyber attacks or fail to invest sufficient resources in research and development regarding new threat
vectors, our security testing products and services 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 security testing
products and services, and could result in a loss of customers or sales, or an increased cost to remedy a problem.
Furthermore, our growth and recent acquisitions in the software security and quality testing space may increase our
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visibility as a security-focused company and may make us a more attractive target for attacks on our own
information technology infrastructure. If any of the foregoing were to occur, we could experience negative publicity
and 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.
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 if their efforts are
successful. 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.
From time to time, we may need to commence litigation or other legal proceedings 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.
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 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 and strategic investments 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 and strategic investments in the
future, but we may not find suitable acquisition or investment targets, or we may not be able to consummate desired
acquisitions or investments due to unfavorable credit markets, commercially unacceptable terms or other risks,
which could harm our operating results. Acquisitions and strategic investments 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, which may be at higher than
anticipated interest rates;
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;
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•
•
•
•
•
•
•
•
•
•
Dilution of our current stockholders through the issuance of common stock as part of the merger
consideration;
Difficulties in negotiating, governing and realizing value from strategic investments;
Assumption of unknown liabilities, including tax, litigation, cybersecurity and commercial-related risks, and
the related expenses and diversion of resources;
Incurrence of costs and use of additional resources to remedy issues identified prior to or after an
acquisition;
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 previously lacked such controls, processes and policies in areas such as
cybersecurity, information technology, privacy and more;
Negative impact on our net income resulting from acquisition or investment-related costs; and
Requirements imposed by government regulators in connection with their review of an acquisition, including
required divestitures or restrictions on the conduct of our business or the acquired business.
If we do not manage the foregoing risks, the acquisitions or strategic investments that we complete may have an
adverse effect on our business and financial condition.
We may pursue new product and technology initiatives, and if we fail to successfully carry out these
initiatives, we 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 may invest in efforts to expand into adjacent markets, including, for example,
software security and quality testing solutions. Although we believe these solutions are complementary to our EDA
tools, we have less experience and a more limited operating history in offering software quality testing and security
products and services, and our efforts in this area may not be successful. Our success in these and other new
markets depends on a variety of factors, including the following:
• 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, including, in the case of our software quality testing and security tools and services, identifying new
security vulnerabilities in software code and ensuring support for a growing number of programming
languages;
• 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;
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• 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.
Difficulties in any of our new product development efforts or our efforts to enter adjacent markets, including as a
result of delays or disruptions, new export control restrictions or the ongoing COVID-19 pandemic, 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 in the
semiconductor industry or by competitors, 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.
If customers reduce or slow the need to upgrade or enhance their product offerings, our revenue and operating
results may be adversely affected. Additionally, our periodic research and development expenses may be
independent of our level of revenue, which could negatively impact our financial results. New products may not
adequately address the changing needs of the marketplace. New software products may contain undetected errors,
defects or vulnerabilities. The occurrence of any defects or errors in our products could result in lost or delayed
market acceptance and sales of our products, delays in payment by customers, loss of customers or market share,
product returns, damage to our reputation, diversion of our resources, increased service and warranty expenses or
financial concessions, increased insurance costs and potential liability for damages. Finally, there can be no
guarantee that our research and development investments will result in products that create additional revenue.
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, any 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.
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 less predictable 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;
Potential reductions in overall 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;
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•
•
•
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;
Longer warranty periods than those of our software products, which may require us to replace hardware
components under warranty, thus increasing our costs; and
Potential impacts on our supply chain, including due to the effects of increasing inflationary pressures and
rising global interest rates, a sustained global semiconductor shortage and the COVID-19 pandemic.
If we fail to timely recruit and/or retain senior management and key employees globally, our business may
be harmed.
We depend in large part upon the services of our senior management team to drive our future success, and certain
team members depart our company from time to time. If we were to lose the services of any member of our senior
management team without adequate notice, our business could be adversely affected.
To be successful, we must also attract and retain key employees who join us organically and through acquisitions.
There are a limited number of qualified engineers. Competition for these individuals and other qualified employees
is intense and has increased globally, including in major markets such as Asia. Our employees are often recruited
aggressively by our competitors and our customers worldwide. Any failure to recruit and retain key employees could
harm our business, results of operations and financial condition, and our recruiting and retention efforts may be
negatively impacted by the ongoing COVID-19 pandemic. 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.
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 are alleged to 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. For example, some customers have
requested we defend and indemnify them against claims for patent infringement asserted in various district courts
and at the U.S. International Trade Commission by Bell Semiconductor LLC (Bell Semic), a patent monetization
entity, based on Bell Semic’s allegation that the customers’ use of one or more features of certain of our products
infringes one or more of six patents held by Bell Semic. We have offered to defend some of our customers
consistent with the terms of our End User License Agreement.
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 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
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potential liability. Regardless of outcome, infringement claims may require us to use significant resources and may
divert management’s attention from the operation of our business.
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.
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
credit losses, 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.
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 October 31, 2022, approximately 48% of our worldwide cash and cash equivalents balance is held by our
international subsidiaries. We intend to meet our U.S. cash spending needs primarily 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.
Legal and Regulatory Risks
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, an adverse change in the
treatment of an item of income or expense, or limitations on our ability to utilize tax credits, could result in a material
increase in our tax expense and impact our financial position and cash flows. For example, in response to the fiscal
impact of the COVID-19 pandemic, the State of California enacted legislation on June 29, 2020 that suspends the
use of certain corporate research and development tax credits for a three-year period beginning in our fiscal 2021,
which resulted in an impact to our tax expense. On February 9, 2022, California Governor Newsom signed into law
2022 CA SB 113, which shortened the previously enacted suspension on the use of research and development tax
credits to a two-year period covering our fiscal 2021 and 2022.
On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was enacted, which significantly changed prior U.S.
tax law and includes numerous provisions that affect our business. The Tax Act includes certain provisions that
began to affect our income in the first quarter of fiscal 2019, while other sections of the Tax Act and related
regulations will begin to affect our business in the first quarter of fiscal 2023. There are various proposals in
Congress to amend certain provisions of the Tax Act. The state of these proposals and other future legislation
remains uncertain and, if enacted, may materially affect our financial position.
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On August 16, 2022, the Inflation Reduction Act of 2022 (IR Act) was enacted in the United States. The IR Act
includes a minimum tax rate of 15%, as well as tax credit incentives for reductions in greenhouse gas emissions.
The details of the computation of the tax and implementation of the incentives will be subject to regulations to be
issued by the U.S. Department of the Treasury. On August 9, 2022, the CHIPS and Science Act of 2022 (CHIPS Act)
was enacted in the United States to provide certain financial incentives to the semiconductor industry, primarily for
manufacturing activities within the United States. We are continuing to monitor the IR Act and CHIPS Act and
related regulatory developments to evaluate their potential impact on our business and operating results.
On October 8, 2021, the Organization for Economic Co-operation and Development (OECD) announced the OECD/
G20 Inclusive Framework on Base Erosion and Profit Shifting (Framework) which agreed to a two-pillar solution to
address tax challenges arising from digitalization of the economy. On December 20, 2021, the OECD released Pillar
Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15%. The OECD
continues to release additional guidance on these rules and the Framework calls for law enactment by OECD and
G20 members to take effect in 2023 and 2024. These changes, when enacted by various countries in which we do
business, 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 may also be 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. For further discussion on our ongoing audit, see Note 15 of the Notes to
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 current and potential future tax law. Changes to the Tax Act, other
regulatory changes, and 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.
Our business is subject to evolving corporate governance and public disclosure regulations and
expectations, including with respect to environmental, social and governance matters that could expose us
to numerous risks.
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 Financial Accounting Standards Board (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 difficult and uncertain. In addition,
increasingly regulators, customers, investors, employees and other stakeholders are focusing on environmental,
social and governance (ESG) matters and related disclosures. These changing rules, regulations and stakeholder
expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses
and increased management time and attention spent complying with or meeting such regulations and expectations.
For example, developing and acting on ESG initiatives, and collecting, measuring, and reporting ESG information
and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the
SEC’s proposed climate-related reporting requirements. We may also communicate certain initiatives and goals
regarding environmental matters, diversity, responsible sourcing, social investments and other ESG matters in our
SEC filings or in other public disclosures. These initiatives and goals could be difficult and expensive to implement,
the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace,
and ensuring the accuracy, adequacy, or completeness of the disclosure of our ESG initiatives can be costly, difficult
and time-consuming. Further, statements about our ESG initiatives and goals, and progress against those goals,
may be based on standards for measuring progress that are still developing, internal controls and processes that
continue to evolve, and assumptions that are subject to change. In addition, we could face scrutiny from certain
stakeholders for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-
related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to
our ESG goals on a timely basis, or at all, our business, financial performance and growth could be adversely
affected.
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Changes in the U.S. 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 FASB, the SEC and various bodies formed to interpret and create appropriate accounting
principles and guidance. The FASB periodically issues new accounting standards on a variety of topics, including,
for example, revenue recognition and accounting for leases. 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.
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 I, Item 3, Legal Proceedings.
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.
General Risks
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 and may be negatively impacted by deteriorating economic conditions
and rising global interest rates. 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.
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.
Catastrophic events and the effects of climate change 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
and the effects of climate change 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, extreme temperatures,
drought, flood, telecommunications failure, cybersecurity attack, terrorist attack, epidemic or pandemic (including
the ongoing COVID-19 pandemic), or other catastrophic events or climate change-related events could cause
system interruptions, delays in our product development and loss of critical data and could prevent us from fulfilling
our customers’ orders. In particular, our sales and infrastructure are vulnerable to regional or worldwide health
conditions, including the effects of the outbreak of contagious diseases such as the COVID-19 pandemic. Moreover,
our corporate headquarters, a significant portion of our research and development activities, our data centers, and
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certain other critical business operations are located in California, near major earthquake faults and sites of recent
wildfires, which may become more frequent, along with other extreme weather events, due to climate change. A
catastrophic event or other extreme weather 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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal offices are currently located in Mountain View, California. We currently lease approximately 1 million
square feet of space in 33 offices throughout the United States, inclusive of our principal offices, but excluding
407,000 square feet which are currently sublet to third parties and 120,000 square feet, which we own and currently
lease to third parties. We own buildings in Oregon and California. These offices are used primarily for sales and
support, marketing, and administrative activities as well as research and development for our business segments.
We currently lease approximately 2.6 million square feet of space in 29 countries other than the United States, and
own buildings in Wuhan, China and Hsinchu, Taiwan as well as office space in Xiamen, China and Yongin-si, South
Korea. These offices are used primarily for sales and support, service, and research and development activities for
our business segments.
As our needs change, from time to time, we may relocate, expand, and/or otherwise increase or decrease the size
of our operations, offices or personnel. We believe that our existing facilities, including both owned and leased
properties, are in good condition and suitable for our current needs and that suitable additional or substitute space
will be available on commercially reasonable terms as needed to accommodate any expansion of our operations.
Item 3. 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.
Hungarian Tax Matter
In 2017, the Hungarian Tax Authority (the HTA) assessed withholding taxes of approximately $25.0 million and
interest and penalties of $11.0 million against our Hungary subsidiary (Synopsys Hungary). Synopsys Hungary
contested the assessment with the Hungarian Administrative Court (Administrative Court). In 2019, as required
under Hungarian law, Synopsys Hungary paid the assessment and recorded a tax expense due to an unrecognized
tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits. The Administrative Court found against
Synopsys Hungary, and we appealed to the Hungarian Supreme Court. During 2021, the Hungarian Supreme Court
heard our appeal and remanded the case to the Administrative Court for further proceedings. The Administrative
Court once again ruled against Synopsys Hungary, and we filed another appeal with the Hungarian Supreme Court.
The Hungarian Supreme Court heard our appeal on January 27, 2022, vacated the lower court's decision and
remanded the case back to the Administrative Court for further proceedings. Hearings with the Administrative Court
were held on June 30, 2022 and September 22, 2022. In response to a request by the Administrative Court, we filed
an additional brief on November 23, 2022. We expect a hearing to be scheduled in early 2023.
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For further discussion of the Hungary audit, see Note 15 of the Notes to Consolidated Financial Statements under
the heading “Non-U.S. Examinations.”
Bell Semic Actions
On April 27, 2022, Bell Semiconductor LLC (Bell Semic), a patent monetization entity, began filing a series of patent
infringement lawsuits against certain technology companies alleging that certain semiconductor devices designed
using certain design tools offered by electronic design automation (EDA) vendors, including Synopsys, infringe upon
one or more patents held by Bell Semic. Bell Semic seeks money damages, attorneys’ fees and costs, and a
permanent injunction prohibiting the defendants from using allegedly infringing EDA design tools.
On April 29, 2022, Bell Semic also began filing a series of complaints with the U.S. International Trade Commission
(ITC) alleging violations of Section 337 of the Tariff Act of 1930 and seeking limited exclusion orders preventing the
respondents from importing into the United States semiconductor devices designed using certain design tools
offered by EDA vendors, including Synopsys, and cease-and-desist orders prohibiting respondents from importing,
selling, offering for sale, advertising, or transferring products made using certain design tools offered by EDA
vendors, including Synopsys. On November 8, 2022, the ITC instituted the investigations.
Synopsys is not named as a respondent or defendant in any of the aforementioned actions; however, certain of the
respondents and defendants are Synopsys customers and have sought defense and indemnity from Synopsys
under their End User License Agreements in response to Bell Semic’s allegations. Synopsys has offered to defend
some of its customers consistent with the terms of its End User License Agreement.
On November 18, 2022, Synopsys and another EDA vendor filed an action for Declaratory Judgment of invalidity
and non-infringement as to each of the six patents asserted by Bell Semic in the aforementioned actions. On
November 28, 2022, Synopsys and another EDA vendor also filed a Motion for Preliminary Injunction seeking to
enjoin Bell Semic from proceeding with the ITC investigations.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock trades on the Nasdaq Global Select Market under the symbol “SNPS.” As of December 7, 2022,
we had 227 stockholders of record.
Performance Graph
The following graph compares the five-year total return to stockholders of our common stock relative to the
cumulative total returns of the S&P 500 Index, the S&P Information Technology Index and the Nasdaq Composite
Index. The graph assumes that $100 was invested in Synopsys common stock on October 27, 2017 (the last trading
day before the beginning of our fifth preceding fiscal year) and in each of the indexes on October 27, 2017 (the
closest month end) and that all dividends were reinvested. No cash dividends were declared on our common stock
during such time. The comparisons in the table are not intended to forecast or be indicative of possible future
performance of our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
*$100 invested on October 27, 2017 in stock or index, including reinvestment of dividends.
Fiscal year ending October 29.
The information presented above in the stock performance graph shall not be deemed to be “soliciting material” or
to be “filed” with the SEC or subject to Regulation 14A or 14C, except to the extent that we subsequently specifically
request that such information be treated as soliciting material or specifically incorporate it by reference into a filing
under the Securities Act or Exchange Act.
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Synopsys, Inc.NASDAQ CompositeS&P 500S&P Information Technology10/1710/1810/1910/2010/2110/22$0$50$100$150$200$250$300$350$400 Table of Contents
Dividends
We have not paid cash dividends on our common stock.
Stock Repurchase Program
Our Board of Directors (the Board) previously approved a stock repurchase program (the Program) with
authorization to purchase up to $1.0 billion of our common stock in December 2021. The Board approved a
replenishment of the Program with authorization to purchase up to $1.5 billion in September 2022. As of October 31,
2022, $1.4 billion remained available for future repurchases under the program.
In August 2022, we entered into an accelerated share repurchase agreement (the August 2022 ASR) to repurchase
an aggregate of $240.0 million of our common stock. Pursuant to the August 2022 ASR, we made a prepayment of
$240.0 million to receive initial deliveries of shares valued at $192.0 million. The remaining balance of $48.0 million
was settled in October 2022. Total shares purchased under the August 2022 ASR were approximately 0.8 million
shares, at an average purchase price of $307.60 per share.
The table below sets forth information regarding our repurchases of our common stock during the three months
ended October 31, 2022:
Period
Month #1
July 31, 2022 through September 3, 2022
Month #2
September 4, 2022 through October 1, 2022
Month #3
October 2, 2022 through October 29, 2022
Total
Total
number
of shares
purchased (1)
Average
price paid
per share (1)
Total
number of
shares
purchased
as part of
publicly
announced
programs
Maximum dollar
value of shares
that may yet be
purchased
under the
programs
644,623 $
364.14
637,013 $ 1,500,000,000
191,624 $
313.09
— $ 1,440,005,356
372,813 $
236.06
1,209,060
244,954 $ 1,400,000,207
881,967 $ 1,400,000,207
(1)
Amounts are calculated based on the settlement date.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following overview is qualified in its entirety by the more complete discussion contained in this Item 7, the risk
factors set forth in Item 1A of this Form 10-K, and our consolidated financial statements and the notes thereto set
forth in Item 8 of this Form 10-K. Please also see the cautionary language at the beginning of Part I of this Form 10-
K regarding forward-looking statements.
Business Summary
Synopsys provides products and services used across the entire Silicon to Software spectrum, from engineers
creating advanced semiconductors to product teams developing advanced electronic systems to software
developers seeking to ensure the security and quality of their code. We are a global leader in 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. We
also provide technical services and support to help our customers develop advanced chips and electronic systems.
These products and services are part of our Semiconductor & System Design segment.
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We are also a leading provider of software tools and services that improve the security, quality and compliance of
software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and
industrials. These tools and services are part of our Software Integrity segment.
Our EDA and IP customers are generally semiconductor and electronics systems companies. Our solutions help
these companies overcome the challenges of developing increasingly advanced electronics products while also
helping them reduce their design and manufacturing costs. While our products are an important part of our
customers’ development process, our sales could be affected based on their research and development budgets,
and our customers' spending decisions may be affected by their business outlook and willingness to invest in new
and increasingly complex chip designs.
Our Software Integrity segment delivers products and services that enable software developers to test their code -
while it is being written - for known security vulnerabilities and quality defects, as well as testing for open source
security vulnerabilities and license compliance. Our Software Integrity customers are software developers across
many industries, including, but also well beyond, the semiconductor and systems industries. Our Software Integrity
products and services form a platform that helps our customers build security into the software development
lifecycle and across the entire cyber supply chain.
We have consistently grown our revenue since 2005, despite periods of global economic uncertainty. We achieved
these results because of our solid execution, leading technologies and strong customer relationships, and because
we generally recognize our revenue for software licenses over the arrangement period, which typically
approximates three years. See Note 2 of the Notes to Consolidated Financial Statements for a discussion on our
revenue recognition policy. The revenue we recognize in a particular period generally results from selling efforts in
prior periods rather than the current period. As a result, decreases as well as increases in customer spending do not
immediately affect our revenues in a significant way.
Our growth strategy is based on maintaining and building on our leadership in our EDA products, expanding and
proliferating our IP offerings, driving growth in the software security and quality market, and continuing to expand
our product portfolio and our total addressable market. Our revenue growth from period to period is expected to vary
based on the mix of our time based and upfront products. 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.
