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 30, 2021 and October 31, 2020, 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 30, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of October 30, 2021, 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 30, 2021 and October 31, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended October 30, 2021, 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 30, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of November 3, 2019 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 842, Leases (“ASC 842”).

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.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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 $4,204.2 million for the year ended October 30, 2021, 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 controls related to 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.

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Santa Clara, California

December 13, 2021

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SYNOPSYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

			October 31,
			2021						2020
ASSETS
Current assets:
Cash and cash equivalents			$	1,432,840					$	1,235,653
Short-term investments			147,949						—
Total cash, cash equivalents and short-term investments			1,580,789						1,235,653
Accounts receivable, net			568,501						780,709
Inventories, net			229,023						192,333
Income taxes receivable and prepaid taxes			32,411						32,355
Prepaid and other current assets			397,617						308,167
Total current assets			2,808,341						2,549,217
Property and equipment, net			472,398						483,818
Operating lease right-of-use assets, net			493,251						465,818
Goodwill			3,575,785						3,365,114
Intangible assets, net			279,132						254,322
Deferred income taxes			612,655						497,546
Other long-term assets			510,698						414,227
Total assets			$	8,752,260					$	8,030,062
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities			$	694,748					$	623,664
Operating lease liabilities, current			79,678						73,173
Accrued income taxes			46,443						27,738
Deferred revenue			1,517,623						1,388,263
Short-term debt			74,992						27,084
Total current liabilities			2,413,484						2,139,922
Operating lease liabilities, non-current			487,003						462,411
Long-term accrued income taxes			27,893						25,178
Long-term deferred revenue			136,303						104,850
Long-term debt			25,094						100,823
Other long-term liabilities			363,540						284,511
Total liabilities			3,453,317						3,117,695
Stockholders’ equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding			—						—
Common stock, $0.01 par value: 400,000 shares authorized; 153,062 and 152,618 shares outstanding, respectively			1,531						1,528
Capital in excess of par value			1,576,363						1,653,166
Retained earnings			4,549,713						3,795,397
Treasury stock, at cost: 4,198 and 4,643 shares, respectively			(782,866)						(488,613)
Accumulated other comprehensive income (loss)			(49,604)						(54,074)
Total Synopsys stockholders’ equity			5,295,137						4,907,404
Non-controlling interest			3,806						4,963
Total stockholders’ equity			5,298,943						4,912,367
Total liabilities and stockholders’ equity			$	8,752,260					$	8,030,062

See 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,
			2021						2020						2019
Revenue:
Time-based products			$	2,633,763					$	2,365,199					$	2,197,965
Upfront products			861,063						735,572						619,791
Maintenance and service			709,367						584,510						542,938
Total revenue			4,204,193						3,685,281						3,360,694
Cost of revenue:
Products			542,114						487,307						459,127
Maintenance and service			271,202						254,931						234,196
Amortization of intangible assets			48,461						52,452						59,623
Total cost of revenue			861,777						794,690						752,946
Gross margin			3,342,416						2,890,591						2,607,748
Operating expenses:
Research and development			1,504,823						1,279,022						1,136,932
Sales and marketing			712,491						632,010						632,890
General and administrative			322,988						284,530						229,218
Amortization of intangible assets			33,919						38,829						41,291
Restructuring charges			33,405						36,059						47,186
Total operating expenses			2,607,626						2,270,450						2,087,517
Operating income			734,790						620,141						520,231
Other income (expense), net			70,724						18,018						25,275
Income before income taxes			805,514						638,159						545,506
Provision (benefit) for income taxes			49,155						(25,288)						13,139
Net income			756,359						663,447						532,367
Net income (loss) attributed to non-controlling interest			(1,157)						(900)						—
Net income attributed to Synopsys			$	757,516					$	664,347					$	532,367
Net income per share attributed to Synopsys:
Basic			$	4.96					$	4.40					$	3.55
Diluted			$	4.81					$	4.27					$	3.45
Shares used in computing per share amounts:
Basic			152,698						151,135						149,872
Diluted			157,340						155,706						154,190

See accompanying notes to consolidated financial statements.

