Synopsys (SNPS) 10-K risk factor changes: FY2018 vs FY2017

For the fiscal year ended October 31, [removed: 2017][added: 2018]

[removed: ][added: ]

| | | | | [removed: (Do not check if a smaller reporting company)] | | Emerging growth company ¨ |

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 [removed: $8.0] [added: $10.5] billion.

Aggregate market value excludes an aggregate of approximately [removed: 41.4] [added: 29.2] million shares of 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.

On December [removed: 11, 2017, 148,713,662] [added: 12, 2018, 149,515,012] shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

Portions of the registrant’s Proxy Statement relating to the registrant’s [removed: 2018] [added: 2019] Annual Meeting of Stockholders, scheduled to be held on April [removed: 5, 2018,] [added: 8, 2019,] are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

Fiscal year ended October 31, [removed: 2017][added: 2018]

| Item 1. | | [removed: [Business](#s849B27B6D36758FEA25CD8175F4576AF)] [added: [Business](#sF9CBC6F7120F501193067444C08572AD)] | | [removed: [3](#s849B27B6D36758FEA25CD8175F4576AF)] [added: [3](#sF9CBC6F7120F501193067444C08572AD)] |

| Item 1A. | | [Risk [removed: Factors](#s9F9FD76093DC59B38014761BEB38B372)] [added: Factors](#s46E1CAE8E417528FA55EB9B278FD6CEF)] | | [removed: [12](#s9F9FD76093DC59B38014761BEB38B372)] [added: [13](#s46E1CAE8E417528FA55EB9B278FD6CEF)] |

| Item 1B. | | [Unresolved Staff [removed: Comments](#s31BE6A4F1773507AB597EBCFDB8096E3)] [added: Comments](#s3E861672795954EABF55BB980B9EB824)] | | [removed: [23](#s31BE6A4F1773507AB597EBCFDB8096E3)] [added: [24](#s3E861672795954EABF55BB980B9EB824)] |

| Item 2. | | [removed: [Properties](#s8772B325694F5C2E9964EB1ABCD1C830)] [added: [Properties](#s05E12D8A028E58F090FF18D3E5CB845C)] | | [removed: [23](#s8772B325694F5C2E9964EB1ABCD1C830)] [added: [24](#s05E12D8A028E58F090FF18D3E5CB845C)] |

| Item 3. | | [Legal [removed: Proceedings](#sC33BF1A2D2555AC68DE4B6FD0F1C7CF7)] [added: Proceedings](#sDB25963439DF5977917CEA5E26F9A63D)] | | [removed: [24](#sC33BF1A2D2555AC68DE4B6FD0F1C7CF7)] [added: [25](#sDB25963439DF5977917CEA5E26F9A63D)] |

| Item 4. | | [Mine Safety [removed: Disclosures](#sBE4C3C5425755CFEA817D9CBFA5C36D5)] [added: Disclosures](#s5CBB990A964A50B5814E6D9D171F6C9C)] | | [removed: [26](#sBE4C3C5425755CFEA817D9CBFA5C36D5)] [added: [25](#s5CBB990A964A50B5814E6D9D171F6C9C)] |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s7ABB966F1CCB5F9392359368B4A319BD)] [added: Securities](#s75C6CE2A0F4D5C79BB813C6075C99281)] | | [removed: [27](#s7ABB966F1CCB5F9392359368B4A319BD)] [added: [26](#s75C6CE2A0F4D5C79BB813C6075C99281)] |

| Item 6. | | [Selected Financial [removed: Data](#s5424ACF3705A59B080B3A7BC0FAB0833)] [added: Data](#sFE06AF88B3845FE7833C32414F367C19)] | | [removed: [30](#s5424ACF3705A59B080B3A7BC0FAB0833)] [added: [28](#sFE06AF88B3845FE7833C32414F367C19)] |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sEDBEFA47AE015FFC8E0D0B99B64B023C)] [added: Operations](#s0E53EF3A80F256AB821F18A1B72AE778)] | | [removed: [30](#sEDBEFA47AE015FFC8E0D0B99B64B023C)] [added: [28](#s0E53EF3A80F256AB821F18A1B72AE778)] |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s45CED9ABFF745F579CFD6EC866C7000B)] [added: Risk](#sCE4F7575923250359BA061684BE6022D)] | | [removed: [46](#s45CED9ABFF745F579CFD6EC866C7000B)] [added: [44](#sCE4F7575923250359BA061684BE6022D)] |