Recent Developments
Developments in Export Control Regulations
On October 7, 2022, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce published
changes to U.S. export control regulations (U.S. Export Regulations), including new restrictions on Chinese entities'
ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced
semiconductors. Further, on October 14, 2022, a new rule went into effect imposing U.S. export controls on
additional technologies, including electronic computer-aided design software specially designed for the development
of ICs with Gate-All-Around Field-Effect Transistor structures. Based on our current understanding, we believe these
regulations will not have a material impact on our business. We anticipate additional changes to U.S. Export
Regulations in the future, but we cannot forecast the scope or timing of such changes. We will continue to monitor
such developments, including potential additional trade restrictions, and other regulatory or policy changes by the
U.S. and foreign governments.
For more on risks related to government export and import restrictions such as the U.S. government’s Entity List
and other U.S. Export Regulations, see Part I, Item 1A, Risk Factors, “Industry Risks – We are subject to
governmental export and import requirements that could subject us to liability and restrict our ability to sell our
products and services, which could impair our ability to compete in international markets.”
Impact of the Current Macroeconomic Environment and COVID-19
Uncertainty in the macroeconomic environment, including due to the effects of the recent rise in global inflation and
interest rates, supply chain disruptions, geopolitical pressures, including the unknown impact of current and future
U.S. and Chinese trade regulations, changes in China-Taiwan relations and the war in Ukraine, fluctuation in foreign
exchange rates, and associated global economic conditions have resulted in volatility in credit, equity and foreign
currency markets.
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These uncertain macroeconomic conditions could lead some of our customers to postpone their decision-making,
decrease their spending and/or delay their payments to us. For example, in the fourth quarter of fiscal 2022, we
experienced a minor impact from the current macroeconomic environment in our Software Integrity segment as
customers applied elevated levels of scrutiny to purchasing decisions, which has, in some cases, caused some
customers to elect shorter term contracts due to their own budget uncertainty. If these uncertain macroeconomic
conditions persist, they may continue to have an adverse impact on certain aspects of our business.
Additionally, the ongoing COVID-19 pandemic has impacted worldwide economic activity and financial markets and
significantly increased economic volatility and uncertainty. Despite this widespread volatility and uncertainty, the
COVID-19 pandemic has caused only minor disruptions to our business operations with a limited impact on our
operating results thus far. The extent to which the COVID-19 pandemic impacts our business operations in future
periods will depend on multiple uncertain factors, including the duration of the pandemic and its overall negative
impact on the global economy generally and the semiconductor and electronics industries specifically. We have not
identified trends that we expect will materially impact our future operating results at this time and continue to
consider the impacts of the COVID-19 pandemic on our business operations.
While our time-based business model provides stability to our business, operating results and overall financial
position, the broader implications of these macroeconomic events, particularly in the long term, remain uncertain.
Further, the negative impact of these events or disruptions may be deferred due to our business model.
See Part I, Item 1A, Risk Factors for further discussion of the impact of global economic uncertainty and ongoing
COVID-19 pandemic on our business, operations and financial condition.
Business Segments
Semiconductor & System Design. This segment includes our advanced silicon design, verification products and
services, and semiconductor IP portfolio, which encompasses products and services that serve companies primarily
in the semiconductor and electronics industries. EDA includes digital, custom and field programmable gate array
(FPGA) IC design software, verification products, and manufacturing software products. Designers use these
products to automate the highly complex IC design process and to reduce defects that could lead to expensive
design or manufacturing re-spins or suboptimal end products. For IP, we are a leading provider of high-quality,
silicon-proven IP solutions for system-on-chips (SoCs). This includes IP that has been optimized to address specific
application requirements for the mobile, automotive, digital home, IoT, 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 to intelligently address software
risks across the customer’s portfolio and at all stages of the application lifecycle. The testing tools, services, and
programs enable our customers to manage open source license compliance and detect, prioritize, and remediate
security vulnerabilities and defects across their entire software development lifecycle. Our offerings include security
and quality testing products, managed services, programs and professional services, and training.
Fiscal Year End
Our fiscal year ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that
approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional
week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2022, 2021 and 2020 were 52-week
years ending on October 29, 2022, October 30, 2021, and October 31, 2020, respectively. Fiscal 2023 will be a 52-
week year.
For presentation purposes, this Form 10-K refers to the closest calendar month end.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles. In preparing these financial statements, we make assumptions, judgments and estimates that can affect
the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we
evaluate our estimates based on historical experience and various other assumptions we believe are reasonable
under the circumstances. Our actual results may differ from these estimates. See Note 2 of the Notes to
Consolidated Financial Statements for further information on our significant accounting policies.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and
therefore are critical to understanding our results of operations, are:
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•
•
Revenue recognition; and
Business combinations.
Revenue Recognition
Our contracts with customers often include promises to transfer multiple products and services to a customer.
Arrangements with customers can involve multiple products and various license rights. Customers can negotiate for
a broad portfolio of solutions, and favorable terms along with future purchase options to manage their overall costs.
Analysis of the terms and conditions in these contracts and their effect on revenue recognition may require
significant judgment.
We have concluded that our EDA software licenses in Technology Subscription License (TSL) contracts are not
distinct from our obligation to provide unspecified software updates to the licensed software throughout the license
term, because those promises represent inputs to a single, combined performance obligation. Where unspecified
additional software product rights are part of the contract with the customer, those rights are accounted for as part of
the single performance obligation that includes the licenses, updates, and technical support, because such rights
are provided during the same period of time and have the same time-based pattern of transfer to the customer.
For our IP licensing arrangements, we have concluded that the licenses and support services are distinct from each
other, and therefore treated as separate performance obligations. Revenues from IP licenses are recognized at a
point in time upon transfer of control of the IP license, and support services are recognized over the support period
as a stand ready obligation to the customer.
We are required to estimate total consideration expected to be received from contracts with customers. In some
circumstances, the consideration expected to be received is variable based on the specific terms of the contract or
based on our expectations of the term of the contract. Generally, we have not experienced significant returns or
refunds to customers. These estimates require significant judgment and the change in these estimates could have
an effect on our results of operations during the periods involved.
Business Combinations
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities
assumed based upon their estimated fair values on the acquisition date with the exception of contract assets and
contract liabilities (deferred revenue) which are recognized and measured on the acquisition date in accordance
with our "Revenue Recognition" policy in Note 2. Summary of Significant Accounting Policies, as if we had
originated the contracts. The excess of the fair value of the purchase price over the fair values of these net tangible
and intangible assets acquired is recorded as goodwill.
Accounting for business combinations requires management to make significant estimates and assumptions
including our estimates for 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;
estimated obsolescence rates used in valuing technology related intangible assets;
the expected use of the acquired assets; and
discount rates used to discount expected future cash flows to present value, which are typically derived
from a weighted-average cost of capital analysis and adjusted to reflect inherent risks.
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The fair value of the definite-lived intangibles was determined using variations of the income approach.
For acquired existing technology, the fair value was determined by applying the multi-period excess earnings
method under the income approach, which involves isolating the net earnings attributable to the asset being
measured based on present value of the incremental after-tax cash flows (excess earnings) attributable solely to the
asset over its remaining useful life. The economic useful life was determined based on historical technology
obsolescence patterns and prospective technology developments. For acquisitions completed in fiscal 2022, we
assumed technological obsolescence ranging from 6 to 10 years. The present value of operating cash flows from
the existing technology was determined using discount rates ranging from approximately 10% to 30%.
Customer relationships represent the fair value of the existing relationships with the acquired company’s customers.
Their fair value was determined using the distributor method of the income approach, a variation of the multi-period
excess earnings method. The distributor method relies upon market-based distributor data to estimate the excess
profits associated with the asset over its remaining useful life. The economic useful life was determined based on
historical customer turnover rates. Projected income from existing customer relationships considered customer
retention rates ranging from 92.5% to 97.5%. The present value of operating cash flows from existing customers
was determined using discount rates ranging from approximately 10% to 15%.
We believe that our estimates and assumptions related to the fair value of acquired intangible assets are
reasonable, but significant judgment is involved.
Results of Operations
The discussion of our consolidated results of operations includes year-over-year comparisons of fiscal 2022
changes compared to fiscal 2021. For a discussion of the fiscal 2021 changes compared to fiscal 2020, see the
discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in
our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, filed on December 13, 2021.
Fiscal 2022 Financial Performance Summary
Results of operations for fiscal 2022, compared to fiscal 2021, reflected the following:
•
•
Revenues were $5.1 billion, an increase of $877.3 million or 21%, due to higher revenue resulting from
growth across all products and geographies.
Total cost of revenue and operating expenses were $3.9 billion, an increase of $450.1 million or 13%,
primarily due to increases of $379.2 million in employee-related costs resulting from headcount increases
through organic growth and acquisitions.
• Operating income was $1.2 billion, an increase of $427.2 million or 58%, as revenue growth exceeded the
growth in costs and expenses.
Revenue
Our revenues are generated from two business segments: the Semiconductor & System Design segment and the
Software Integrity segment. See Note 17 of the Notes to Consolidated Financial Statements for additional
information about our reportable segments and revenue by geographic regions.
Further disaggregation of the revenues into various products and services within these two segments is
summarized as follows:
Semiconductor & System Design Segment
This segment is comprised of the following:
•
EDA software includes digital, custom and FPGA IC design software, verification products and
obligations to provide unspecified updates and support services. EDA products and services are
typically sold through Technology Subscription License (TSL) arrangements that grant customers the
right to access and use all of the licensed products at the outset of an arrangement; software updates
are generally made available throughout the entire term of the arrangement. The duration of our TSL
contracts is generally 3 years, though it may vary for specific arrangements. 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 and support represent inputs to a single, combined offering, and timely, relevant software
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•
•
•
updates are integral to maintaining the utility of the software licenses. We recognize revenue for the
combined performance obligation under TSL contracts ratably over the term of the license.
IP & System Integration includes our DesignWare® IP portfolio and system-level products and services.
These arrangements generally have two performance obligations which consist of transferring of the
licensed IP and providing related support, which includes rights to technical support and software
updates that are provided over the support term and are transferred to the customer over time.
Revenue allocated to the IP licenses is recognized at a point in time upon the later of the delivery date
or the beginning of the license period, and revenue allocated to support is recognized over the support
term. Royalties are recognized as revenue in the quarter in which the applicable customer sells its
products that incorporate our IP. Payments for IP contracts are generally received upon delivery of the
IP. Revenue related to the customization of certain IP is recognized as “Professional Services.”
In the case of arrangements involving the sale of hardware products, we generally have two
performance obligations. The first performance obligation is to transfer the hardware product, which
includes software integral to the functionality of the hardware product. The second performance
obligation is to provide maintenance on the hardware and its embedded software, which includes rights
to technical support, hardware repairs and software updates that are all provided over the same term
and have the same time-based pattern of transfer to the customer. The portion of the transaction price
allocated to the hardware product is generally recognized as revenue at the time of shipment because
the customer obtains control of the product at that point in time. We have concluded that control
generally transfers at that point in time because the customer has the ability to direct the use of the
asset and an obligation to pay for the hardware. The portion of the transaction price allocated to the
maintenance obligation is recognized as revenue ratably over the maintenance term.
Revenue from Professional Service contracts is recognized over time, generally using costs incurred or
hours expended to measure progress. We have a history of reasonably estimating project status and
the costs necessary to complete projects. A number of internal and external factors can affect these
estimates, including labor rates, utilization and efficiency variances and specification and testing
requirement changes.
Software Integrity Segment
• We sell Software Integrity products in arrangements that provide customers the right to software
licenses, maintenance updates and technical support. Over the term of these arrangements, the
customer expects us to provide integral maintenance updates to the software licenses, which help
customers protect their own software from new critical quality defects and potential security
vulnerabilities. The licenses and maintenance updates serve together to fulfill our commitment to the
customer as both work together to provide functionality to the customer and represent a combined
performance obligation. We recognize revenue for the combined performance obligation over the term
of the arrangement.
Our customer arrangements can involve multiple products and various license rights, and our customers negotiate
with us over many aspects of these arrangements. For example, they generally request a broader portfolio of
solutions, support and services and seek more favorable terms such as expanded license usage, future purchase
rights and other unique rights at an overall lower total cost. No single factor typically drives our customers’ buying
decisions, and we compete on all fronts to serve customers in highly competitive markets. Customers generally
negotiate the total value of the arrangement rather than just unit pricing or volumes.
Total Revenue
Semiconductor & System Design Segment
Software Integrity Segment
Total
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
(dollars in millions)
$ 4,615.7 $ 3,810.4 $
465.8
$ 5,081.5 $ 4,204.2 $
393.8
805.3
72.0
877.3
21 %
18 %
21 %
Our revenues are subject to fluctuations, primarily due to customer requirements including the timing and value of
contract renewals. For example, we experience fluctuations in our revenues due to factors such as the timing of IP
product sales, consulting projects, Flexible Spending Account (FSA) drawdowns, royalties, and hardware sales. As
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revenues from IP products sales and hardware sales are recognized upfront, customer demand and timing
requirements for such IP products and hardware could result in increased variability of our total revenues.
Contracted but unsatisfied or partially unsatisfied performance obligations as of October 31, 2022 were $7.1 billion.
The amount and composition of unsatisfied performance obligations will fluctuate period to period. We do not
believe the amount of unsatisfied performance obligations is indicative of future sales or revenue, or that such
obligations at the end of any given period correlates with actual sales performance of a particular geography or
particular products and services. For more information regarding our revenue as of October 31, 2022, including our
contract balances as of such date, see Note 3 of the Notes to Consolidated Financial Statements.
For fiscal 2022 compared to fiscal 2021, revenues increased due to the continued organic growth of our business in
all product groups and geographies.
For a discussion of revenue by geographic areas, see Note 17 of the Notes to Consolidated Financial Statements.
Time-Based Products Revenue
Time-based products revenue
Percentage of total revenue
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
(dollars in millions)
$ 2,993.8
$ 2,633.8
$
360.0
14 %
59 %
63 %
The increase in time-based products revenue for fiscal 2022 compared to fiscal 2021 was primarily attributable to an
increase in TSL license revenue and higher renewals from arrangements booked in prior periods.
Upfront Products Revenue
Upfront products revenue
Percentage of total revenue
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
(dollars in millions)
$ 1,226.7
$ 861.1
$
365.6
42 %
24 %
20 %
Changes in upfront products revenue are generally attributable to normal fluctuations in the extent and timing of
customer requirements, which can drive the amount of upfront orders and revenue in any particular period.
The increase in upfront products revenue for fiscal 2022 compared to fiscal 2021 was primarily due to an increase in
the sale of IP products and hardware products driven by higher demand from customers.
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 or FSA drawdowns
due to customer requirements.
Maintenance and Service Revenue
Maintenance revenue
Professional service and other revenue
Total
Percentage of total revenue
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
(dollars in millions)
$ 293.3
567.7
$ 861.0
$ 235.9
473.5
$ 709.4
$
$
57.4
94.2
151.6
24 %
20 %
21 %
17 %
17 %
The increase in maintenance revenue for fiscal 2022 compared to fiscal 2021 was primarily due to an increase in
the volume of hardware and IP arrangements that include maintenance.
The increase in professional services and other revenue for fiscal 2022 compared to fiscal 2021 was primarily due
to an increase in the volume of IP consulting projects.
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Cost of Revenue
Cost of products revenue
Cost of maintenance and service revenue
Amortization of intangible assets
Total
Percentage of total revenue
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
$ 653.8
343.0
66.9
$ 1,063.7
(dollars in millions)
$ 542.1
271.2
48.5
$ 861.8
$
$
111.7
71.8
18.4
201.9
21 %
20 %
21 %
26 %
38 %
23 %
We divide cost of revenue into three categories: cost of products revenue, cost of maintenance and service
revenue, and amortization of intangible assets.
Cost of products revenue. Cost of products revenue includes costs related to products sold and software licensed,
hardware-related costs, allocated operating costs related to product support and distribution, royalties paid to third-
party vendors, and the amortization of capitalized software development costs.
Cost of maintenance and service revenue. Cost of maintenance and service revenue includes costs to deliver our
maintenance and consulting services, such as hotline and on-site support, production services and documentation
of maintenance updates.
Amortization of intangible assets. Amortization of intangible assets, included in cost of revenue, includes the
amortization of core/developed technology and certain contract rights intangible assets.
The increase in cost of revenue for fiscal 2022 compared to fiscal 2021 was primarily due to $102.7 million in
employee-related costs as a result of headcount increases from organic growth and acquisitions, $51.7 million in
hardware-related costs, $18.4 million in amortization of technology-related intangible assets, $16.4 million in costs
to fulfill IP consulting arrangements, and $12.7 million in facility costs. These increases were partially offset by a
decrease of $11.5 million in the fair value of our executive deferred compensation plan assets.
Operating Expenses
Research and Development
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
(dollars in millions)
$ 1,680.4
$ 1,504.8
$
175.6
12 %
Percentage of total revenue
33 %
36 %
The increase in research and development expenses for fiscal 2022 compared to fiscal 2021 was primarily due to
higher employee-related costs of $199.1 million as a result of headcount increases as we continue to expand and
enhance our product portfolio, increases of $19.2 million in facility costs, and $15.5 million in consultant and
contractor costs. These increases were partially offset by a decrease of $86.5 million in the fair value of our
executive deferred compensation plan assets.
Sales and Marketing
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
(dollars in millions)
$ 779.8
$ 712.5
$
67.3
9 %
Percentage of total revenue
15 %
17 %
The increase in sales and marketing expenses for fiscal 2022 compared to fiscal 2021 was primarily due to
increases of $64.1 million in employee-related costs due to headcount increases and higher sales commissions,
$12.0 million in travel and marketing costs due to an increased number of in-person meetings and events, and $3.0
million in facility costs. These increases were partially offset by a decrease of $25.5 million in the fair value of our
executive deferred compensation plan assets.
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General and Administrative
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
(dollars in millions)
$ 353.8
$ 323.0
$
30.8
10 %
Percentage of total revenue
7 %
8 %
The increase in general and administrative expenses for fiscal 2022 compared to fiscal 2021 was primarily due to
increases of $30.8 million in legal, consulting and other professional fees, $18.6 million in maintenance and
depreciation expenses, and $13.3 million in personnel-related costs due to headcount increases from hiring. These
increases were partially offset by a decrease of $16.9 million in the fair value of our executive deferred
compensation plan assets and bad debt recoveries of $15.9 million.
Change in Fair Value of Deferred Compensation
The income or loss arising from the change in fair value of our non-qualified deferred compensation plan obligation
is recorded in cost of sales and each functional operating expense, with the offsetting change in the fair value of the
related assets recorded in other income (expense), net. These assets are classified as trading securities. There is
no impact on our net income from the fair value changes in our deferred compensation plan obligation and related
assets.
Amortization of Intangible Assets
Amortization of intangible assets included within operating expenses consists of the amortization of trademarks,
trade names, and customer relationships related to acquisitions.
Percentage of total revenue
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
29.8
1 %
(dollars in millions)
33.9
(4.1)
(12) %
1 %
The decrease in amortization of intangible assets for fiscal 2022 compared to fiscal 2021 was primarily due to
certain intangible assets becoming fully amortized in fiscal 2022, partially offset by amortization expense related to
intangible assets acquired during fiscal 2022.