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SYNOPSYS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

			Year Ended October 31,
			2021						2020						2019
Net income			$	756,359					$	663,447					$	532,367
Other comprehensive income (loss):
Change in foreign currency translation adjustment			9,415						30,466						1,360
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $0 for periods presented			(246)						—						—
Cash flow hedges:
Deferred gains (losses), net of tax of $(1,736), $(3,192), and $(2,009) for fiscal years 2021, 2020 and 2019, respectively			9,860						7,834						4,733
Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $4,593, $176, and $(3,672) for fiscal years 2021, 2020 and 2019, respectively			(14,559)						73						14,637
Other comprehensive income (loss), net of tax effects			4,470						38,373						20,730
Comprehensive income			760,829						701,820						553,097
Less: Net income (loss) attributed to non-controlling interest			(1,157)						(900)						—
Comprehensive income attributed to Synopsys			$	761,986					$	702,720					$	553,097

See accompanying notes to consolidated financial statements.

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SYNOPSYS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

															Capital in Excess of Par Value						Retained Earnings						Treasury Stock						Accumulated Other Comprehensive Income (Loss)						Total Synopsys Stockholders’ Equity						Non-controlling Interest						Stockholders' Equity
			Common Stock
			Shares						Amount
Balance at October 31, 2018			149,265						$	1,493					$	1,644,830					$	2,543,688					$	(597,682)					$	(113,177)					$	3,479,152					$	5,863					$	3,485,015
Net income																					532,367																		532,367												532,367
Retained earnings adjustment due to adoption of accounting standards related to revenue																					257,594																		257,594												257,594
Retained earnings adjustment due to adoption of an accounting standard related to income taxes																					(130,544)																		(130,544)												(130,544)
Other comprehensive income (loss), net of tax effects																																	20,730						20,730												20,730
Purchases of treasury stock			(2,732)						(27)						27												(329,185)												(329,185)												(329,185)
Common stock issued, net of shares withheld for employee taxes			3,798						37						(163,198)						(38,961)						301,225												99,103												99,103
Stock-based compensation															153,796																								153,796												153,796
Balance at October 31, 2019			150,331						$	1,503					$	1,635,455					$	3,164,144					$	(625,642)					$	(92,447)					$	4,083,013					$	5,863					$	4,088,876
Net income																					664,347																		664,347						(900)						663,447
Other comprehensive income (loss), net of tax effects																																	38,373						38,373												38,373
Purchases of treasury stock			(1,585)						(14)						14												(242,078)												(242,078)												(242,078)
Common stock issued, net of shares withheld for employee taxes			3,872						39						(230,887)						(33,094)						379,107												115,165												115,165
Stock-based compensation															248,584																								248,584												248,584
Balance at October 31, 2020			152,618						$	1,528					$	1,653,166					$	3,795,397					$	(488,613)					$	(54,074)					$	4,907,404					$	4,963					$	4,912,367
Net income																					757,516																		757,516						(1,157)						756,359
Retained earnings adjustment due to adoption of ASC 326																					(3,200)																		(3,200)												(3,200)
Other comprehensive income (loss), net of tax effects																																	4,470						4,470												4,470
Purchases of treasury stock			(2,780)						(28)						28												(753,081)												(753,081)												(753,081)
Equity forward contract															(35,000)																								(35,000)												(35,000)
Common stock issued, net of shares withheld for employee taxes			3,224						31						(387,103)												458,828												71,756												71,756
Stock-based compensation															345,272																								345,272												345,272
Balance at October 31, 2021			153,062						$	1,531					$	1,576,363					$	4,549,713					$	(782,866)					$	(49,604)					$	5,295,137					$	3,806					$	5,298,943

See accompanying notes to consolidated financial statements.