| Item 8. | | [Financial Statements and Supplementary [removed: Data](#sE7F2FA14F3845B5795DE531FD8F1F952)] [added: Data](#sBCB80A6BA97459D6AF82BD124FFF96DC)] | | [removed: [49](#sE7F2FA14F3845B5795DE531FD8F1F952)] [added: [47](#sBCB80A6BA97459D6AF82BD124FFF96DC)] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s3F74EE80E0AD5C0794323697DB318CCB)] [added: Disclosure](#s55D8BA73FF3B5DA09433BEB485FF0BF7)] | | [removed: [86](#s3F74EE80E0AD5C0794323697DB318CCB)] [added: [87](#s55D8BA73FF3B5DA09433BEB485FF0BF7)] |

| Item 9A. | | [Controls and [removed: Procedures](#sE9FD19F14E285186BB6C70CD201905B2)] [added: Procedures](#s485C46226CDD571E88237C8C75EC97A9)] | | [removed: [86](#sE9FD19F14E285186BB6C70CD201905B2)] [added: [87](#s485C46226CDD571E88237C8C75EC97A9)] |

| Item 9B. | | [Other [removed: Information](#sA7CFD0A95F6B5888BD80982B34745997)] [added: Information](#sF9453910043454CC87436F406EE64C66)] | | [removed: [87](#sA7CFD0A95F6B5888BD80982B34745997)] [added: [87](#sF9453910043454CC87436F406EE64C66)] |

| [PART [removed: III](#s3FA55E3BD50852F2B5E1EA2A6069C2F0)] [added: III](#s53A589B1B20255A0BDE5805A41075426)] | | | | |

| Item 10. | | [Directors, Executive Officers and Corporate [removed: Governance](#sEBC675CE367D59DDB94171A853785EE9)] [added: Governance](#s760CEC55E89458778A81190C34F9C344)] | | [removed: [88](#sEBC675CE367D59DDB94171A853785EE9)] [added: [88](#s760CEC55E89458778A81190C34F9C344)] |

| Item 11. | | [Executive [removed: Compensation](#s2A1EFFFE512D525FBFC8B6314FC29321)] [added: Compensation](#sD62A8F2958BF53B3A54D891B7DA8676E)] | | [removed: [88](#s2A1EFFFE512D525FBFC8B6314FC29321)] [added: [88](#sD62A8F2958BF53B3A54D891B7DA8676E)] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sB17E5F6C7D0E5D7FAE36051A9B1904FF)] [added: Matters](#s561784E545FA562D9E3203B98DC9655D)] | | [removed: [88](#sB17E5F6C7D0E5D7FAE36051A9B1904FF)] [added: [88](#s561784E545FA562D9E3203B98DC9655D)] |

| Item 13. | | [Certain Relationships and Related [removed: Transactions] [added: Transactions,] and Director [removed: Independence](#s8DE3BBBA38D45015957076DC99CFE142)] [added: Independence](#sAB26C8C2947F5CAEA662318DB28CCFC5)] | | [removed: [88](#s8DE3BBBA38D45015957076DC99CFE142)] [added: [88](#sAB26C8C2947F5CAEA662318DB28CCFC5)] |

| Item 14. | | [Principal Accountant Fees and [removed: Services](#s39F2365F4FB155269275EAAC7DE21735)] [added: Services](#s5755D68503F15D05B519FFDF73CB06B4)] | | [removed: [88](#s39F2365F4FB155269275EAAC7DE21735)] [added: [88](#s5755D68503F15D05B519FFDF73CB06B4)] |

| Item 15. | | [Exhibits and Financial Statement [removed: Schedules](#sB87548E8E549528FA225661E6A5D362E)] [added: Schedules](#sDABE728C3311542B95EC2229B6936AD3)] | | [removed: [89](#sB87548E8E549528FA225661E6A5D362E)] [added: [89](#sDABE728C3311542B95EC2229B6936AD3)] |

Fiscal [removed: 2017, 2016,] [added: 2017] and [removed: 2015] [added: 2016] were 52-week years ending on October 28, [removed: 2017,] [added: 2017 and] October 29, 2016, [removed: and October 31, 2015,] respectively.

Fiscal [removed: 2018] [added: 2019] will be a [removed: 53-week] [added: 52-week] year.

Synopsys, Inc. provides [removed: software, intellectual property,] [added: products] and services used by designers across the entire silicon to

the [removed: quality and] security [added: and quality] of their [removed: applications.][added: code.]

[added: 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 [added: semiconductor] intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than [removed: design] [added: designing] those circuits themselves.

We provide software and hardware used to [removed: develop] [added: validate] the electronic systems that incorporate chips and the software that runs on them.