Restructuring Charges
In the third quarter of fiscal 2021, our management approved, committed and initiated a restructuring plan (the 2021
Plan) as part of a business reorganization. Total charges under the 2021 Plan consisting primarily of severance,
retirement benefits, and lease abandonment costs, were $45.5 million, of which $33.4 million was incurred in fiscal
2021 and $12.1 million was incurred in fiscal 2022. The 2021 Plan was substantially completed in the first quarter of
fiscal 2022.
The following is a summary of our restructuring liabilities:
Fiscal Year
Balance at Beginning of
Period
Costs Incurred
Cash Payments
Balance at End of Period
2022
2021
2020
$
$
$
14.2 $
1.3 $
22.6 $
(dollars in millions)
12.1 $
33.4 $
36.1 $
(26.3) $
(20.5) $
(57.4) $
—
14.2
1.3
See Note 18 of the Notes to Consolidated Financial Statements for additional information.
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Other Income (Expense), Net
Interest income
Interest expense
Gains (losses) on assets related to executive deferred
compensation plan
Foreign currency exchange gains (losses)
Other, net
Total
Year Ended October 31,
$ Change
% Change
2022
2021
2021 to 2022
$
$
8.5 $
(1.7)
(68.8)
4.7
10.8
(46.5) $
(dollars in millions)
2.4 $
(3.4)
6.1
1.7
71.6
5.3
(5.2)
70.7 $
(140.4)
(0.6)
16.0
(117.2)
254 %
(50) %
(196) %
(11) %
(308) %
(166) %
The decrease in other income (expense) for fiscal 2022 as compared to fiscal 2021 was primarily due to the
decrease in the fair value of our executive deferred compensation plan assets.
Segment Operating Results
We do not allocate certain operating expenses managed at a consolidated level to our reportable segments. These
unallocated expenses consist primarily of stock-based compensation expense, amortization of intangible assets,
changes in the fair value of deferred compensation plan, restructuring, litigation and acquisition-related costs. See
Note 17 of the Notes to Consolidated Financial Statements for more information.
Semiconductor & System Design Segment
Adjusted operating income
Adjusted operating margin
Year Ended October 31,
$ Change % Change
2022
2021
2021 to 2022
(dollars in millions)
$ 1,628.1
$ 1,243.1 $ 385.0
35 %
33 %
2 %
31 %
6 %
The increase in adjusted operating income for fiscal 2022 compared to fiscal 2021 was primarily due to an increase
in revenue from arrangements booked in prior periods.
Software Integrity Segment
Adjusted operating income
Adjusted operating margin
Year Ended October 31,
$ Change % Change
2022
2021
2021 to 2022
$ 47.0
(dollars in millions)
$ 8.7
$ 38.3
10 %
10 %
— %
23 %
— %
The increase in adjusted operating income for fiscal 2022 compared to fiscal 2021 was primarily due to an increase
in revenue from arrangements booked in prior periods.
Income Taxes
Our effective tax rate for fiscal 2022 is 12.3%, which included a tax benefit of $61.5 million of U.S. federal research
tax credit, a foreign derived intangible income (FDII) deduction of $38.9 million, and excess tax benefits from stock-
based compensation of $88.8 million.
Our effective tax rate for fiscal 2021 was 6.1%, which included a tax benefit of $45.5 million of U.S. federal research
tax credit, a FDII deduction of $31.2 million, and excess tax benefits from stock-based compensation of $94.0
million.
The Tax Act provides an exemption from federal income taxes for distributions from foreign subsidiaries made after
December 31, 2017 that were not subject to the one-time transition tax. We have provided for foreign withholding
taxes on undistributed earnings of certain of our foreign subsidiaries to the extent such earnings are no longer
considered to be indefinitely reinvested in the operations of those subsidiaries.
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In 2017, the Hungarian Tax Authority (the HTA) assessed withholding taxes of approximately $25.0 million and
interest and penalties of $11.0 million, against our Hungary subsidiary (Synopsys Hungary). Synopsys Hungary
contested the assessment with the Hungarian Administrative Court (Administrative Court). In 2019, as required
under Hungarian law, Synopsys Hungary paid the assessment and recorded a tax expense due to an unrecognized
tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits. The Administrative Court found against
Synopsys Hungary, and we appealed to the Hungarian Supreme Court. During 2021, the Hungarian Supreme Court
heard our appeal and remanded the case to the Administrative Court for further proceedings. The Administrative
Court once again ruled against Synopsys Hungary, and we filed another appeal with the Hungarian Supreme Court.
The Hungarian Supreme Court heard our appeal on January 27, 2022, vacated the lower court's decision and
remanded the case back to the Administrative Court for further proceedings. Hearings with the Administrative Court
were held on June 30, 2022 and September 22, 2022. In response to a request by the Administrative Court we filed
an additional brief on November 23, 2022. We expect a hearing to be scheduled in early 2023.
See Note 15 of the Notes to Consolidated Financial Statements for further discussion of the provision for income
taxes, the impacts related to the Tax Act, and the Hungarian audit.
Liquidity and Capital Resources
Our principal sources of liquidity are funds generated from our business operations and funds that may be drawn
down under our revolving credit and term loan facilities.
As of October 31, 2022, we held $1.6 billion in cash, cash equivalents and short-term investments. We also held
$2.3 million in restricted cash primarily associated with deposits for office leases. Our cash equivalents consisted
primarily of taxable money market mutual funds, time deposits and highly liquid investments with maturities of three
months or less. Our short-term investments include U.S. government and municipal obligations, investment-grade
available-for-sale debt and asset backed securities. We believe that the overall credit quality of our portfolio is
strong, with our global excess cash, and our cash equivalents, invested in banks and securities with a weighted-
average credit rating exceeding AA.
As of October 31, 2022, approximately $755.1 million of our cash and cash equivalents were domiciled in various
foreign jurisdictions. We have provided for foreign withholding taxes on the undistributed earnings of certain of our
foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the
operations of those subsidiaries.
We believe that our existing cash, cash equivalents and short-term investments and sources of liquidity will be
sufficient to satisfy our cash requirements and capital return program over at least the next 12 months. We are
currently not aware of any trends or demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact our capital
needs during or beyond the next 12 months. Our future cash requirements will depend on many factors, including
our rate of revenue growth, the expansion of our sales and marketing activities, and the timing and extent of our
spending to support our research and development efforts. We also may invest in or acquire businesses,
applications or technologies, or may further expand our board-authorized stock repurchase program, which may
require the use of significant cash resources and/or additional financing.
Cash Flows
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Cash Provided by Operating Activities
Year Ended October 31,
2022
2021
$ Change
2021 to 2022
(dollars in millions)
$
$
$
1,738.9 $
(572.6) $
(1,116.3) $
1,492.6 $
(549.0) $
(748.7) $
246.3
(23.6)
(367.6)
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.
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The increase in cash provided by operating activities was primarily attributable to higher net income and higher
accounts receivable collection, partially offset by timing of customer billings and higher disbursements for
operations, including vendor and tax payments.
Cash Used in Investing Activities
The increase in cash used in investing activities was primarily due to higher cash paid for acquisitions of $126.4
million and higher purchases of property and equipment of $42.8 million, partially offset by higher proceeds from the
sales and maturities of short-term investments of $80.8 million and lower purchases of short-term investments of
$64.5 million.
Cash Used in Financing Activities
The increase in cash used in financing activities was primarily due to higher stock repurchases of $311.9 million,
higher debt repayments of $48.8 million and higher taxes paid for net share settlements of $35.1 million, partially
offset by higher proceeds from issuance of common stock of $27.2 million.
Credit and Term Loan Facilities
On January 22, 2021, we entered into a Fourth Extension and Amendment Agreement (the Fourth Amendment),
which amended and restated our previous credit agreement, dated as of November 28, 2016 (as amended and
restated, the Credit Agreement). Our outstanding borrowings under the previous credit agreement, which as of
January 22, 2021 consisted of term loans in the aggregate principal amount of $97.5 million, were carried over
under the Credit Agreement and fully paid on November 26, 2021.
The Fourth Amendment extended the termination date of the existing $650.0 million senior unsecured revolving
credit facility (the Revolver) from November 28, 2021 to January 22, 2024, which could be further extended at our
option. The Credit Agreement also provides an uncommitted incremental loan facility of up to $150.0 million in the
aggregate principal amount. The Credit Agreement contains financial covenants requiring us to maintain a
maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, as well as other non-
financial covenants. As of October 31, 2022, we were in compliance with all financial covenants.
There was no outstanding balance under the Revolver as of October 31, 2022 and October 31, 2021. We expect
our borrowings, if any, 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 October 31, 2022, the Revolver bore interest at LIBOR +1%. In addition,
commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on our
leverage ratio on the daily amount of the revolving commitment.
In July 2018, we entered into a 12-year 220.0 million Renminbi (approximately $33.0 million) credit agreement with
a lender in China to support our facilities expansion. Borrowings bear interest at a floating rate based on the 5-year
Loan Prime Rate plus 0.74%. As of October 31, 2022, we had a $20.8 million outstanding balance under the
agreement.
Stock Repurchase Program
Our Board of Directors (the Board) previously approved a stock repurchase program (the Program) with
authorization to purchase up to $1.0 billion of our common stock in December 2021. The Board approved a
replenishment of the Program up to $1.5 billion in September 2022.
During the fiscal year 2022, we repurchased 3.6 million shares of common stock at an average price of $314.51 per
share for an aggregate purchase price of $1.1 billion. As of October 31, 2022, $1.4 billion remained available for
future stock repurchases. The pace of our repurchase activity will depend on factors such as our working capital
needs, our cash requirements for acquisitions, our debt repayment obligations, our stock price, and economic and
market conditions.
The IR Act was enacted in the United States on August 16, 2022. The IR Act imposes a 1% excise tax on the fair
market value of stock repurchases made by covered corporations after December 31, 2022. The total taxable value
of shares repurchased is reduced by the fair market value of any newly issued shares during the taxable year. We
are assessing the potential impact of the stock repurchase excise tax. Based on our preliminary assessment, we do
not expect a material impact on our overall capital allocation strategy or our consolidated financial statements. Risks
related to the IR Act are described in Part I, Item 1A, Risk Factors.
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Contractual and Other Obligations
Our material cash requirements include the following contractual and other obligations.
Leases
We have operating lease arrangements for office space, data center, equipment and other corporate assets. As of
October 31, 2022, we had lease payment obligations, net of immaterial sublease income, of $569.3 million, with
$54.5 million payable within 12 months.
Purchase Obligations
Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary
course of business for which we have not received the goods or services. As of October 31, 2022, we had $661.1
million of purchase obligations, with $367.4 million payable within 12 months. Although open purchase orders are
considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and
adjust our requirements based on our business needs prior to the delivery of goods or performance of services.
Term Loan
Refer to "Credit and Term Loan Facilities” under Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in this Annual Report on Form 10-K for more information.
Long Term Accrued Income Taxes
As of October 31, 2022, we had $18.8 million of long-term accrued income taxes which represent uncertain tax
benefits. Currently, a reasonably reliable estimate of timing of payments related to uncertain tax benefits in
individual years beyond fiscal 2022 cannot be made due to uncertainties in timing of the commencement and
settlement of potential tax audits.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, primarily due to changes in interest rates, foreign currency exchange
rates, and non-marketable equity security price. None of market risk sensitive instruments are held for speculative
trading purposes.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates to our cash, cash equivalents,
short-term investments, and outstanding debt. As of October 31, 2022, all of our cash, cash equivalents, and debt
were at short-term variable or fixed interest rates. As of October 31, 2022, we had an investment portfolio of fixed
income securities of $147.9 million. These securities, as with all fixed income instruments, are subject to interest
rate risk and will decline in value if market interest rates increase. While par value generally approximates fair value
on variable instruments, rising interest rates over time would increase both our interest income and our interest
expense. The primary objective of our investment activities is to preserve the principal while at the same time
maximizing yields without significantly increasing the risk. To achieve this objective, we maintain our portfolio of
investments in a mix of tax-exempt and taxable instruments that meet high credit quality standards, as specified in
our investment policy. Our policy also limits the amount of credit exposure to any one issue, issuer and type of
instrument.
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Our cash equivalents and debt by fiscal year of expected maturity and average interest rates as of October 31, 2022
were as follows:
Maturing in Year Ending October 31,
2023
2024
2025
2026
2027 and
thereafter
Total
Fair Value
(in thousands)
Cash & Cash equivalents
Approx. average interest
rate
$ 1,227,136
0.70 %
$ 1,227,136 $ 1,227,136
Short-term investments
$ 82,264
$ 39,410 $ 17,705
$ 2,265 $ 6,269
$ 147,913 $ 147,913
Approx. average coupon
rate
Short-term debt (variable rate):
Credit Facility in China
Average interest rate
2.01 % 2.01 %
3.11 % 0.98 % 1.45 %
$ 20,824 $ 20,824 $ 20,824
LPR +
0.74%
of such
rate
Foreign Currency Risk. We operate internationally and are exposed to potentially adverse movements in currency
exchange rates. The functional currency of the majority of our active foreign subsidiaries is the foreign subsidiary’s
local currency. 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 statements of income. Likewise, a strengthening of
the U.S. dollar relative to other currencies, including the renminbi or Yen, reduces revenue of our foreign
subsidiaries upon translation and consolidation. If the U.S. dollar continues to strengthen, this could adversely affect
our financial condition and operating results. In addition, increased international sales in the future may result in
greater foreign currency denominated sales, increasing our foreign currency risk. Our operating expenses incurred
outside the United States and denominated in foreign currencies are increasing and are subject to fluctuations due
to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated
with foreign currency fluctuations, our financial condition and operating results could be adversely affected. We
enter into hedges in the form of foreign currency forward contracts to reduce our 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 foreign currency contracts are carried at fair value and denominated in various currencies as
listed in the tables below. The duration of forward contracts usually ranges from one month to 27 months. See
Note 2 and Note 7 of the Notes to Consolidated Financial Statements for a description of our accounting for foreign
currency contracts.
The success of our hedging activities depends upon the accuracy of our estimates of various balances and
transactions denominated in non-functional currencies. Exchange rates are subject to significant and rapid
fluctuations due to a number of factors, including interest rate changes and political and economic uncertainty.
Therefore, we cannot predict the prospective impact of exchange rate fluctuations. To the extent our estimates are
correct, gains and losses on our foreign currency contracts will be offset by corresponding losses and gains on the
underlying transactions. For example, if the Euro were to depreciate by 10% compared to the U.S. dollar prior to the
settlement of the Euro forward contracts listed in the table below providing information as of October 31, 2022, the
fair value of the contracts would decrease by approximately $19.5 million, and we would be required to pay
approximately $19.5 million to the counterparty upon contract maturity. At the same time, the U.S. dollar value of our
Euro-based expenses would decline, resulting in positive cash flow of approximately $19.5 million that would offset
the loss and negative cash flow on the maturing forward contracts.
If estimates of our balances and transactions prove inaccurate, we will not be completely hedged, and we will record
gains or losses, depending upon the nature and extent of such inaccuracy. 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.
We enter into foreign exchange forward contracts with financial institutions and have not experienced
nonperformance by counterparties. Further, we anticipate performance by all counterparties to such agreements.
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Information about the gross notional values of our foreign currency contracts as of October 31, 2022 was as follows:
Forward Contract Values:
Indian rupee
Japanese yen
Euro
Taiwanese dollar
Canadian dollar
Chinese renminbi
Korean won
Hungarian forint
British pound sterling
Israel shekel
Singapore dollar
Swiss franc
Gross Notional
Amount in
U.S. Dollars
(in thousands)
Average
Contract
Rate
$
368,282
264,649
195,285
130,412
102,201
90,436
83,935
51,056
41,817
38,386
10,498
9,183
82.500
146.852
1.086
29.967
1.321
7.214
1,289.396
423.933
1.234
3.419
1.396
0.958
$ 1,386,140
Equity Price Risk. Our non-marketable equity securities investments totaled $31.9 million and $17.6 million as of
October 31, 2022 and 2021, respectively. Our strategic investments include privately-held companies that are
considered to be in the start-up or development stages and have a higher inherent risk. Specifically, the
technologies or products these companies have under development are typically in the early stages and may never
materialize, which could result in a loss of a substantial part of our initial investment in these companies. These
investments could be impaired if the carrying value exceeds the fair value and is not expected to recover. The
evaluation of these investments is based on information provided by these companies, which is not subject to the
same disclosure regulations as U.S. publicly traded companies and as such, the basis for these evaluations is
subject to the timing and accuracy of the data provided.
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Synopsys, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Synopsys, Inc. and subsidiaries (the Company)
as of October 29, 2022 and October 30, 2021, the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 29, 2022,
and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s
internal control over financial reporting as of October 29, 2022, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of October 29, 2022 and October 30, 2021, and the results of its operations
and its cash flows for each of the years in the three-year period ended October 29 2022, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of October 29, 2022 based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
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includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Evaluation of the Company’s analysis of terms and conditions in software and intellectual property license
contracts with customers
As discussed in Notes 2 and 3 to the consolidated financial statements, the Company generates revenue from
the sale of products that include software and intellectual property (IP) licenses, hardware products,
maintenance and services. The Company’s contracts with customers often include promises to transfer multiple
products and services to a customer. Arrangements with customers can involve hundreds of products and
various license rights, and customers negotiate with the Company over many aspects of these arrangements.
The Company’s customers often request 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. The Company recognized total revenue of $5,081.5 million for the year ended October 29,
2022, which included revenue related to software and IP licenses.
We identified the evaluation of the Company’s analysis of terms and conditions in significant software and IP
license contracts with customers and their effect on revenue recognition as a critical audit matter. Complex
auditor judgment was required to assess the Company’s judgments made in applying revenue recognition
requirements to certain terms and conditions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to the Company’s revenue
recognition process, including the Company’s analysis of terms and conditions in software and IP license
contracts with customers and their effect on revenue recognition. We tested certain software and IP license
customer contracts by inspecting the underlying customer agreements and evaluating the Company’s
assessment of the contractual terms and conditions in accordance with revenue recognition requirements. For a
selection of software and IP license contracts with customers entered during the year, we inquired of personnel
outside of the accounting function to corroborate our understanding of certain terms and conditions.
/s/ KPMG LLP
We have served as the Company’s auditor since 1992.
Santa Clara, California
December 12, 2022
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SYNOPSYS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Total cash, cash equivalents and short-term investments
Accounts receivable, net
Inventories
Prepaid and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets, net
Goodwill
Intangible assets, net
Deferred income taxes
Other long-term assets
Total assets
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Operating lease liabilities
Deferred revenue
Short-term debt
Total current liabilities
Long-term operating lease liabilities
Long-term deferred revenue
Long-term debt
Other long-term liabilities
Total liabilities
Redeemable non-controlling interest
Stockholders’ equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding
Common stock, $0.01 par value: 400,000 shares authorized; 152,375 and
153,062 shares outstanding, respectively
Capital in excess of par value
Retained earnings
Treasury stock, at cost: 4,886 and 4,198 shares, respectively
Accumulated other comprehensive income (loss)
Total Synopsys stockholders’ equity
Non-controlling interest
Total stockholders’ equity
Total liabilities, redeemable non-controlling interest and stockholders’
equity
October 31,
2022
2021
$ 1,417,608 $ 1,432,840
147,949
1,580,789
568,501
229,023
430,028
2,808,341
472,398
493,251
3,575,785
279,132
612,655
510,698
$ 9,418,087 $ 8,752,260
147,913
1,565,521
796,091
211,927
439,130
3,012,669
483,300
559,090
3,842,234
386,446
670,653
463,695
$
809,403 $
54,274
1,910,822
—
2,774,499
581,273
154,472
20,824
327,829
3,858,897
38,664
741,191
79,678
1,517,623
74,992
2,413,484
487,003
136,303
25,094
391,433
3,453,317
—
—
—
1,524
1,487,126
5,534,307
(1,272,955)
(234,277)
5,515,725
4,801
5,520,526
1,531
1,576,363
4,549,713
(782,866)
(49,604)
5,295,137
3,806
5,298,943
$ 9,418,087 $ 8,752,260
See the accompanying Notes to Consolidated Financial Statements.