We are also a leading provider of software tools and services that [removed: are used to] improve the security and quality of software code in a wide variety of industries, including electronics, financial services, media, automotive, medicine, energy and industrials.

We have approximately [removed: 112] [added: 120] offices worldwide.

We use our Investor Relations page as a routine channel for distribution of important information, including news releases, [removed: analyst] [added: investor] presentations, and financial information.

Our customers are the designers of [removed: these] [added: those] products and are facing intense pressure to deliver innovative products in shorter timeframes and at lower prices.

10-K 1 snps10311810-k.htm 10-K

| [PART I](#s5417F0A01FB25246B110D922963F7F71) | | | | |

| [PART II](#s5736729AD030534CAAEA7ECE59528703) | | | | |

| [PART IV](#s76AAC3C6ECBA58EB8E669143B217B9A7) | | | | |

| [SIGNATURES](#s63DC7152F42351C6B7D9A630438EAC94) | | | | [93](#s63DC7152F42351C6B7D9A630438EAC94) |

Fiscal 2018 was a 53-week year and ended on November 3, 2018.

Fiscal 2017 and 2016 were 52-week years and ended on October 28, 2017 and October 29, 2016, respectively.

The increasing viability of artificial intelligence and machine learning is driving an increase in the activity of new and existing chip design companies around the world.

The Fusion Design Platform, which was launched in the fall of 2018, redefines conventional design tool boundaries to deliver a more integrated flow than ever before, with better quality of results and time to results.

The platform supports multiple technology nodes, including most advanced technology nodes such as 16/14nm, 12nm, 10nm, and 7/8nm, with technology collaborations at 5nm and below.

Our Custom Design Platform™ is a unified suite of design and verification tools that accelerates the development of robust custom and AMS designs.

Anchored by the Custom Compiler custom design environment, the platform features industry-leading circuit simulation performance, a fast, easy-to-use custom layout editor complemented with best-in-class technologies for parasitic extraction, reliability analysis, and physical verification.

Key features of the Custom Design Platform include reliability-aware verification, visually-assisted layout automation, extraction fusion, and DRC fusion technologies.

The platform supports multiple technology nodes, including most advanced technology nodes such as 16/14nm, 12nm, 10nm, and 7/8nm.

Our Custom Design Platform is based on the OpenAccess database and includes open APIs for third-party tool integration.

Platform tools include HSPICE® and FineSim® SPICE circuit simulators, CustomSim™ FastSPICE, Custom Compiler layout and schematic editor, StarRC parasitic extraction, and IC Validator physical verification.

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.

For example, competitors named in the Gartner Magic Quadrant for Application Security Testing include Checkmarx Ltd., International Business Machines Corporation, Micro Focus International plc, and Veracode (acquired by Thoma Bravo, LLC).

Further economic instability could adversely affect the banking and financial services industry and result in credit downgrades of the

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

| • | 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; and |

| • | Changes in accounting standards, such as Topic 606, as discussed in Note 14 of Notes to Consolidated Financial Statements, which, for example, could impact the expected realization of our backlog. |

The timing of revenue recognition is affected by factors that include:

| • | Changes in accounting standards, such as Topic 606, as discussed in Note 14 of Notes to Consolidated Financial Statements; and |

In the area of software integrity solutions, we compete with numerous other solution providers, many of which focus on specific aspects of software security or quality analysis.

A significant trade disruption or the establishment or increase of any trade barrier in any area where we do business could increase the cost of our products, which could adversely impact the margin that we earn on sales; make our products more expensive for customers, which could make our products less competitive and reduce consumer demand; adversely restrict or delay our suppliers of hardware components and products, which could adversely impact our future revenues and financial results; or otherwise have a materially adverse impact on our future revenue and profits, our and our customers’ and suppliers’ businesses, and our results of operations.

In response to U.S. tariffs, other countries may adopt tariffs and other trade barriers that could limit our ability to offer our products and services.

Additionally, political uncertainty surrounding international trade disputes could have a negative impact on consumer confidence and spending, which could adversely impact our business operations.

For example, the recent new revenue recognition standard will be applicable to us beginning in fiscal 2019 and could lead to increased volatility in our total revenue, as some of our revenue may be recognized in different periods and with less predictability than is the case under current accounting standards.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (Tax Act), which significantly changed prior U.S. tax law and includes numerous provisions that affect our business in the current year and future years.

Accounting for certain of these provisions requires the exercise of significant judgment.

As regulations and guidance evolve with respect to the Tax Act, and as we gather more information and perform more analysis, our results may materially differ from previous estimates, and those differences may materially affect our financial position.

In addition, the Tax Act includes certain new provisions that will affect our income from foreign operations beginning in fiscal 2019, as well as a lower corporate tax rate on income from domestic operations.

Because guidance continues to evolve, however, the net impact of these changes is uncertain, and while we believe such changes will have an overall favorable impact on our effective tax rate, certain interpretations of the international provisions of the Tax Act could adversely affect our tax rate and cash flow in future years.

In fiscal 2018, we incurred foreign taxes of $67.7 million as a result of reorganizing certain rights related to use of our intellectual property in our international business.

Such tax was recorded as a prepaid tax on our balance sheet, in accordance with current accounting rules.

The amount of tax is subject to audit by the Hungarian Tax Authority (HTA) and could increase, along with the imposition of penalties and interest, and could materially affect our financial results and cash flow.

uncertain.

For example, we may be liable for additional withholding tax on payments made to us by customers in certain jurisdictions, and 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.

10-K 1 snps10311710-k.htm 10-K

(Check one):

| | | | | |

| [PART I](#s67B9579847615F5BAB33DA0D3F72BD21) | | | | |

| [PART II](#sFF68D2E5B41C5C2ABAEE527C5D0D690A) | | | | |

| [PART IV](#sB749C347947A525EAFF4209C8142B8D0) | | | | |

| [SIGNATURES](#sA2CDD1C3A3E6546681CA2D9434B37E19) | | | | [93](#sA2CDD1C3A3E6546681CA2D9434B37E19) |

software spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure

We are a global leader in supplying the electronic design automation

Background

increasingly frequent release cycles.

power intent descriptions, and constraints throughout the design process.

Our products span digital, custom, and analog/mixed-signal designs, and support multiple technology nodes, including 16/14nm, 12nm, 10nm, 7/8nm, and many others.

See Product Sales and Licensing Agreements below.

In addition, our products support multiple major programming languages-including Objective C, JavaScript, and security vulnerability coverage for C#—and are compatible with numerous common industry language compilers, development environments, and data and file formats.

| • | In fiscal 2017, 2016 and 2015, an aggregate of 50%, 50% and 49%, respectively, of our total revenue was derived from sales outside of the United States. Geographic revenue, which is based on where individual "seats" or licenses to our products are located, is shown below as a percentage of total revenue for the last three fiscal years. |

Our future performance depends in large part on our ability to further enhance, extend and expand our product offerings.

Research and development of existing and new products is primarily conducted within each product group.

We also use targeted acquisitions to augment our own research and development efforts.

Our capitalized software development costs were approximately $3.2 million, $4.1 million and $3.7 million in fiscal 2017, 2016 and 2015, respectively.

In the area of Software Integrity solutions, the market is still developing.

In the event of future improvements in

| • | General economic and political conditions that affect the semiconductor and electronics industries. |

At the same time, our customers and

The FASB is currently working together with the International Accounting Standards Board (IASB) to converge certain accounting principles and facilitate more comparable financial reporting between companies that are required to follow U.S. GAAP and those that are required to follow International Financial Reporting Standards (IFRS).

For information regarding new accounting standards, please refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview-Effect of New Accounting Pronouncements Not Yet Adopted.

In addition, we may need to significantly change our customer and vendor contracts, accounting systems and processes.

The cost and effect of these changes may adversely impact our results of operations.

If our intentions regarding reinvestment of such earnings change, then our income tax expense could increase.

In fiscal 2017, we repatriated $825 million of undistributed foreign earnings in anticipation of U.S. corporate tax reform.

In the U.S., a number of proposals for broad reform of the corporate tax system are under evaluation by various legislative and administrative bodies.

It is not possible to accurately determine the overall impact of such proposals on our effective tax rate or balance sheet at this time.

Proposed changes in corporate tax rates, the taxation of foreign earnings and the deductibility of expenses could have a material impact on the recoverability of our deferred tax assets, could result in significant one-time charges in the period in which tax reform is enacted, or could result in increases to our future U.S. tax expense.

Furthermore, proposed changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings.

In addition, the Republic of Ireland has changed its corporate residence rules and will require changes to our tax position by January 1, 2021.

On July 26, 2016, Hungary amended its IP regime to bring it in line with the OECD BEPS Project and the changes were effective in fiscal 2017.

We are also liable for potential tax liabilities of businesses we acquire.

In addition, if the treatment of research expense were applied to fiscal years after 2014, Synopsys Hungary could lose approximately $18 million in tax benefit in tax periods subsequent to fiscal 2017 due to the enacted reduction of Hungary's corporate income tax rate.

No material assessments have been proposed in these examinations.

Changes in our forecasts of