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SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended October 31,
2022
2021
2020
Revenue:
Time-based products
Upfront products
Total products revenue
Maintenance and service
Total revenue
Cost of revenue:
Products
Maintenance and service
Amortization of intangible assets
Total cost of revenue
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of intangible assets
Restructuring charges
Total operating expenses
Operating income
Other income (expense), net
Income before income taxes
Provision (benefit) for income taxes
Net income
Net income (loss) attributed to non-controlling interest and
redeemable non-controlling interest
Net income attributed to Synopsys
Net income per share attributed to Synopsys:
Basic
Diluted
Shares used in computing per share amounts:
Basic
Diluted
$ 2,993,786 $ 2,633,763 $ 2,365,199
735,572
3,100,771
584,510
3,685,281
861,063
3,494,826
709,367
4,204,193
1,226,728
4,220,514
861,028
5,081,542
653,783
342,978
66,936
1,063,697
4,017,845
1,680,379
779,777
353,840
29,754
12,057
2,855,807
1,162,038
(46,524)
1,115,514
137,078
978,436
542,114
271,202
48,461
861,777
3,342,416
1,504,823
712,491
322,988
33,919
33,405
2,607,626
734,790
70,724
805,514
49,155
756,359
487,307
254,931
52,452
794,690
2,890,591
1,279,022
632,010
284,530
38,829
36,059
2,270,450
620,141
18,018
638,159
(25,288)
663,447
(6,158)
984,594 $
(1,157)
757,516 $
(900)
664,347
6.44 $
6.29 $
4.96 $
4.81 $
4.40
4.27
153,002
156,485
152,698
157,340
151,135
155,706
$
$
$
See the accompanying Notes to Consolidated Financial Statements.
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SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Year Ended October 31,
2022
2021
2020
$
978,436 $
756,359 $
663,447
Change in foreign currency translation adjustment
(108,145)
9,415
30,466
Change in unrealized gains (losses) on available-for-sale
securities, net of tax of $0 for periods presented
Cash flow hedges:
Deferred gains (losses), net of tax of $28,416, $(1,736),
and $(3,192) for fiscal years 2022, 2021 and 2020,
respectively
Reclassification adjustment on deferred (gains) losses
included in net income, net of tax of $(1,342), $4,593,
and $176 for fiscal years 2022, 2021 and 2020,
respectively
Other comprehensive income (loss), net of tax effects
Comprehensive income
(2,353)
(246)
—
(79,069)
9,860
7,834
4,894
(184,673)
(14,559)
4,470
793,763
760,829
73
38,373
701,820
Less: Net income (loss) attributed to non-controlling interest and
redeemable non-controlling interest
Comprehensive income attributed to Synopsys
(6,158)
(1,157)
(900)
$
799,921 $
761,986 $
702,720
See the accompanying Notes to Consolidated Financial Statements.
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SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Balance at October 31, 2019
Net income
Other comprehensive income (loss), net of tax
effects
Purchases of treasury stock
Common stock issued, net of shares withheld for
employee taxes
Stock-based compensation
Balance at October 31, 2020
Net income
Retained earnings adjustment due to adoption of
ASC 326
Other comprehensive income (loss), net of tax
effects
Purchases of treasury stock
Equity forward contract, net
Common stock issued, net of shares withheld for
employee taxes
Stock-based compensation
Balance at October 31, 2021
Net income
Other comprehensive income (loss), net of tax
effects
Purchases of treasury stock
Equity forward contract, net
Common stock issued, net of shares withheld for
employee taxes
Stock-based compensation
Common Stock
Shares
Amount
Capital in
Excess of
Par
Value
Retained
Earnings
150,331 $
1,503 $ 1,635,455 $ 3,164,144 $
Treasury
Stock
(625,642) $
Accumulated
Other
Comprehensive
Income (Loss)
Total
Synopsys
Stockholders’
Equity
Non-
controlling
Interest
664,347
(92,447) $
4,083,013 $
664,347
5,863 $
(900)
Stockholders'
Equity
4,088,876
663,447
(1,585)
(14)
14
(242,078)
3,872
39
(230,887)
(33,094)
379,107
248,584
152,618 $
1,528 $ 1,653,166 $ 3,795,397 $
(488,613) $
(54,074) $
38,373
757,516
(3,200)
(2,780)
(28)
28
(35,000)
3,224
31
(387,103)
345,272
4,470
(753,081)
458,828
153,062 $
1,531 $ 1,576,363 $ 4,549,713 $
(782,866) $
(49,604) $
(3,609)
(36)
36
35,000
984,594
(1,135,000)
(184,673)
2,922
29
(581,001)
644,911
456,728
38,373
(242,078)
115,165
248,584
4,907,404 $
757,516
(3,200)
4,470
(753,081)
(35,000)
71,756
345,272
5,295,137 $
984,594
(184,673)
(1,135,000)
35,000
63,939
4,963 $
(1,157)
3,806 $
(1,306)
38,373
(242,078)
115,165
248,584
4,912,367
756,359
(3,200)
4,470
(753,081)
(35,000)
71,756
345,272
5,298,943
983,288
(184,673)
(1,135,000)
35,000
63,939
456,728
5,515,725 $
2,301
4,801 $
459,029
5,520,526
Balance at October 31, 2022
152,375 $
1,524 $ 1,487,126 $ 5,534,307 $ (1,272,955) $
(234,277) $
See the accompanying Notes to Consolidated Financial Statements.
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SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization and depreciation
Reduction of operating lease right-of-use assets
Amortization of capitalized costs to obtain revenue contracts
Stock-based compensation
Allowance for credit losses
Deferred income taxes
Other non-cash
Net changes in operating assets and liabilities, net of acquired assets
and liabilities:
Accounts receivable
Inventories
Prepaid and other current assets
Other long-term assets
Accounts payable and accrued liabilities
Operating lease liabilities
Income taxes
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sales and maturities of short-term investments
Purchases of short-term investments
Proceeds from sales of long-term investments
Purchases of long-term investments
Purchases of property and equipment
Acquisitions, net of cash acquired
Capitalization of software development costs
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from credit facilities
Repayment of debt
Issuances of common stock
Payments for taxes related to net share settlement of equity awards
Purchase of equity forward contract
Purchases of treasury stock
Other
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes during the year:
Interest payments during the year:
Non-cash activities:
Purchase of property and equipment included in accounts payable
Conversion of notes receivable to non-marketable equity securities
Year Ended October 31,
2022
2021
2020
$
978,436 $
756,359 $
663,447
228,405
89,541
73,026
459,029
(3,477)
(36,913)
10,188
(251,390)
1,320
(89,983)
(15,283)
(34,066)
(85,828)
1,644
414,251
1,738,900
93,696
(97,245)
582
(7,000)
(136,589)
(422,374)
(2,493)
(1,200)
(572,623)
—
(76,838)
237,956
(174,005)
—
(1,100,000)
(3,413)
(1,116,300)
203,676
86,645
64,698
345,272
18,515
(128,583)
15,859
201,706
(48,046)
(102,174)
(153,037)
125,133
(82,581)
28,855
160,325
1,492,622
12,850
(161,732)
—
(7,591)
(93,764)
(296,017)
(1,976)
(800)
(549,030)
—
(28,061)
210,719
(138,950)
(35,000)
(753,081)
(4,375)
(748,748)
209,986
82,895
61,185
248,584
20,875
(111,526)
4,325
(236,806)
(55,024)
(11,298)
(83,367)
113,773
(78,578)
14,120
148,722
991,313
—
—
2,151
(2,762)
(154,717)
(201,045)
(4,045)
—
(360,418)
276,489
(288,879)
197,403
(82,225)
—
(242,078)
(1,316)
(140,606)
(65,296)
(15,319)
1,435,183
1,419,864 $
2,369
197,213
1,237,970
1,435,183 $
17,154
507,443
730,527
1,237,970
167,768 $
1,258 $
149,762 $
3,365 $
17,857 $
14,280 $
8,654 $
— $
70,711
5,136
6,900
—
$
$
$
$
$
See the accompanying Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SYNOPSYS, INC.
Note 1. Description of Business
Synopsys, Inc. (Synopsys, we, our or us) provides products and services used across the entire Silicon to Software
spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure the security
and quality of their code.
We are a global leader in 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. We also provide technical services and support to help our customers
develop advanced chips and electronic systems. These products and services are part of our Semiconductor &
System Design segment.
We are also a leading provider of software tools and services that improve the security, quality and compliance of
software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and
industrials. These tools and services are part of our Software Integrity segment.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation. Our fiscal year generally ends on the Saturday nearest to
October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week
year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with
calendar quarters. Fiscal 2022, 2021 and 2020 were 52-week years ending on October 29, 2022, October 30, 2021
and October 31, 2020, respectively. For presentation purposes, the consolidated financial statements and
accompanying notes refer to the closest calendar month end. Fiscal 2023 will be a 52-week year.
The consolidated financial statements include our accounts and the accounts of our wholly and majority-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates. To prepare financial statements in conformity with U.S. generally accepted accounting principles,
management must make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these estimates and could have a material
impact on our operating results and financial position.
Comparability. Effective beginning of fiscal 2022, we adopted an Accounting Standards Update (ASU) to simplify the
accounting for income taxes in Accounting Standards Codification (ASC) 740, Income Taxes, on a prospective
basis. Effective beginning the second quarter of fiscal 2022, we early adopted an ASU, on a prospective basis, to
apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with
customers acquired in a business combination on the acquisition date, instead of measuring them at fair value. The
adoption of these updates did not have a material impact on our consolidated financial statements.
Effective beginning of fiscal 2021, we adopted ASC 326, Measurement of Credit Losses on Financial Instruments.
Prior periods were not retrospectively recast and accordingly, the consolidated statements of income for the year
ended October 31, 2020 were prepared using accounting standards that were different than those in effect for the
years ended October 31, 2022 and 2021.
Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the
current year presentation. The reclassifications did not have a material impact on the prior year's consolidated
balance sheets, statements of income, statements of comprehensive income and statements of cash flows.
Cash and Cash Equivalents and Short-term Investments. We classify investments with original maturities of three
months or less when acquired as cash equivalents. Our investments in debt securities with maturities of longer than
three months from the consolidated balance sheets date are classified as short-term investments as we may
convert these investments into cash at any time to fund general operations. Our debt securities generally have an
effective maturity term of less than three years and are classified as available-for-sale securities carried at fair
value, with unrealized gains and losses included in the consolidated balance sheets as a component of
accumulated other comprehensive income (loss). For available-for-sale debt securities in an unrealized loss
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position, we evaluate whether a current expected credit loss exists based on available information relevant to the
credit rating of the security, current economic conditions and reasonable and supportable forecasts. The allowance
for credit loss is recorded in other income (expense), net, on the consolidated statements of income, not to exceed
the amount of the unrealized loss. Any excess unrealized loss other than the credit loss is recognized in
accumulated other comprehensive income or loss in the stockholders' equity section of the consolidated balance
sheets. The cost of securities sold is based on the specific identification method and realized gains and losses are
included in other income (expense), net. See Note 7. Financial Assets and Liabilities. There were no credit losses
on available-for-sale debt securities recognized in the years ended October 31, 2022 and 2021.
Accounts Receivable, Net. The balances consist of billed accounts receivable and current portion of unbilled
accounts receivable. Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
Allowance for Credit Losses. We maintain an allowance for credit losses for expected uncollectible accounts
receivable and contract assets, which is recorded as an offset to accounts receivable or contract assets and
provisions for credit losses are recorded in general and administrative expense in the consolidated statements of
income. The allowance for current expected credit losses is based on a review of customer accounts and considers
historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance. The
following table presented the changes in the allowance for credit losses:
Fiscal Year
2022
2021
2020
Balance at
Beginning
of Period
Provisions
Write-offs/
Adjustments
(in thousands)
Balance at
End of
Period
$
$
$
31,605 $
29,489 $
9,971 $
12,424 $
18,515 $
20,875 $
(2,793) $
(16,399) $
(1,357) $
41,236
31,605
29,489
Inventories. Inventories are computed at standard costs which approximate actual costs, on a first-in, first-out basis
and valued at the lower of cost or net realizable value. Inventories primarily include components and finished goods
for complex emulation and prototyping hardware systems. The valuation process includes a review of the forecasts
based upon future demand and market conditions. Inventory provisions are recorded when the costs are
determined to be in excess of anticipated demand or considered obsolete. Inventory provisions are impacted by
market and economic conditions, technology changes, new product introductions and changes in strategic direction,
and require estimates that may include uncertain elements.
Fair Values of Financial Instruments. Our cash equivalents, short-term investments and foreign currency contracts
are carried at fair value. The fair value of our accounts receivable and accounts payable approximates the carrying
amount due to their short duration. Non-marketable equity securities are accounted for using either the
measurement alternative or equity method of accounting, net of impairments. We perform periodic impairment
analysis on these non-marketable equity securities. The carrying amount of the short-term and long-term debt
approximates the estimated fair value. See Note 8. Fair Value Measurements.
Foreign Currency Contracts. We operate internationally and are exposed to potentially adverse movements in
currency exchange rates. We enter into hedges in the form of foreign currency forward contracts to reduce our
exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and
balance sheet positions. The assets or liabilities associated with the forward contracts are recorded at fair value in
other current assets or accrued liabilities in the consolidated balance sheets.
The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency
forward contract and whether it is designated and qualifies for hedge accounting. See Note 7. Financial Assets and
Liabilities.
Concentration of Credit Risk. Financial instruments that potentially subject us to significant concentrations of credit
risk consist principally of cash equivalents, short-term investments, foreign currency contracts, and trade accounts
receivable. We maintain cash equivalents primarily in highly rated taxable and tax-exempt money market funds
located in the U.S. and in various overseas locations.
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We sell our products worldwide primarily to customers in the global electronics market. We perform on-going credit
evaluations of our customers’ financial condition and do not require collateral. We establish reserves for potential
credit losses and such losses have been within management’s expectations and have not been material in any year
presented.
Income Taxes. We account for income taxes using the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
We account for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining whether it is more likely than
not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized
upon ultimate settlement. An uncertain tax position is considered effectively settled on completion of an examination
by a taxing authority if certain other conditions are satisfied.
Property and Equipment. Property and equipment is recorded at cost less accumulated depreciation. Assets,
excluding land, are depreciated using the straight-line method over their estimated useful lives. Depreciation
expenses were $107.7 million, $119.1 million and $119.1 million in fiscal 2022, 2021 and 2020, respectively. Repair
and maintenance costs are expensed as incurred and such costs were $72.9 million, $62.6 million and $62.1 million
in fiscal 2022, 2021 and 2020, respectively.
The useful lives of depreciable assets are as follows:
Computer and other equipment
Buildings
Furniture and fixtures
Leasehold improvements
Useful Life in Years
3 - 8
30
5
Shorter of the lease
term or the estimated
useful life
Investments in Equity Securities. We hold equity securities in privately held companies for the promotion of
business and strategic objectives. These investments are initially recorded at cost and included in other long-term
assets in the consolidated balance sheets and are subject to a periodic impairment review. We account for these
investments using the measurement alternative when the fair value of the investment is not readily determinable
and we do not have the ability to exercise significant influence or using the equity method of accounting when it is
determined that we have the ability to exercise significant influence. For investments accounted for using the equity
method of accounting, we record our proportionate share of the investee’s income or loss to other income
(expense), net, in our consolidated statements of income.
Leases. We determine if an arrangement is a lease at inception of the contract, which is the date on which the terms
of the contract are agreed to, and the agreement creates enforceable rights and obligations. A contract is or
contains a lease when we have the right to control the use of an identified asset for a period of time. The
commencement date of the lease is the date that the lessor makes an underlying asset available for use by the
lessee. On the commencement date, leases are evaluated for classification and assets and liabilities are recognized
based on the present value of lease payments over the lease term.
The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is
reasonably certain that the option will be exercised. The right of use (ROU) asset is initially measured as the
amount of lease liability, adjusted for any initial lease costs, prepaid lease payments and any lease incentives.
Variable lease payments, consisting primarily of reimbursement of costs incurred by lessors for common area
maintenance, real estate taxes and insurance, are not included in the lease liability and are recognized as they are
incurred.
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As most of our leases do not provide an implicit rate, we use the incremental borrowing rate at lease
commencement to measure ROU assets and lease liabilities. We use a benchmark senior unsecured yield curve for
debt instruments over the similar term, and consider specific credit quality, market conditions, tenor of lease
arrangements, and quality of collateral to determine the incremental borrowing rate.
Operating lease expense is generally recognized on a straight-line basis over the lease term. We have elected the
practical expedient to account for the lease and non-lease components as a single lease component for the majority
of our asset classes. For leases with an initial term of one year or less, we have elected not to record the ROU
asset or liability.
Business Combinations. We allocate the purchase price of acquired companies to the tangible and intangible assets
acquired and liabilities assumed based on their acquisition-date fair values with the exception of contract assets and
contract liabilities (deferred revenue) which are recognized and measured on the acquisition date in accordance
with our “Revenue Recognition” policy. The excess of the fair value of purchase consideration over the fair value of
these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized
separately from the business combination and are expensed as incurred. We include the results of operations of the
businesses that are acquired from the acquisition date.
Goodwill. Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and
identifiable intangible assets acquired by us. The carrying amount of goodwill at each reporting unit is tested for
impairment annually in the fourth fiscal quarter, or more frequently if facts and circumstances warrant a review.
Because the fair values of our reporting units have historically exceeded and are expected to continue to
significantly exceed the carrying value of our net assets, we perform a qualitative goodwill impairment assessment.
A quantitative goodwill impairment assessment is performed if it is determined that it is more likely than not that the
fair value of one of our reporting units is lower than the carrying value. When a quantitative goodwill impairment
assessment is performed, we use an income approach based on discounted cash flow analysis, a market approach
based on market multiples, or a combination of both. If the fair value of a reporting unit is less than its carrying
value, a goodwill impairment charge is recorded for the difference. There was no goodwill impairment in fiscal 2022,
2021 and 2020.
Intangible Assets. Intangible assets consist of acquired technology, certain contract rights, customer relationships,
trademarks and trade names, and capitalized software. These intangible assets are acquired through business
combinations, direct purchases, or internally developed capitalized software. Intangible assets are amortized on a
straight-line basis over their estimated useful lives which range from one to ten years.
We review the carrying values of long-lived assets including intangible assets whenever events or changes in
circumstances indicate that the carrying value may not be fully recoverable. Recoverability of long-lived assets is
measured by comparing the carrying value of such asset group to the future undiscounted cash flows that asset
group is expected to generate. If the undiscounted future cash flow is less than the carrying amount of the asset
group, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the asset
group. There were no impairment charges for long-lived assets in fiscal 2022, 2021 and 2020.
Redeemable Non-controlling Interest. Non-controlling interest that is not solely redeemable within our control is
reported as temporary equity in our consolidated balance sheets. The carrying value of the redeemable non-
controlling interest equals the redemption value at the end of each reporting period, after giving effect to the change
from the net income (loss) attributable to the redeemable non-controlling interest. We remeasure the redemption
value of the non-controlling interest on a quarterly basis and changes in the estimated redemption value are
recognized through retained earnings and may also impact the net income or loss attributable to common
stockholders of Synopsys if the redemption value falls below a stated threshold. See Note 4. Business
Combinations for more information regarding the redeemable non-controlling interests.
Revenue Recognition. We recognize revenue for the transfer of services or products to customers in an amount that
reflects the consideration to which we expect 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
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•
•
•
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation
Nature of Products and Services
We generate revenue from the licensing of our EDA software, IP Blocks, and Software Integrity products, as well as
sale of hardware products, and maintenance and services. The various types are set forth below.
Electronic Design Automation
Software license revenue consists of fees associated with the licensing of our 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 our arrangements are TSLs due to the nature of our 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 our customers in applying our
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. We have concluded
that our software licenses in TSL contracts are not distinct from our 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 control to 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
We generally license 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 our IP. These arrangements generally have two distinct performance obligations that consist of
transferring the licensed IP and the post contract 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 our 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 our 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
We generally have 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 our 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
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portion of the transaction price allocated to the hardware product is recognized as revenue at a point in time when
control of the hardware is transferred to the customer. We have concluded that control generally transfers upon
shipment because the customer has the ability to direct the use of the asset and an obligation to pay for the
hardware. The portion of the transaction price allocated to maintenance is recognized as revenue that is ratable
over the maintenance term.
Professional Services
Our arrangements often include service elements (other than maintenance and support services). These services
include training, design assistance, and consulting. These services are generally performed on a time and materials
basis, and 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
we have enforceable rights to payment for performance completed. Inputs such as costs incurred and hours
expended are used in order to measure progress of performance. We have 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
Our customers frequently enter into non-cancelable Flexible Spending Account arrangements (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
our products or services. These arrangements do not meet the definition of a revenue contract until the customer
executes a separate order (pulldown request) 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 and accounted for based on the respective performance obligations included within the
pulldown requests.
Significant Judgments
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 requires significant judgment. We have concluded that (1) 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, 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, we 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, we also concluded that in our Software Integrity business, 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 because the updates are essential to the software’s central utility,
which is to identify security vulnerabilities and other threats.
Our contracts with customers can involve hundreds of products and various license rights. Customers often
negotiate a broad portfolio of solutions, and favorable terms along with future purchase options to manage their
overall costs. Determining whether the purchase options are considered distinct performance obligations that should
be accounted for separately as material rights versus combined together may require significant judgment.
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
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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 we do 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 customers, and these timing differences
result in receivables (billed or unbilled), contract assets, or contract liabilities (deferred revenue) on our consolidated
balance sheet. We record 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. We record an unbilled receivable when revenue is recognized and we have an unconditional right to
invoice and receive payment.
Warranties and Indemnities
Warranties. We generally warrant our products to be free from defects in media and to substantially conform to
material specifications for a period of 90 days for our software products and for up to six months for our hardware
products.
Indemnities. In addition to such warranties, in certain cases, we provide our customers with limited indemnification
with respect to claims that their use of our software products infringes on patents, copyrights, trademarks or trade
secrets. For example, in connection with a litigation campaign launched by Bell Semiconductor LLC (Bell Semic), a
patent monetization entity, some customers have requested defense and indemnification against claims of patent
infringement asserted by Bell Semic in various district court litigations and at the U.S. International Trade
Commission. Bell Semic alleges that the customers’ use of one or more features of certain of our products infringes
one or more of six patents held by Bell Semic. We have offered to defend some of our customers consistent with the
terms of our End User License Agreement. We are unable to estimate the potential impact of these commitments on
the future results of operations.
Net Income Per Share. We compute 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. See Note 14. Net Income Per
Share.
Foreign Currency Translation. The functional currency of the majority of our active foreign subsidiaries is the foreign
subsidiary’s local currency. Assets and liabilities that are not denominated in the functional currency are remeasured
into the functional currency with any related gains or losses recorded in earnings. We translate assets and liabilities
of our non-U.S. dollar functional currency foreign operations into the U.S. dollar reporting currency at exchange
rates in effect at the balance sheet date. We translate income and expense items of such foreign operations into the
U.S. dollar reporting currency at average exchange rates for the period. Accumulated translation adjustments are
reported in stockholders’ equity, as a component of accumulated other comprehensive income (loss).
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Simplifying the
Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within
ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among
reporting entities. We adopted the standard as of the beginning of fiscal 2022 on a prospective basis and the
adoption did not have a material impact on our consolidated financial statements.
Beginning in fiscal 2021, we adopted ASC 326, which was issued by the FASB in June 2016 as ASU 2016-13
Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU replaced
previous incurred loss impairment guidance and established a single expected credit losses allowance framework
for financial assets carried at amortized cost. It also eliminated the concept of other-than-temporary impairment and
requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for
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credit losses. We adopted ASC 326 using the modified retrospective method, which requires a cumulative-effect
adjustment to the opening balance of retained earnings to be recognized on the date of adoption and, accordingly,
recorded a net decrease of $3.2 million to retained earnings as of beginning of fiscal 2021. Please see the
“Allowance for Credit Losses” accounting policy above.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and
contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the
acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had
originated the contracts. We early adopted the standard in the second quarter of fiscal 2022 on a prospective basis,
and the adoption did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03), which applies to all equity securities
measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into
account contractual restrictions on the sale of equity securities when estimating fair value and introduces required
disclosures for such transactions. The standard will become effective for us beginning on November 1, 2024 and will
be applied prospectively. Early adoption is permitted. Any future impact from the adoption of this guidance will
depend on the facts and circumstances of future transactions.
Note 3. Revenue
Disaggregated Revenue
The following table showed the percentage of revenue by product groups:
EDA
IP & System Integration
Software Integrity Products & Services
Other
Total
Contract Balances
2022
2021
2020
50.8 %
39.3 %
9.2 %
0.7 %
100.0 %
55.5 %
34.8 %
9.4 %
0.3 %
100.0 %
57.4 %
32.6 %
9.7 %
0.3 %
100.0 %
The contract assets indicated below are presented as prepaid and other current assets in the consolidated balance
sheets. The contract assets are transferred to receivables when the rights to invoice and receive payment become
unconditional. Unbilled receivables are presented as accounts receivable, net, in the consolidated balance sheets.
Contract balances were as follows:
Contract assets, net
Unbilled receivables
Deferred revenue
As of October 31,
2022
2021
(in thousands)
$
$
$
260,498 $
46,254 $
2,065,294 $
284,574
35,589
1,653,926
During fiscal 2022, we recognized $1.2 billion of revenue that was included in the deferred revenue balance as of
October 31, 2021. During fiscal 2021, we recognized $1.2 billion of revenue that was included in the deferred
revenue balance as of October 31, 2020.
Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $7.1 billion as of
October 31, 2022, which includes $1.1 billion in non-cancellable Flexible Spending Account (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. We have elected to exclude future sales-based royalty payments from the remaining
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performance obligations. Approximately 44% of the contracted but unsatisfied or partially unsatisfied performance
obligations as of October 31, 2022, excluding non-cancellable FSA, are expected to be recognized over the next 12
months with the remainder recognized thereafter.
During fiscal 2022 and fiscal 2021, we recognized $137.3 million and $116.7 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 commission
earned upon execution of the contract, were capitalized in compliance with authoritative guidance, and amortized
over the estimated period of which the benefit is expected to be received. As direct sales commission paid for
renewals are commensurate with the amounts paid for initial contracts, the deferred incremental costs will be
recognized over the contract term.
Capitalized commission costs, net of accumulated amortization, as of October 31, 2022 and 2021 were $96.5
million and $92.2 million, respectively. The balances are included in other long-term assets in our consolidated
balance sheets. Amortization of these assets were $73.0 million, $64.7 million and $61.2 million, respectively, during
fiscal 2022, fiscal 2021 and fiscal 2020, and are included in sales and marketing expense in our consolidated
statements of income.
Note 4. Business Combinations
Fiscal 2022
NTT Security AppSec Solutions Inc.
On June 22, 2022, we completed the acquisition of all outstanding shares of NTT Security AppSec Solutions Inc.
(which has operated under the name WhiteHat Security, or WhiteHat), a provider of dynamic application security
testing solutions, from NTT Security Corporation for an aggregate purchase price of $330.1 million in cash. With this
acquisition, we have broadened our product offering in the application security testing market.
The aggregate purchase consideration was preliminarily allocated as follows:
Total purchase consideration
Less: cash acquired
Total purchase consideration, net of cash acquired
Allocations
Goodwill
Intangible assets
Deferred revenue
Other tangible assets, net
(in thousands)
330,112
22,849
307,263
249,852
97,500
(40,367)
278
307,263
$
$
$
$
63
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
SYNOPSYS, INC.
The goodwill was primarily attributed to the expected post-acquisition synergies from the integration of WhiteHat.
The $249.9 million of goodwill was assigned to the Software Integrity reporting unit and the amount recognized was
not deductible for tax purposes. The acquired identifiable intangible assets of $97.5 million were valued using the
income approach. The intangible assets are being amortized over their respective useful lives ranging from 5 to 10
years.
During the fourth quarter of fiscal 2022, we recorded measurement period adjustments to reflect the facts and
circumstances in existence as of the acquisition date. These adjustments primarily related to the valuation of
individually immaterial net tangible assets of $2.1 million with corresponding increase to goodwill.
OpenLight Photonics, Inc.
During the three months ended April 30, 2022, we acquired 75% equity interest in OpenLight Photonics, Inc.
(OpenLight) for cash consideration of $90.0 million. The remaining 25% equity interest in OpenLight is held by
Juniper Networks, Inc. (the Minority Investor) from their contribution of IP and certain tangible assets.
The agreement with the Minority Investor contains redemption features whereby the interest held by the Minority
Investor is redeemable either (i) at the option of the Minority Investor on or after the third anniversary of the
acquisition or sooner in certain circumstances or (ii) at our option beginning on the third anniversary of the
acquisition. This option is exercisable at the greater of fair value at the time of redemption or $30.0 million and was
valued at $10.1 million, resulting in a total consideration of $100.1 million.
The preliminary purchase price was allocated as follows: $94.0 million to identifiable intangible assets and
$46.7 million to goodwill, which were attributable to the Semiconductor & System Design reporting unit. The
goodwill was mainly attributable to the assembled workforce and planned growth in new markets. There was no tax-
deductible goodwill related to the acquisition.
During the fourth quarter of fiscal 2022, we recorded a measurement period adjustment to reflect the facts and
circumstances in existence as of the acquisition date. This adjustment relates to the valuation of deferred tax assets
of $1.6 million with corresponding increase to goodwill.
From the date of acquisition through October 31, 2022, OpenLight incurred a net loss of $19.4 million, of which
$4.9 million was attributable to redeemable non-controlling interest. As of October 31, 2022, the carrying value of
the redeemable non-controlling interest was $38.7 million in the consolidated balance sheets.
Other Fiscal 2022 Acquisitions
During fiscal 2022, we completed two other acquisitions for aggregate purchase consideration of $31.8 million, net
of cash acquired. The preliminary purchase price was allocated as follows: $12.7 million to identifiable intangible
assets and $22.2 million to goodwill, which were attributable to the Semiconductor & System Design reporting unit.
There was no tax-deductible goodwill related to the acquisitions.
We have included the financial results of the fiscal 2022 acquisitions in our consolidated financial statements from
their respective acquisition date. We do not consider these acquisitions to be material, individually or in the
aggregate, to our consolidated financial statements.
64
Table of Contents
Fiscal 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
SYNOPSYS, INC.
During fiscal 2021, we completed several acquisitions for an aggregate consideration of $298.9 million, net of cash
acquired. We do not consider these acquisitions to be material, individually or in the aggregate, to our consolidated
financial statements. Total purchase consideration was primarily allocated to identifiable intangible assets of
$109.3 million and goodwill of $205.8 million, of which $160.1 million is attributable to the Semiconductor & System
Design reporting segment and $45.7 million is attributable to the Software Integrity reporting segment.
Approximately $34.0 million of the goodwill related to the fiscal 2021 acquisitions was deductible for tax purposes.
Preliminary Fair Value Estimates
For all acquisitions completed in fiscal 2022, the purchase price was allocated to tangible and identifiable intangible
assets acquired and liabilities assumed based on their preliminary estimated fair values, which were determined
using generally accepted valuation techniques based on estimates and assumptions made by management at the
time of acquisition. These estimates and assumptions are subject to change as additional information becomes
available during the respective measurement period, which is not expected to exceed 12 months from applicable
acquisition date. The primary areas of those preliminary estimates relate to certain tangible assets and liabilities,
identifiable intangible assets, and income taxes.
Acquisition-Related Transaction Costs
Acquisition-related transaction costs were $14.1 million and $15.4 million during fiscal 2022 and 2021, respectively.
These costs consist of professional fees and administrative costs and were expensed as incurred in our
consolidated statements of income.
Note 5. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in business combinations. We have two reportable segments, and reporting units are
determined to be the same as reportable segments. In fiscal 2022, we changed our annual assessment date from
the last day of the fourth fiscal quarter to the first day of the fourth fiscal quarter to align the impairment assessment
date more closely with our long-term planning and forecasting process. We performed the required annual goodwill
impairment test and concluded that goodwill was not impaired. As a result of our qualitative assessment, we
determined that it was not necessary to perform the quantitative assessment at measurement date.
Goodwill activity by reportable segment for the year ended October 31, 2022 consisted of the following:
Balance at October 31, 2021
Additions
Adjustments
Effect of foreign currency translation
Balance at October 31, 2022
Semiconductor
& System
Design
Software
Integrity
(in thousands)
Total
$ 3,104,474 $
68,923
1,285
(53,611)
$ 3,121,071 $
471,311 $ 3,575,785
318,775
249,852
1,285
—
(53,611)
—
721,163 $ 3,842,234
65
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
SYNOPSYS, INC.
Goodwill activity by reportable segment for the year ended October 31, 2021 consisted of the following:
Balance at October 31, 2020
Additions
Effect of foreign currency translation
Balance at October 31, 2021
Intangible Assets
Intangible assets as of October 31, 2022 consisted of the following:
Core/developed technology
Customer relationships
Contract rights intangible
Trademarks and trade names
Capitalized software development costs
Total
Semiconductor
& System
Design
Software
Integrity
(in thousands)
Total
$ 2,939,512 $
158,760
6,202
$ 3,104,474 $
425,602 $ 3,365,114
204,469
6,202
471,311 $ 3,575,785
45,709
—
Gross Carrying
Amount
Accumulated
Amortization
Net Amount
(in thousands)
$ 1,083,703 $
426,242
190,666
52,795
48,591
813,226 $
333,984
188,262
34,054
46,025
$ 1,801,997 $ 1,415,551 $
270,477
92,258
2,404
18,741
2,566
386,446
Intangible assets as of October 31, 2021 consisted of the following:
Core/developed technology
Customer relationships
Contract rights intangible
Trademarks and trade names
Capitalized software development costs
Total
Gross Carrying
Amount
Accumulated
Amortization
Net Amount
(in thousands)
$
911,903 $
748,759 $
163,144
404,571
193,317
43,095
46,098
308,355
188,231
31,155
43,352
96,216
5,086
11,940
2,746
$ 1,598,984 $ 1,319,852 $
279,132
Amortization expense related to intangible assets consisted of the following:
Core/developed technology
Customer relationships
Contract rights intangible
Trademarks and trade names
Capitalized software development costs(1)
Total
Year Ended October 31,
2022
2021
2020
(in thousands)
$
$
64,469 $
26,640
2,682
2,899
2,672
99,362 $
46,049 $
31,478
2,413
2,440
4,067
86,447 $
47,890
35,075
5,181
3,135
3,723
95,004
(1)
Amortization of capitalized software development costs is included in cost of products revenue in the consolidated
statements of income.
66
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
SYNOPSYS, INC.
The following table presented the estimated future amortization of intangible assets as of October 31, 2022:
Fiscal Year
2023
2024
2025
2026
2027
2028 and thereafter
Total
(in thousands)
$
99,311
88,021
71,113
58,688
38,487
30,826
386,446
$
67
Note 6. Balance Sheet Components
Accounts receivable, net:
Accounts receivable
Unbilled accounts receivable
Total accounts receivable
Less: allowance for credit losses
Total
Property and equipment, net:
Computer and other equipment
Buildings
Furniture and fixtures
Land
Leasehold improvements
Less: accumulated depreciation (1)
Total
Other long-term assets:
Deferred compensation plan assets
Capitalized commission, net
Other long-term assets
Total
Accounts payable and accrued liabilities:
Payroll and related benefits
Other accrued liabilities
Accounts payable
Total
Other long-term liabilities:
Deferred compensation plan liabilities
Other long-term liabilities
Total
(1)
As of
October 31, 2022
October 31, 2021
(in thousands)
$
$
$
$
$
$
$
$
$
$
779,390 $
46,254
825,644
(29,553)
796,091 $
870,388 $
135,722
80,885
21,598
241,062
1,349,655
(866,355)
483,300 $
279,096 $
96,509
88,090
463,695 $
559,886 $
211,937
37,580
809,403 $
279,096 $
48,733
327,829 $
563,592
35,589
599,181
(30,680)
568,501
812,161
134,931
73,624
19,965
236,064
1,276,745
(804,347)
472,398
343,820
92,249
74,629
510,698
581,687
132,091
27,413
741,191
343,820
47,613
391,433
Accumulated depreciation includes write-offs due to retirement of fully depreciated fixed assets.
68
Note 7. Financial Assets and Liabilities
Cash Equivalents and Short-term investments
As of October 31, 2022, the balances of our cash equivalents and short-term investments were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses Less
Than 12
Continuous
Months
Gross
Unrealized
Losses 12
Continuous
Months or
Longer
(in thousands)
Estimated
Fair Value(1)
Cash equivalents:
Money market funds
Total:
Short-term investments:
$
$
77,683 $
77,683 $
— $
— $
— $
— $
— $
— $
U.S. government agency & T-bills $
25,816 $
— $
(174) $
Municipal bonds
Corporate debt securities
Asset-backed securities
2,970
95,899
25,826
—
7
—
(39) $
(80)
(12)
(747)
(1,135)
(149)
(269)
77,683
77,683
25,603
2,878
94,024
25,408
Total:
(1)
$ 150,511 $
7 $
(1,082) $
(1,523) $
147,913
See Note 8. Fair Value Measurements for further discussion on fair values.
Our short-term investment portfolio includes both corporate and government securities that have a maximum
maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in
market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-
market unrealized loss. Most of our unrealized losses are due to changes in market interest rates, and bond yields.
We believe that we have the ability to realize the full value of all of these investments upon maturity. As of
October 31, 2022, our investments that were in a continuous loss position of 12 months or more, as well as the
unrealized losses on those investments, were immaterial.
The contractual maturities of our available-for-sale debt securities as of October 31, 2022 were as follows:
Less than 1 year
1-5 years
5-10 years
>10 years
Total
Amortized Cost
Fair Value
(in thousands)
83,234 $
61,593
3,230
2,454
150,511 $
82,264
60,156
3,165
2,328
147,913
$
$
69
As of October 31, 2021, the balances of our cash equivalents and short-term investments were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses Less
Than 12
Continuous
Months
Gross
Unrealized
Losses 12
Continuous
Months or
Longer
(in thousands)
Estimated
Fair Value(1)
$ 172,934 $
$ 172,934 $
— $
— $
— $
— $
— $
— $
172,934
172,934
Cash equivalents:
Money market funds
Total:
Short-term investments:
U.S. government agency & T-bills $
6,447 $
— $
(5) $
— $
Municipal bonds
Corporate debt securities
Asset-backed securities
4,588
103,615
33,545
—
7
6
(12)
(170)
(72)
—
—
—
6,442
4,576
103,452
33,479
Total:
(1)
$ 148,195 $
13 $
(259) $
— $
147,949
See Note 8. Fair Value Measurements for further discussion on fair values.
Restricted cash
We include amounts generally described as restricted cash in cash and cash equivalents when reconciling
beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows.
Restricted cash is primarily associated with office leases.
The following table provided a reconciliation of cash, cash equivalents and restricted cash included in the
consolidated balance sheets:
October 31,
2022
2021
(in thousands)
Cash and cash equivalents
$
1,417,608 $
1,432,840
Restricted cash included in prepaid and other current assets
Restricted cash included in other long-term assets
Total cash, cash equivalents and restricted cash
1,566
690
1,560
783
$
1,419,864 $
1,435,183
Non-marketable equity securities
Our portfolio of non-marketable equity securities consists of strategic investments in privately held companies.
There were no material impairments of non-marketable equity securities in fiscal 2022, fiscal 2021, or fiscal 2020.
Derivatives
We recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value
and provide qualitative and quantitative disclosures about such derivatives. We operate internationally and are
exposed to potentially adverse movements in foreign currency exchange rates. We enter into hedges in the form of
foreign currency forward contracts to reduce our 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, the majority of which are short-term, ranges from approximately 1 month to 27
months at inception. We do not use foreign currency forward contracts for speculative or trading purposes. We enter
into foreign exchange forward contracts with high credit quality financial institutions that are rated "A" or above and
70
to date have not experienced nonperformance by counterparties. In addition, we mitigate credit risk in derivative
transactions by permitting net settlement of transactions with the same counterparty and anticipate continued
performance by all counterparties to such agreements.
The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or
accrued liabilities in the consolidated balance sheets. The accounting for gains and losses resulting from changes in
fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for
hedge accounting. The cash flow impact upon settlement of the derivative contracts is included in “net cash
provided by operating activities” in the consolidated statements of cash flows.
Cash Flow Hedging Activities
Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have
durations of approximately 27 months or less. Certain forward contracts are rolled over periodically to capture the
full length of exposure to our foreign currency risk, which can be up to three years. To receive hedge accounting
treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be
highly effective in offsetting changes to future cash flows on the hedged transactions. The related gains or losses
resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other
comprehensive income (loss) (OCI), in stockholders’ equity and reclassified into revenue or operating expenses, as
appropriate, at the time the hedged transactions affect earnings. We expect a majority of the hedge balance in OCI
to be reclassified to the statements of income within the next 12 months.
We did not record any gains or losses related to discontinuation of cash flow hedges for fiscal years 2022, 2021 and
2020.
Non-designated Hedging Activities
Our 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 our balance
sheet exposure is approximately one month.
We also have 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 our hedging program is to minimize the
impact of currency fluctuations on the net income over the fiscal year.
71
The effects of the non-designated derivative instruments on our consolidated statements of income for fiscal years
2022, 2021, and 2020 were summarized as follows:
Gains (losses) recorded in other income (expense), net
$
(15,851) $
(855) $
1,957
The notional amounts in the table below for derivative instruments provided one measure of the transaction volume
outstanding:
2022
October 31,
2021
(in thousands)
2020
Total gross notional amounts
Net fair value
October 31,
2022
2021
(in thousands)
$
$
1,386,140 $
1,176,152
(50,080) $
13,404
Our exposure to the market gains or losses 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 represented the consolidated balance sheets location and amount of derivative instrument fair
values segregated between designated and non-designated hedge instruments:
Balance at October 31, 2022
Other current assets
Accrued liabilities
Balance at October 31, 2021
Other current assets
Accrued liabilities
Fair values of
derivative instruments
designated as
hedging instruments
Fair values of
derivative instruments
not designated as
hedging instruments
(in thousands)
$
$
$
$
2,315 $
52,171 $
15,455 $
2,027 $
223
447
17
42
72
The following table represented the location of the amount of gains and losses on derivative instrument fair values
for designated hedge instruments, net of tax in the consolidated statements of income:
Location of gains
(losses)
recognized in OCI on
derivatives
Amount of gains
(losses)
recognized in
OCI on
derivatives
(effective
portion)
Location of
gains (losses)
reclassified
from OCI
Amount of
gains (losses)
reclassified
from OCI
(effective
portion)
(in thousands)
Fiscal year ended October 31, 2022
Foreign exchange contracts
Foreign exchange contracts
Revenue
Operating expenses
Total
Fiscal year ended October 31, 2021
Foreign exchange contracts
Foreign exchange contracts
Total
Fiscal year ended October 31, 2020
Revenue
Operating expenses
Foreign exchange contracts
Foreign exchange contracts
Revenue
Operating expenses
Total
Other Commitments — Credit and Term Loan
$
$
$
$
$
$
(19,755) Revenue
(59,314) Operating expenses
(79,069)
1,148 Revenue
8,712 Operating expenses
9,860
3,034 Revenue
4,800 Operating expenses
7,834
$
$
$
$
$
$
10,975
(15,869)
(4,894)
4,181
10,378
14,559
530
(603)
(73)
On January 22, 2021, we entered into a Fourth Extension and Amendment Agreement (the Fourth Amendment),
which amended and restated our previous credit agreement, dated as of November 28, 2016 (as amended and
restated, the Credit Agreement). Our outstanding borrowings under the previous credit agreement, which as of
January 22, 2021 consisted of term loans in the aggregate principal amount of $97.5 million, were carried over
under the Credit Agreement and fully paid on November 26, 2021.
The Fourth Amendment extended the termination date of the existing $650.0 million senior unsecured revolving
credit facility (the Revolver) from November 28, 2021 to January 22, 2024, which could be further extended at our
option. The Credit Agreement also provides an uncommitted incremental loan facility of up to $150.0 million in the
aggregate principal amount. The Credit Agreement contains financial covenants requiring us to maintain a
maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, as well as other non-
financial covenants. As of October 31, 2022, we were in compliance with all financial covenants.
There was no outstanding balance under the Revolver as of October 31, 2022 and October 31, 2021. We expect
our borrowings, if any, 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 October 31, 2022, the Revolver bore interest at LIBOR +1%. In addition,
commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on our
leverage ratio on the daily amount of the revolving commitment.
In July 2018, we entered into a 12-year 220.0 million Renminbi (approximately $33.0 million) credit agreement with
a lender in China to support our facilities expansion. Borrowings bear interest at a floating rate based on the 5-year
Loan Prime Rate plus 0.74%. As of October 31, 2022, we had a $20.8 million outstanding balance under the
agreement.
The carrying amount of the short-term and long-term debt approximates the estimated fair value.
Note 8. Fair Value Measurements
ASC 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes guidelines and enhances
disclosure requirements for fair value measurements. The accounting guidance requires an entity to maximize the
73
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting
guidance also establishes a fair value hierarchy based on the independence of the source and objective evidence of
the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value
measurement:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical instruments in active markets;
Level 2—Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which
all significant inputs and significant value drivers are observable in active markets; and
Level 3—Unobservable inputs to the valuation derived from fair valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
On a recurring basis, we measure the fair value of certain assets and liabilities, which include cash equivalents,
short-term investments, non-qualified deferred compensation plan assets, and foreign currency derivative contracts.
Our cash equivalents and short-term investments 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.
Our 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.
Our 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.
Our borrowings under our 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 us for
debt with similar terms and maturities. See Note 7. Financial Assets and Liabilities for more information on these
borrowings.
74
—
—
—
—
—
—
—
—
—
—
—
Assets/Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis were summarized below as of October 31, 2022:
Fair Value Measurement Using
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Total
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
(in thousands)
Description
Assets
Cash equivalents:
Money market funds
Short-term investments:
$
77,683 $
77,683 $
— $
U.S. government agency & T-bills
Municipal bonds
Corporate debt securities
Asset-backed securities
Prepaid and other current assets:
Foreign currency derivative contracts
Other long-term assets:
25,603
2,878
94,024
25,408
2,538
—
—
—
—
—
25,603
2,878
94,024
25,408
2,538
Deferred compensation plan assets
279,096
279,096
—
Total assets
Liabilities
Accounts payable and accrued liabilities:
$
507,230 $
356,779 $
150,451 $
Foreign currency derivative contracts $
52,618 $
— $
52,618 $
Other long-term liabilities:
Deferred compensation plan liabilities
$
Total liabilities
279,096
279,096
—
331,714 $
279,096 $
52,618 $
75
Assets and liabilities measured at fair value on a recurring basis were summarized below as of October 31, 2021:
Fair Value Measurement Using
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Total
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
(in thousands)
Description
Assets
Cash equivalents:
Money market funds
Short-term investments:
$
172,934 $
172,934 $
— $
U.S. government agency & T-bills
Municipal bonds
Corporate debt securities
Asset-backed securities
Prepaid and other current assets:
6,442
4,576
103,452
33,479
Foreign currency derivative contracts
15,472
Other long-term assets:
—
—
—
—
—
6,442
4,576
103,452
33,479
15,472
Deferred compensation plan assets
343,820
343,820
—
Total assets
Liabilities
Accounts payable and accrued liabilities:
$
680,175 $
516,754 $
163,421 $
Foreign currency derivative contracts $
2,068 $
— $
2,068 $
Other long-term liabilities:
Deferred compensation plan liabilities
Total liabilities
343,820
343,820
—
$
345,888 $
343,820 $
2,068 $
Assets/Liabilities Measured at Fair Value on a Non-Recurring Basis
Non-Marketable Equity Securities
—
—
—
—
—
—
—
—
—
—
—
Non-marketable equity securities are classified within Level 3 as they are valued using a combination of observable
transaction price and unobservable inputs or data in an inactive market due to the absence of market price and
inherent lack of liquidity.
Note 9. Leases
We have operating lease arrangements for office space, data center, equipment and other corporate assets. These
leases have various expiration dates through December 31, 2040, some of which include options to extend the
leases for up to 10 years. Because we are not reasonably certain to exercise these renewal options, the options are
not considered in determining the lease term and associated potential option payments are excluded from lease
payments.
The components of our lease expense during the period presented were as follows:
Operating lease expense (1)
Variable lease expense (2)
Total lease expense
76
Year Ended October 31,
2022
2021
(in thousands)
$
$
91,972 $
11,649
103,621 $
93,848
8,231
102,079
(1)
(2)
Operating lease expense includes immaterial amounts of short-term leases, net of sublease income.
Variable lease expense includes payments to lessors that are not fixed or determinable at lease commencement date.
These payments primarily consist of maintenance, property taxes, insurance and variable indexed based payments.
Supplemental cash flow information during the period presented was as follows:
Year Ended October 31,
2022
2021
(in thousands)
Cash paid for amounts included in the measurement of operating lease
liabilities
ROU assets obtained in exchange for operating lease liabilities
$
$
83,858 $
168,095 $
86,360
112,637
Lease term and discount rate information related to our operating leases as of the end of the period presented were
as follows:
Weighted-average remaining lease term (in years)
Weighted-average discount rate
October 31, 2022
9.16
2.19 %
October 31, 2021
8.00
2.01 %
The following table represented the maturities of our future lease payments due under operating leases as of
October 31, 2022:
Fiscal year
2023
2024
2025
2026
2027
2028 and thereafter
Total future minimum lease payments
Less: Imputed interest
Total lease liabilities
Lease Payments
(in thousands)
$
$
64,198
92,741
82,272
72,620
71,301
329,782
712,914
77,367
635,547
In addition, certain facilities owned by us were leased to third parties under non-cancellable operating lease
agreements. These leases have annual escalating payments and have expiration dates through March 31, 2031 in
accordance with the terms and conditions of the existing agreement. The lease receipts from owned facilities,
including sublease income from other facilities leased by us, due to us as of October 31, 2022, were as follows:
Fiscal year
2023
2024
2025
2026
2027
2028 and thereafter
Total
77
Lease Receipts
(in thousands)
$
$
16,240
24,591
24,479
25,333
26,452
83,737
200,832
Note 10. Contingencies
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. 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.
We have determined that, except as set forth below, no disclosure of estimated loss is required for a claim against
us because: (1) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may
be incurred with respect to such claim; (2) a reasonably possible loss or range of loss cannot be estimated; or
(3) such estimate is immaterial.
Mentor Patent Litigation
Prior to the legal settlement as further described below, we were engaged in complex patent litigation with Mentor
Graphics Corporation (Mentor) involving several actions in different forums. We succeeded to the litigation when we
acquired Emulation & Verification Engineering S.A. on October 4, 2012.
Legal Settlement
In March 2017, Siemens PLM Software (Siemens) acquired Mentor. On June 29, 2018, we, Siemens and Mentor
settled all outstanding patent litigation between us and Mentor for a $65.0 million payment made from us to Mentor.
As a result of the settlement, the litigation with Mentor was dismissed and the injunction entered in connection with
that litigation was vacated. The settlement included mutual seven-year patent cross-licenses between us and
Siemens, and between us and Mentor. We and Mentor also amended an existing interoperability agreement to
collaborate on a wide range of EDA products for the benefit of our mutual customers. The amendment includes a
one-time termination charge between $0.0 and $25.0 million, payable to Mentor under certain conditions.
Tax Matters
We undergo 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 are 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, we would accrue a liability for the estimated expense. In addition to the foregoing, we are, from time to
time, party to various other claims and legal proceedings in the ordinary course of our business, including with tax
and other governmental authorities. For a description of certain of these other matters, refer to Note 15. Income
Taxes.
78
Note 11. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), on an after-tax basis where applicable, were
as follows:
Cumulative currency translation adjustments
Unrealized gains (losses) on derivative instruments, net of taxes
Unrealized gains (losses) on available-for-sale securities, net of taxes
Total
Year Ended October 31,
2022
2021
(in thousands)
$
$
(156,192) $
(75,486)
(2,599)
(234,277) $
(48,047)
(1,311)
(246)
(49,604)
The effect of amounts reclassified out of each component of accumulated other comprehensive income (loss) into
net income was as follows:
Reclassifications:
Gains (losses) on cash flow hedges, net of taxes
Revenues
Operating expenses
Total
Year Ended October 31,
2022
2021
2020
(in thousands)
$
$
10,975 $
(15,869)
(4,894) $
4,181 $
10,378
14,559 $
530
(603)
(73)
Amounts reclassified in fiscal 2022, 2021, and 2020 primarily consisted of gains (losses) from our cash flow hedging
activities. See Note 7. Financial Assets and Liabilities.
Note 12. Stock Repurchase Program
Our Board of Directors (the Board) previously approved a stock repurchase program (the Program) with
authorization to purchase up to $1.0 billion of our common stock in December 2021. The Board approved a
replenishment of the Program with authorization to purchase up to $1.5 billion in September 2022. As of October 31,
2022, $1.4 billion remained available for future repurchases under the program.
In August 2022, we entered into an accelerated stock repurchase agreement (the August 2022 ASR) to repurchase
an aggregate of $240.0 million of our common stock. Pursuant to the August 2022 ASR, we made a prepayment of
$240.0 million to receive initial deliveries of shares valued at $192.0 million. The remaining balance of $48.0 million
was settled in October 2022. Total shares purchased under the August 2022 ASR were approximately 0.8 million
shares, at an average purchase price of $307.60 per share.
Stock repurchase activities as well as the reissuance of treasury stock for employee stock-based compensation
purposes were as follows:
Shares repurchased
Average purchase price per share
Aggregate purchase price
Reissuance of treasury stock
2022
Year Ended October 31,
2021 (1)
(in thousands, except per share price)
3,609
2,780
2020
314.51 $
$
$ 1,135,000 $
2,922
270.84 $
753,081 $
3,224
1,585
152.76
242,078
3,872
(1)
Excluded 107,701 shares and $35.0 million equity forward contract that was settled in November 2021.
79
Note 13. Employee Benefit Plans
Employee Stock Purchase Plan
Under our Employee Stock Purchase Plan (ESPP), participating employees are granted the right to purchase
shares of common stock at a price per share that is 85% of the lesser of the fair market value of the shares at (1)
the beginning of an offering period (generally, a rolling two year period) or (2) the purchase date (generally occurring
at the end of each semi-annual purchase period), subject to the terms of ESPP, including a limit on the number of
shares that may be purchased in a purchase period.
On April 9, 2020 and April 12, 2022, our stockholders approved amendments to the ESPP to increase the number of
shares of common stock authorized for issuance under the plan by 5.0 million and 2.0 million shares, respectively.
During fiscal 2022, 2021 and 2020, we issued 0.7 million, 1.0 million, and 1.0 million shares, respectively, under the
ESPP at average per share prices of $195.48, $134.26 and $103.41, respectively. As of October 31, 2022, 14.1
million shares of common stock were reserved for future issuance under the ESPP.
Equity Compensation Plans
2006 Employee Equity Incentive Plan. On April 25, 2006, our stockholders approved the 2006 Employee Equity
Incentive Plan (2006 Employee Plan), which provides for the grant of incentive stock options, non-statutory stock
options, restricted stock awards, restricted stock unit awards, stock appreciation rights and other forms of equity
compensation, including performance stock awards and performance cash awards, as determined by the plan
administrator. The terms and conditions of each type of award are set forth in the 2006 Employee Plan and in the
award agreements governing particular awards.
Restricted stock units are granted under the 2006 Employee Plan as part of our incentive compensation program. In
general, restricted stock units vest over three to four years and are subject to the employee's continuing service with
us. Restricted stock units granted with specific performance criteria vest to the extent performance conditions are
met. Restricted stock units granted with certain market conditions vest over two years to the extent these market
conditions are met. For each restricted stock unit granted under the 2006 Employee Plan, a share reserve ratio of
1.70 is applied for the purpose of determining the remaining number of shares reserved for future grants under the
plan. Options granted under this plan generally have a contractual term of seven years and generally vest over four
years.
On April 8, 2021 and April 12, 2022, our stockholders amended the 2006 Employee Plan to, among other things,
increase the number of shares of common stock reserved for future issuance under the plan by 4.7 million shares
and 3.0 million shares, respectively. As of October 31, 2022, an aggregate of 2.1 million stock options and 4.6
million restricted stock units were outstanding, and 13.1 million shares were available for future issuance under the
2006 Employee Plan.
2005 and 2017 Non-Employee Directors Equity Incentive Plans. On April 6, 2017, our stockholders approved the
2017 Non-Employee Directors Equity Incentive Plan (2017 Directors Plan). In connection with stockholder approval
of the 2017 Directors Plan, the 2005 Non-Employee Directors Equity Incentive Plan (2005 Directors Plan) was
terminated as of April 6, 2017, and no awards could be granted under the 2005 Directors Plan after that date.
Under the 2005 Directors Plan, we granted options, which vest over a period of three to four years to non-employee
directors. As of October 31, 2022, 7,500 stock options were outstanding under the 2005 Directors Plan.
The 2017 Directors Plan provides for equity awards to non-employee directors in the form of stock options,
restricted stock units, restricted stock or a combination thereof. On April 6, 2017, our stockholders approved an
aggregate of 0.45 million shares of common stock reserved under the 2017 Directors Plan.
We grant restricted stock awards and options under the 2017 Directors Plan. Restricted stock awards generally vest
on an annual basis and options vest over a period of three years. As of October 31, 2022, 4,985 shares of restricted
stock awards were unvested and 12,792 stock options were outstanding, and a total of 373,213 shares of common
stock were reserved for future issuance under the 2017 Directors Plan.
Other Assumed Stock Plans through Acquisitions. We have assumed certain outstanding stock awards of acquired
companies, including restricted stock units and options. If these assumed equity awards are canceled, forfeited or
80
expire unexercised, the underlying shares do not become available for future grant. As of October 31, 2022, 0.1
million shares of our common stock remained subject to such outstanding assumed equity awards.
Restricted Stock Units. The following table contained information concerning activities related to restricted stock
units granted under the 2006 Employee Plan and assumed from acquisitions:
Balance at October 31, 2019
Granted(2)
Vested(3)
Forfeited
Balance at October 31, 2020
Granted(2)
Vested(3)
Forfeited
Balance at October 31, 2021
Granted(2)
Vested(3)
Forfeited
Balance at October 31, 2022
Restricted
Stock Units
Outstanding(1)
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Contractual
Life (In Years)
Aggregate
Fair
Value
(in thousands, except per share amounts and years)
3,857 $
2,041 $
(1,480) $
(288) $
4,130 $
1,901 $
(1,565) $
(279) $
4,187 $
2,402 $
(1,589) $
(362) $
4,638 $
97.21
168.15
88.70
104.67
134.80
258.58
122.01
167.76
193.58
323.46
170.36
228.70
265.76
1.56
1.47
1.39
1.32
$
261,563
$
421,034
$
529,766
(1)
(2)
(3)
No restricted stock units were assumed in connection with acquisitions in the last three fiscal years, but the balance at
fiscal year-end included certain restricted stock units that were previously assumed in connection with acquisitions.
The number of granted restricted stock units included those granted to senior management with performance-based
vesting criteria (in addition to service-based vesting criteria) (performance-based RSUs) reported at the maximum
possible number of shares that may ultimately be issuable if all applicable performance-based criteria are achieved at
their maximum levels and all applicable service-based criteria are fully satisfied.
The number of vested restricted stock units included shares that were withheld on behalf of employees to satisfy the
minimum statutory tax withholding requirements.
81
Stock Options. The following table summarized stock option activity and included stock options granted under all
equity plans:
Balance at October 31, 2019
Granted
Exercised
Canceled/forfeited/expired
Balance at October 31, 2020
Granted
Exercised
Canceled/forfeited/expired
Balance at October 31, 2021
Granted
Exercised
Canceled/forfeited/expired
Balance at October 31, 2022
Vested and expected to vest as of
October 31, 2022
Exercisable at October 31, 2022
Options Outstanding
Shares Under
Stock Option (1)
Weighted-
Average Exercise
Price per Share
Weighted-
Average
Remaining
Contractual
Life (In Years)
Aggregate
Intrinsic
Value
(in thousands, except per share amounts and years)
5,290 $
700 $
(1,891) $
(106) $
3,993 $
353 $
(1,203) $
(36) $
3,107 $
293 $
(1,126) $
(114) $
2,160 $
2,160 $
1,449 $
65.57
143.44
51.76
84.14
85.26
239.46
66.50
128.49
109.51
342.86
86.24
164.46
150.37
150.37
103.44
4.08 $
373,112
4.10 $
513,845
3.81 $
694,921
3.57 $
328,120
3.57 $
2.77 $
328,120
278,915
(1)
No stock options were assumed in connection with acquisitions in the last three fiscal years, but the balance at fiscal
year-end included certain stock options that were previously assumed in connection with acquisitions.
The aggregate intrinsic value in the preceding table represented the pre-tax intrinsic value based on stock options
with an exercise price less than our closing stock price of $295.84 as of October 31, 2022. The pre-tax intrinsic
value of options exercised and their average exercise prices were:
Intrinsic value
Average exercise price per share
Year Ended October 31,
2022
2021
2020
(in thousands, except per share price)
$
$
273,524 $
86.24 $
254,587 $
66.50 $
218,640
51.76
82
Restricted Stock Units and Stock Options. The following table contained additional information concerning activities
related to stock options and restricted stock units that were granted under the 2006 Employee Plan and assumed
from acquisitions:
Available for Grant (1)(2)
(in thousands)
Balance at October 31, 2019
Options granted(2)
Options canceled/forfeited/expired(2)
Restricted stock units granted(1)
Restricted stock units forfeited(1)
Additional shares reserved
Balance at October 31, 2020
Options granted(2)
Options canceled/forfeited/expired(2)
Restricted stock units granted(1)
Restricted stock units forfeited(1)
Additional shares reserved
Balance at October 31, 2021
Options granted(2)
Options canceled/forfeited/expired(2)
Restricted stock units granted(1)(3)
Restricted stock units forfeited(1)
Additional shares reserved
Balance at October 31, 2022
12,208
(694)
102
(3,469)
482
3,500
12,129
(353)
36
(3,232)
471
4,700
13,751
(286)
114
(4,083)
615
3,000
13,111
(1)
(2)
(3)
Restricted stock units included awards granted under the 2006 Employee Plan and assumed through acquisitions. The
number of RSUs reflects the application of the award multiplier of 1.70 as described above.
Options granted by us are not subject to the award multiplier ratio described above.
The number of granted restricted stock units included those granted to senior management with market-based vesting
and performance-based vesting criteria (in addition to service-based vesting criteria) (market-based RSUs) reported at
the maximum possible number of shares that may ultimately be issuable if all applicable market-based and
performance-based criteria are achieved at their maximum levels and all applicable service-based criteria are fully
satisfied.
83
Restricted Stock Awards. The following table summarized restricted stock award activities during fiscal 2022 under
the 2005 Directors Plan and 2017 Directors Plan:
Unvested at October 31, 2019
Granted
Vested
Forfeited
Unvested at October 31, 2020
Granted
Vested
Forfeited
Unvested at October 31, 2021
Granted
Vested
Forfeited
Unvested at October 31, 2022
Restricted
Shares
Weighted-
Average
Grant Date Fair
Value
(in thousands, except per share
amounts)
11 $
9 $
(11) $
— $
9 $
5 $
(9) $
— $
5 $
5 $
(5) $
— $
5 $
116.43
140.97
116.43
—
140.97
261.01
140.97
—
261.01
310.02
261.01
—
310.02
Valuation and Expense of Stock-Based Compensation. We estimate the fair value of stock options and employee
stock purchase rights under the ESPP on the grant date. The value of awards expected to vest is recognized as
expense over the applicable service periods. We use the straight-line attribution method to recognize stock-based
compensation costs over the service period of the award except for performance grants with specific performance
criteria. With respect to such performance grants in each reporting period, we estimate the probability of
achievement of applicable performance goals and recognize related stock-based compensation expense using the
graded-vesting method. The amount of stock-based compensation expense recognized in any period can vary
based on the attainment or expected attainment of the various performance goals. If such performance goals are
not ultimately met, no compensation expense is recognized and any previously recognized compensation expense
is reversed.
We use the Black-Scholes option-pricing model to determine the fair value of stock options and employee stock
purchase plan rights. The Black-Scholes option-pricing model incorporates various subjective assumptions including
expected volatility, expected term and interest rates. The expected volatility for both stock options and employee
stock purchase rights is estimated by a combination of implied volatility for publicly traded options of our common
stock with a term of six months or longer and the historical stock price volatility over the estimated expected term of
such awards, which is based on historical experience. Restricted stock units are valued based on the closing price
of our common stock on the grant date. The fair value for market-based RSUs is estimated on the grant date using
a Monte Carlo simulation model with the following assumptions: expected volatilities ranging from 33.01% to 37.8%,
based on the historical volatilities of our common stock and peer companies' common stock over the remaining
performance period; risk-free interest rate ranging from 1.33% to 3.46%, based on the yield of the zero-coupon U.S.
Treasury bill that is commensurate with the remaining performance period; and an expected term of 1.16 to 1.69
years, based on the remaining performance period of the market-based award.
The assumptions presented in the following table were used to estimate the fair value of stock options and
employee stock purchase rights granted under our stock plans:
84
Stock Options
Expected life (in years)
Risk-free interest rate
Volatility
Weighted average estimated fair value
ESPP
Expected life (in years)
Risk-free interest rate
Volatility
Weighted average estimated fair value
Year Ended October 31,
2022
2021
2020
4.1
1.07%- 4.42%
32.28% -37.04%
$98.07
4.1
0.35% - 1.00%
29.19% - 32.28%
$61.58
4.1
0.26% - 1.71%
23.05%- 32.80%
$33.02
0.5 - 2.0
0.67% - 3.44%
0.5 - 2.0
0.00% - 0.19%
34.51% - 38.69% 28.02% - 39.68% 25.59% - 43.06%
$89.82
0.5 - 2.0
0.09% - 1.24%
$102.63
$47.69
The compensation cost recognized in the consolidated statements of income for our stock compensation
arrangements was as follows:
Cost of products
Cost of maintenance and service
Research and development expense
Sales and marketing expense
General and administrative expense
Stock-based compensation expense before taxes
Income tax benefit
Stock-based compensation expense after taxes
Year Ended October 31,
2022 (1)
2021
2020
(in thousands)
$
$
55,134 $
24,146
241,978
81,617
56,154
459,029
(74,271)
384,758 $
38,345 $
13,817
171,013
61,940
60,157
345,272
(53,483)
291,789 $
27,193
9,327
125,814
43,205
43,045
248,584
(39,077)
209,507
(1)
During fiscal 2022, we recognized stock-based compensation expense relating to restricted stock units, granted to
senior executives in February, May and August 2022 with certain market, performance and service conditions (market-
based RSUs). Under the award agreements, the vesting of the market-based RSUs is contingent on achieving total
stockholder return (TSR) relative to a peer index as well as revenue growth metrics. The performance period during
which the achievement goals will be measured is fiscal 2022 and fiscal 2023. The maximum potential awards that may
be earned are 187.5% of the target number of the initial awards. The awards will vest in equal increments in December
2023 and December 2024 if the TSR target, revenue growth metrics, and service conditions are achieved.
As of October 31, 2022, we had $999.7 million of total unrecognized stock-based compensation expense relating to
options, RSUs and restricted stock awards, which is expected to be recognized over a weighted average period of
2.2 years. As of October 31, 2022, we had $77.6 million of total unrecognized stock-based compensation expense
relating to the ESPP, which is expected to be recognized over a period of 2.0 years.
Deferred Compensation Plan. We maintain the Synopsys Deferred Compensation Plan (Deferred Plan), which
permits eligible employees to defer up to 50% of their annual cash base compensation and up to 100% of their
eligible cash variable compensation. Amounts may be withdrawn from the Deferred Plan pursuant to elections made
by the employees in accordance with the terms of the plan. Since the inception of the Deferred Plan, we have not
made any matching or discretionary contributions to the Deferred Plan. There are no Deferred Plan provisions that
provide for any guarantees or minimum return on investments. Undistributed amounts under the Deferred Plan are
subject to the claims of our creditors. The securities held by the Deferred Plan are classified as trading securities.
85
Deferred plan assets and liabilities were as follows:
Plan assets recorded in other long-term assets
Plan liabilities recorded in other long-term liabilities(1)
(1)
Undistributed deferred compensation balances due to participants.
As of October 31,
2022
As of October 31,
2021
(in thousands)
$
$
279,096 $
279,096 $
343,820
343,820
Income or loss from the change in fair value of the Deferred Plan assets is recorded in other income (expense), net.
The increase or decrease in the fair value of the undistributed Deferred Plan obligation is recorded in total cost of
revenue and operating expense. The following table summarized the impact of the Deferred Plan:
Year Ended October 31,
2022
2021
2020
(in thousands)
Increase (reduction) to cost of revenue and operating expense
Other income (expense), net
Net increase (decrease) to net income
$
$
(68,778) $
(68,778)
— $
71,603 $
71,603
— $
21,469
21,469
—
Other Retirement Plans. We sponsor various defined contribution retirement plans for our eligible U.S. and non-U.S.
employees. Total contributions to these plans were $51.2 million, $49.4 million, and $41.7 million in fiscal 2022,
2021, and 2020, respectively. For employees in the United States and Canada, we match pre-tax employee
contributions up to a maximum of U.S. $3,000 and Canadian $4,000, respectively, per participant per year.
Certain of our international subsidiaries sponsor defined benefit retirement plans. The unfunded projected benefit
obligation for these defined benefit retirement plans as of October 31, 2022 and 2021 was immaterial and recorded
in other long-term liabilities in our consolidated balance sheets.
86
Note 14. Net Income Per Share
The table below reconciled 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:
Numerator:
Net income attributed to Synopsys
Denominator:
Year Ended October 31,
2022
2021
2020
(in thousands, except per share amounts)
$
984,594 $
757,516 $
664,347
Weighted average common shares for basic net income per
share
Dilutive effect of common share equivalents from equity-based
compensation
Weighted average common shares for diluted net income per
share
Net income per share attributed to Synopsys:
Basic
Diluted
Anti-dilutive employee stock-based awards excluded
153,002
152,698
151,135
3,483
4,642
4,571
156,485
157,340
155,706
$
$
6.44 $
6.29 $
281
4.96 $
4.81 $
408
4.40
4.27
97
87
Note 15. Income Taxes
The domestic and foreign components of our total income (loss) before provision for income taxes were as follows:
United States
Foreign
Total income (loss) before provision for income taxes
Year Ended October 31,
2022
2021
2020
(in thousands)
$ 1,036,279 $
79,235
$ 1,115,514 $
640,531 $
164,983
805,514 $
544,391
93,768
638,159
The components of the provision (benefit) for income taxes were as follows:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Year Ended October 31,
2022
2021
2020
(in thousands)
$
105,493 $
85,950 $
23,201
45,297
173,991
11,898
79,890
177,738
29,272
1,863
55,103
86,238
(42,086)
(108,530)
1,519
3,654
1,796
(21,849)
(84,739)
(20,233)
(6,554)
(36,913)
(128,583)
(111,526)
Provision (benefit) for income taxes
$
137,078 $
49,155 $
(25,288)
The provision (benefit) for income taxes differed from the taxes computed with the statutory federal income tax rate
as follows:
Statutory federal tax
State tax (benefit), net of federal effect
Federal tax credits
Tax on foreign earnings
Foreign-derived intangible income deduction
Tax settlements
Stock-based compensation
Changes in valuation allowance
Other
Provision (benefit) for income taxes
Year Ended October 31,
2022
2021
2020
(in thousands)
$
234,257 $
168,745 $
133,979
(2,514)
(2,419)
(61,582)
(45,503)
25,930
7,988
(38,924)
(31,214)
—
(7,134)
(52,625)
(62,620)
19,794
12,742
15,232
6,080
(29,096)
(39,206)
(3,980)
(24,282)
(13,167)
(50,047)
(614)
1,125
$
137,078 $
49,155 $
(25,288)
88
We have provided for foreign withholding taxes on undistributed earnings of certain of our foreign subsidiaries to the
extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries.
Where foreign subsidiaries are considered indefinitely reinvested, and if the tax effect of undistributed earnings and
other outside basis differences were recognized, the nature of taxes expected would be primarily withholding taxes,
taxes in non-conforming states, and taxes on intermediate holding companies outside of the U.S., net of foreign tax
credits where available. As of October 31, 2022, the taxes due, after allowable foreign tax credits, are not expected
to be material.
The significant components of deferred tax assets and liabilities were as follows:
Net deferred tax assets:
Deferred tax assets:
Deferred revenue
Deferred compensation
Intangible and depreciable assets
Capitalized research and development costs
Stock-based compensation
Tax loss carryovers
Foreign tax credit carryovers
Research and other tax credit carryovers
Operating Lease Liabilities
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Operating lease Right-of-Use-Assets
Accruals and reserves
Undistributed earnings of foreign subsidiaries
Other
Total deferred tax liabilities
Net deferred tax assets
October 31,
2022
2021
(in thousands)
41,941
67,782
119,791
231,733
60,537
59,754
27,153
316,650
119,575
16,887
1,061,803
(198,213)
863,590
102,796
96,598
5,998
1,000
—
206,392
657,198 $
30,113
59,823
117,211
203,052
40,922
30,305
32,498
326,164
94,519
—
934,607
(174,117)
760,490
61,448
77,877
6,216
7,580
628
153,749
606,741
$
It is more likely than not that the results of future operations will be able to generate sufficient taxable income to
realize the net deferred tax assets. The valuation allowance provided against our deferred tax assets as of October
31, 2022 is mainly attributable to foreign tax credits available to non-U.S. subsidiaries and the California research
credits. The valuation allowance increased by a net of $24.1 million in fiscal 2022 primarily related to the net
increase of valuation allowance on California research credits.
89
We have the following tax loss and credit carryforwards available to offset future income tax liabilities:
Carryforward
Federal net operating loss carryforward
Federal research credit carryforward
Federal foreign tax credit carryforward
International foreign tax credit carryforward
International net operating loss carryforward
California research credit carryforward
Other state research credit carryforward
State net operating loss carryforward
$
Amount
(in thousands)
142,645
140,331
16,813
12,025
37,086
226,519
20,743
198,348
Expiration
Date
2023-2041
2023-2042
2027-2033
Indefinite
2027-Indefinite
Indefinite
2025-2042
2023-2044
The federal and state net operating loss carryforward is from acquired companies and the annual use of such loss is
subject to significant limitations under Internal Revenue Code Section 382 and certain provisions of the Tax Act.
Foreign tax credits may only be used to offset tax attributable to foreign source income.
The gross unrecognized tax benefits decreased by approximately $1.2 million during fiscal 2022 resulting in gross
unrecognized tax benefits of $81.2 million as of October 31, 2022. A reconciliation of the beginning and ending
balance of gross unrecognized tax benefits is summarized as follows:
Beginning balance
Increases in unrecognized tax benefits related to prior year tax positions
Decreases in unrecognized tax benefits related to prior year tax positions
Increases in unrecognized tax benefits related to current year tax positions
Decreases in unrecognized tax benefits related to settlements with taxing
authorities
Reductions in unrecognized tax benefits due to lapse of applicable statute of
limitations
Increases in unrecognized tax benefits acquired
Changes in unrecognized tax benefits due to foreign currency translation
Ending balance
$
As of October 31,
2022
As of October 31,
2021
(in thousands)
$
82,360 $
435
(9,791)
6,794
83,149
794
(7,372)
9,168
(1,104)
(1,538)
(2,601)
14,121
(9,031)
81,183 $
(1,235)
—
(606)
82,360
As of October 31, 2022 and 2021, approximately $81.2 million and $82.4 million, respectively, of the unrecognized
tax benefits would affect our effective tax rate if recognized upon resolution of the uncertain tax positions.
Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized as a
component of income tax expense (benefit) in the consolidated statements of income and totaled approximately
$0.8 million, $0.4 million and $0.2 million for fiscal years 2022, 2021 and 2020, respectively. As of October 31, 2022
and 2021, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns
was approximately $12.7 million and $13.5 million, respectively.
The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that
are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large
fluctuations in the balance sheet classification of current and non-current assets and liabilities. We believe that in
the coming 12 months, it is reasonably possible that either certain audits and ongoing tax litigation will conclude or
the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the
uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other
uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is
between $0.0 and $28.0 million.
90
We and/or our subsidiaries remain subject to tax examination in the following jurisdictions:
Jurisdiction
United States
California
Hungary
Ireland
Japan
Korea and Taiwan
China
India
Year(s) Subject to Examination
Fiscal years after 2020
Fiscal years after 2017
Fiscal years after 2018
Fiscal years after 2017
Fiscal years after 2016
Fiscal years after 2020
Fiscal years after 2012
Fiscal years after 2018
In addition, we have made acquisitions with operations in several of our significant jurisdictions which may have
years subject to examination different from the years indicated in the above table.
IRS Examinations
In fiscal 2021, the Examination Division of the IRS completed its pre-filing review for fiscal 2020 and as a result we
recognized approximately $7.1 million in unrecognized tax benefits, primarily due to the allowance of research tax
credits.
In fiscal 2020, we reached partial settlement with the Examination Division of the IRS for fiscal 2019 and recognized
approximately $6.3 million in unrecognized tax benefits, primarily due to the allowance of certain foreign tax credits
and research tax credits.
State Examinations
In fiscal 2020, we reached final settlement with the California Franchise Tax Board for fiscal 2015, 2016, and 2017.
As a result of the settlement, we recognized $20.2 million in unrecognized tax benefits and increased our valuation
allowance by $20.2 million.
Non-U.S. Examinations
Hungarian Tax Authority
In 2017, the Hungarian Tax Authority (the HTA) assessed withholding taxes of approximately $25.0 million and
interest and penalties of $11.0 million, against our Hungary subsidiary (Synopsys Hungary). Synopsys Hungary
contested the assessment with the Hungarian Administrative Court (Administrative Court). In 2019, as required
under Hungarian law, Synopsys Hungary paid the assessment and recorded a tax expense due to an unrecognized
tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits. The Administrative Court found against
Synopsys Hungary, and we appealed to the Hungarian Supreme Court. During 2021, the Hungarian Supreme Court
heard our appeal and remanded the case to the Administrative Court for further proceedings. The Administrative
Court once again ruled against Synopsys Hungary, and we filed another appeal with the Hungarian Supreme Court.
The Hungarian Supreme Court heard our appeal on January 27, 2022, vacated the lower court's decision and
remanded the case back to the Administrative Court for further proceedings. Hearings with the Administrative Court
were held on June 30, 2022 and September 22, 2022. In response to a request by the Administrative Court, we filed
an additional brief on November 23, 2022. We expect a hearing to be scheduled in early 2023.
In fiscal 2020, we reached final settlement with the HTA for fiscal years 2014 through 2018. As a result of the
settlement, we recognized tax expense of $1.4 million, and recognized $6.9 million in unrecognized tax benefits.
91
Note 16. Other Income (Expense), Net
The following table presented the components of other income (expense), net:
Interest income
Interest expense
Gains (losses) on assets related to deferred compensation plan
Foreign currency exchange gains (losses)
Other, net
Total
Note 17. Segment Disclosure
Year Ended October 31,
2022
2021
2020
(in thousands)
$
$
8,545 $
(1,698)
(68,778)
4,694
10,713
(46,524) $
2,442 $
(3,365)
71,603
5,292
(5,248)
70,724 $
3,561
(5,140)
21,469
5,544
(7,416)
18,018
Segment reporting is based upon the “management approach,” i.e., how management organizes our operating
segments for which separate financial information is (1) available and (2) evaluated regularly by the Chief Operating
Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. Until the second
quarter of fiscal 2022, we had two CODMs, our two Co-Chief Executive Officers. One of our Co-Chief Executive
Officers transitioned out of this role effective May 1, 2022. Commencing in the third quarter of fiscal 2022, our
CODM is our sole Chief Executive Officer.
We have two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products,
system integration solutions and other associated revenue categories, and (2) Software Integrity, which includes a
comprehensive solution for building integrity—security, quality and compliance testing—into the customers’ software
development lifecycle and supply chain.
The financial information provided to and used by the CODM to assist in making operational decisions, allocating
resources, and assessing performance reflects consolidated financial information as well as revenue, adjusted
operating income, and adjusted operating margin information for the Semiconductor & System Design and Software
Integrity segments, accompanied by disaggregated information relating to revenue by geographic region.
Information by reportable segment was as follows:
Total Segments:
Revenue
Adjusted operating income
Adjusted operating margin
Semiconductor & System Design:
Revenue
Adjusted operating income
Adjusted operating margin
Software Integrity:
Revenue
Adjusted operating income
Adjusted operating margin
Year Ended October 31,
2022
2021
2020
(in thousands)
$ 5,081,542
$ 4,204,193
$ 3,685,281
1,675,102
1,281,389
1,031,630
33 %
30 %
28 %
$ 4,615,714
$ 3,810,409
$ 3,327,211
1,628,108
1,243,078
990,837
35 %
33 %
30 %
$
465,828
46,994
$
393,784
38,311
$
358,070
40,793
10 %
10 %
11 %
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-based
compensation, changes in the fair value of deferred compensation plan and certain other operating expenses, were
92
presented in the table below to provide a reconciliation of the total adjusted operating income from segments to our
consolidated operating income:
Year Ended October 31,
2022
2021
2020
(in thousands)
Total segment adjusted operating income
$
1,675,102 $
1,281,389 $
1,031,630
Reconciling items:
Amortization of intangible assets
Stock-based compensation expense
Deferred compensation plan
Other
Total operating income
(96,690)
(82,380)
(91,281)
(459,029)
(345,272)
(248,584)
68,778
(26,123)
(71,603)
(47,344)
(21,469)
(50,155)
$
1,162,038 $
734,790 $
620,141
The CODM does not use total assets by segment to evaluate segment performance or allocate resources. As a
result, total assets by segment are not required to be disclosed.
In allocating revenue to particular geographic areas, the CODM considers where individual “seats” or licenses to our
products are located. Revenue is defined as revenue from external customers. Revenue and property and
equipment, net, related to operations in the United States and other geographic areas were:
Year Ended October 31,
2022
2021
2020
(in thousands)
Revenue:
United States
Europe
China
Korea
Other
Consolidated
Property and Equipment, net:
United States
Other
Total
$ 2,349,766 $ 1,951,964 $ 1,774,348
385,287
420,829
389,008
715,809
$ 5,081,542 $ 4,204,193 $ 3,685,281
493,430
795,405
531,542
911,399
440,825
562,711
427,471
821,222
As of October 31,
2022
2021
(in thousands)
$
$
297,780 $
185,520
483,300 $
283,602
188,796
472,398
Geographic revenue data for multi-regional, multi-product transactions reflect internal allocations and are therefore
subject to certain assumptions and to our allocation methodology.
One customer, including its subsidiaries, accounted for 11.7%, 10.6%, and 12.4% of our consolidated revenue in
fiscal 2022, 2021, and 2020, respectively. No customer was responsible for over 10% of our accounts receivables
as of October 31, 2022 and 2021.
93
Note 18. Restructuring Charges
In the third quarter of fiscal 2021, we initiated a restructuring plan for involuntary and voluntary employee
termination and facility closure actions as part of a business reorganization (the 2021 Plan). The 2021 Plan
consisted primarily of severance, retirement benefits under the 2021 Voluntary Retirement Program (2021 VRP) and
lease abandonment costs, and was substantially completed in the first quarter of fiscal 2022. Total charges under
the 2021 Plan were $45.5 million.
During fiscal 2022, we recorded restructuring charges of $12.1 million and made payments of $26.3 million under
the 2021 Plan. As of October 31, 2022, the outstanding restructuring related liabilities were immaterial and recorded
in accounts payable and accrued liabilities in the consolidated balance sheets.
During fiscal 2021, we recorded restructuring charges of $33.4 million and made payments of $19.2 million under
the 2021 Plan. As of October 31, 2021, $14.2 million of payroll and related benefits liabilities remained outstanding
and was recorded in accounts payable and accrued liabilities in the consolidated balance sheets. The remaining
balance was paid in fiscal 2022.
During fiscal 2020, we recorded restructuring charges of $36.1 million under the 2019 restructuring plan. These
charges consisted primarily of severance and retirement benefits. $57.4 million was paid in fiscal 2020 which
included payments of remaining balances in fiscal 2019. As of October 31, 2020, $1.3 million remained outstanding
and was recorded in accounts payable and accrued liabilities as payroll and related benefits in the consolidated
balance sheets. The remaining balance was paid in fiscal 2021.
94
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures. As of October 29, 2022, Synopsys carried out an
evaluation under the supervision and with the participation of Synopsys’ management, including the Chief
Executive Officer 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 Chief Executive Officer and Chief
Financial Officer have concluded that, as of October 29, 2022, 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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding its required disclosure.
(b)
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for Synopsys.
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of October 29, 2022. In assessing the effectiveness of our internal control over
financial reporting, our management used the framework established in Internal Control Integrated
Framework (2013) issued by The Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Our management has concluded that, as of October 29, 2022, our internal control over financial reporting
was effective based on these criteria. Our independent registered public accounting firm, KPMG LLP, has
issued an auditors’ report on the effectiveness of our internal control over financial reporting, which is
included herein.
(c)
Changes in Internal Control Over Financial Reporting. There were no changes in Synopsys’ internal control
over financial reporting during the fiscal quarter ended October 29, 2022 that have materially affected, or
are reasonably likely to materially affect, Synopsys’ internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
95
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
For information required by this Item relating to our executive officers, see Information about our Executive Officers
in Part I, Item 1 of this Annual Report on Form 10-K.
The information required by this Item relating to our directors and nominees is included under the heading “Proposal
1 — Election of Directors,” in our definitive Proxy Statement to be filed within 120 days after October 29, 2022 for
the 2023 Annual Meeting of Stockholders (the Proxy Statement) and is incorporated herein by reference. The
information required by this Item regarding our Audit Committee is included under the headings “Audit Committee
Report” and “Corporate Governance” in our Proxy Statement and is incorporated herein by reference. We will
provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement, and such disclosure, if any, is
incorporated herein by reference.
The information required by this Item relating to our code of ethics and its applicability to our Principal Executive
Officer, Principal Financial Officer and Principal Accounting Officer is included under the subheading “Ethics and
Business Conduct” under the heading “Corporate Governance” in our Proxy Statement and is incorporated herein
by reference.
Item 11. Executive Compensation
The information required by this Item relating to director and executive compensation is included under the
headings “Compensation Discussion and Analysis” (and all subheadings thereunder), “Executive Compensation
Tables” (and all subheadings thereunder), “Director Compensation,” “Compensation Committee Interlocks and
Insider Participation,” and “Compensation Committee Report” in our Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item relating to security ownership of certain beneficial owners and management is
included under the heading “Security Ownership of Certain Beneficial Owners and Management” in our Proxy
Statement, and the information required by this Item relating to securities authorized for issuance under equity
compensation plans is included under the heading “Equity Compensation Plan Information” in our Proxy Statement,
and, in each case, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item relating to the review, approval or ratification of transactions with related
persons is included under the heading “Transactions with Related Persons” in our Proxy Statement, and the
information required by this Item relating to director independence is included under the heading “Director
Independence,” and, in each case, is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item is included under the subheadings “Fees and Services of Independent
Registered Public Accounting Firm” and “Audit Committee Pre-Approval Policies and Procedures” under the
proposal titled “Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement
and is incorporated herein by reference.
96
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this Form 10-K:
(1)
Financial Statements
The following documents are included as Part II, Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm (KPMG LLP, Santa Clara, CA, PCAOB
ID: 185)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
Page
48
50
51
52
53
54
55
Schedules not listed above have been omitted because the information required to be set forth therein is not
applicable or is shown in the financial statements or notes herein.
(3)
Exhibits
See Item 15(b) below.
(b)
Exhibits
Exhibit
Number
3.1
3.2
4.1
10.1
10.2*
10.3*
Exhibit Description
Amended and Restated
Certificate of Incorporation
Amended and Restated
Bylaws
Description of Synopsys'
Capital Stock
Conformed Credit
Agreement, as amended
and restated pursuant to
that certain Fourth
Extension and Amendment
Agreement, dated January
22, 2021, among Synopsys,
Inc. as Borrower, the
Lenders parties thereto and
JPMorgan Chase Bank,
N.A., as administrative
agent for the lenders
2006 Employee Equity
Incentive Plan, as amended
Form of Restricted Stock
Unit Grant Notice and Award
Agreement under 2006
Employee Equity Incentive
Plan
EXHIBIT INDEX
Incorporated By Reference
Form
10-Q
File No.
000-19807
Exhibit
3.1
Filing Date
9/15/2003
Filed or
Furnished
Herewith
10-K
000-19807
10-K
000-19807
3.2
4.2
12/15/2020
12/15/2020
8-K
000-19807
10.1
1/25/2021
8-K
8-K
000-19807
000-19807
10.3
10.4
4/15/2022
4/15/2022
97
Table of Contents
Exhibit
Number
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
21.1
Exhibit Description
Form of Stock Option Grant
Notice and Award
Agreement under 2006
Employee Equity Incentive
Plan
Employee Stock Purchase
Plan, as amended
2017 Non-Employee
Directors Equity Incentive
Plan
Form of Restricted Stock
Grant Notice and Award
Agreement under 2017 Non-
Employee Directors Equity
Incentive Plan
Form of Stock Options
Grant Notice and Option
Agreement under 2017 Non-
Employee Directors Equity
Incentive Plan
Deferred Compensation
Plan as restated effective
August 1, 2002
Synopsys Amended and
Restated Deferred
Compensation Plan II
Form of Indemnification
Agreement for directors and
executive officers
Director’s and Officer’s
Insurance and Company
Reimbursement Policy
Amended and Restated
Employment Agreement,
dated December 15, 2016
between Synopsys, Inc. and
Dr. Aart de Geus
Executive Incentive Plan, as
amended
Amended and Restated
Executive Change of
Control Severance Benefit
Plan
Compensation Recovery
Policy
Executive Severance
Benefit and Transition Plan
Relocation Assistance
Agreement, dated April 30,
2021, by and between
Synopsys, Inc. and Sassine
Ghazi
Offer Letter, dated
November 23, 2022, by and
between Synopsys, Inc. and
Shelagh Glaser
Subsidiaries of Synopsys,
Inc.
Incorporated By Reference
Form
8-K
File No.
000-19807
Exhibit
10.5
Filing Date
4/15/2022
Filed or
Furnished
Herewith
8-K
8-K
000-19807
10.6
4/15/2022
000-19807
10.8
4/10/2017
10-K
000-19807
10.9
12/14/2017
10-K
000-19807
10.10
12/14/2017
10-Q
000-19807
10.5
6/10/2004
10-Q
000-19807
10.23
3/9/2009
8-K
000-19807
99.2
7/14/2011
S-1
33-45138
10.2
2/24/1992
(effective
date)
8-K
000-19807
10.16
12/21/2016
8-K
8-K
000-19807
10.1
12/6/2021
000-19807
10.19
12/21/2016
10-K
000-19807
10.46
12/22/2008
8-K
000-19807
10.1
2/9/2021
10-Q
000-19807
10.2
5/21/2021
8-K
000-19807
10.1
11/29/2022
X
98
Filed or
Furnished
Herewith
X
X
X
X
X
X
Table of Contents
Exhibit
Number
23.1
24.1
31.1
31.2
32.1+
101
Exhibit Description
Form
File No.
Exhibit
Filing Date
Incorporated By Reference
Consent of KPMG LLP,
Independent Registered
Public Accounting Firm
Power of Attorney (see
signature page to Annual
Report on Form 10-K)
Certification of Chief
Executive Officer pursuant
to Rule 13a-14(a) or
Rule 15d-14(a) of the
Exchange Act
Certification of Chief
Financial Officer pursuant to
Rule 13a-14(a) or
Rule 15d-14(a) of the
Exchange Act
Certification of Chief
Executive Officer and Chief
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
The following financial
statements from the
Company’s Annual Report
on Form 10-K for the year
ended October 29, 2022,
formatted in Inline XBRL: (i)
Consolidated Balance
Sheets as of October 29,
2022 and October 30, 2021,
(ii) Consolidated Statements
of Income for the Years
Ended October 29, 2022,
October 30, 2021 and
October 31, 2020, (iii)
Consolidated Statements of
Comprehensive Income for
the Years Ended October
29, 2022, October 30, 2021
and October 31, 2020, (iv)
Consolidated Statements of
Stockholders' Equity for the
Years Ended October 29,
2022, October 30, 2021 and
October 31, 2020, (v)
Consolidated Statements of
Cash Flows for the Years
Ended October 29, 2022,
October 30, 2021 and
October 31, 2020 and (vi)
Notes to Consolidated
Financial Statements,
tagged as blocks of text and
including detailed tags
Indicates a management contract, compensatory plan or arrangement.
This exhibit is furnished with this Annual Report on Form 10-K and is not deemed filed with the Securities
*
+
and Exchange Commission and is not incorporated by reference in any filing of Synopsys, Inc. under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the
date hereof and irrespective of any general incorporation language contained in such filing.
99
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: December 12, 2022
SYNOPSYS, INC.
By:
/s/ Shelagh Glaser
Shelagh Glaser
Chief Financial Officer
(Principal Financial Officer)
100
Table of Contents
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Aart J. de Geus and Shelagh Glaser, and each of them, as their true and lawful attorneys-in-fact and
agents, with full power of substitution and reconstitution, for them and in their name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated:
Name
Title
Date
/S/ AART J. DE GEUS
Aart J. de Geus
/S/ SHELAGH GLASER
Shelagh Glaser
/S/ SUDHINDRA KANKANWADI
Sudhindra Kankanwadi
Chief Executive Officer
(Principal Executive Officer) and Chairman of
the Board of Directors
December 12, 2022
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
December 12, 2022
December 12, 2022
/S/ LUIS BORGEN
Director
December 12, 2022
Luis Borgen
/S/ MARC CASPER
Marc Casper
/S/ JANICE D. CHAFFIN
Janice D. Chaffin
/S/ BRUCE R. CHIZEN
Bruce R. Chizen
/S/ MERCEDES JOHNSON
Mercedes Johnson
Director
Director
Director
Director
/S/ CHRYSOSTOMOS L. NIKIAS
Chrysostomos L. Nikias
Director
/s/ JEANNINE SARGENT
Jeannine Sargent
/S/ JOHN G. SCHWARZ
John G. Schwarz
/S/ ROY VALLEE
Roy Vallee
Director
Director
Director
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