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SYNOPSYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Year Ended October 31,
			2021						2020						2019
Cash flow from operating activities:
Net income attributed to Synopsys			$	757,516					$	664,347					$	532,367
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation			203,676						209,986						201,676
Reduction of operating lease right-of-use assets			86,645						82,895						—
Amortization of capitalized costs to obtain revenue contracts			64,698						61,185						62,750
Stock-based compensation			345,272						248,584						155,001
Allowance for credit losses			18,515						20,875						11,669
Deferred income taxes			(128,583)						(111,526)						(82,620)
Other non-cash			14,702						3,425						(5,045)
Net changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable			201,706						(236,806)						(8,575)
Inventories			(48,046)						(55,024)						(17,396)
Prepaid and other current assets			(102,174)						(11,298)						(49,779)
Other long-term assets			(153,037)						(83,367)						(125,749)
Accounts payable and accrued liabilities			125,133						113,773						(19,280)
Operating lease liabilities			(82,581)						(78,578)						—
Income taxes			28,855						14,120						19,777
Deferred revenue			160,325						148,722						125,717
Net cash provided by operating activities			1,492,622						991,313						800,513
Cash flows from investing activities:
Proceeds from sales and maturities of short-term investments			12,850						—						—
Purchases of short-term investments			(161,732)						—						—
Proceeds from sales of long-term investments			—						2,151						6,361
Purchases of long-term investments			(7,591)						(2,762)						(3,245)
Purchases of property and equipment			(93,764)						(154,717)						(198,129)
Cash paid for acquisitions, net of cash acquired			(296,017)						(201,045)						(36,605)
Capitalization of software development costs			(1,976)						(4,045)						(4,259)
Other			(800)						—						—
Net cash used in investing activities			(549,030)						(360,418)						(235,877)
Cash flows from financing activities:
Proceeds from credit facilities			—						276,489						192,897
Repayment of debt			(28,061)						(288,879)						(524,063)
Issuances of common stock			210,719						197,403						156,364
Payments for taxes related to net share settlement of equity awards			(138,950)						(82,225)						(57,143)
Purchase of equity forward contract			(35,000)						—						—
Purchases of treasury stock			(753,081)						(242,078)						(329,185)
Other			(4,375)						(1,316)						(762)
Net cash used in financing activities			(748,748)						(140,606)						(561,892)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			2,369						17,154						2,782
Net change in cash, cash equivalents and restricted cash			197,213						507,443						5,526
Cash, cash equivalents and restricted cash, beginning of year			1,237,970						730,527						725,001
Cash, cash equivalents and restricted cash, end of year			$	1,435,183					$	1,237,970					$	730,527
Supplemental disclosure of cash flow information:
Cash paid for income taxes during the year:			$	149,762					$	70,711					$	75,744
Interest payments during the year:			$	3,365					$	5,136					$	12,363

See accompanying notes to consolidated financial statements.

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SYNOPSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business

Synopsys, Inc. ("Synopsys" or "the Company") provides products and services used across the entire silicon to software spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure the security and quality of their code. The Company is a global leader in supplying the electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips. The Company also offers semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. The Company provides software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. To complement these offerings, the Company provides technical services and support to help its customers develop advanced chips and electronic systems. These products and services are part of the Company’s Semiconductor & System Design segment.

The Company is also a leading provider of software tools and services that improve the security, quality and compliance of software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and industrials. These tools and services are part of the Company’s Software Integrity segment.

Note 2. Summary of Significant Accounting Policies

Fiscal Year End. The Company’s fiscal year generally ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, the Company has a 53-week year. When a 53-week year occurs, the Company includes the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2021, 2020 and 2019 were 52-week years ending on October 30, 2021, October 31, 2020 and November 2, 2019, respectively. For presentation purposes, the consolidated financial statements and accompanying notes refer to the closest calendar month end. Fiscal 2022 will be a 52-week year.

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

Use of Estimates. To prepare financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP), management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and may result in material effects on the Company’s operating results and financial position.

Comparability. Effective beginning of fiscal 2021, the Company adopted Accounting Standards Codification (ASC) 326, Measurement of Credit Losses on Financial Instruments (ASC 326). Prior periods were not retrospectively recast and accordingly, the consolidated balance sheets as of October 31, 2020 and the consolidated statements of income for the years ended October 31, 2020 and 2019 were prepared using accounting standards that were different than those in effect as of and for the year ended October 31, 2021. Effective beginning in fiscal 2020, the Company adopted ASC 842, Leases (ASC 842). Prior periods were not retrospectively recast, and accordingly the consolidated statements of income for the year ended October 31, 2019 was prepared using accounting standards that were different than those in effect for the years ended October 31, 2021 and 2020.

Foreign Currency Translation. The functional currency of the majority of the Company’s active foreign subsidiaries is the foreign subsidiary’s local currency. Assets and liabilities that are not denominated in the functional currency are remeasured into the functional currency with any related gain or loss recorded in earnings. The Company translates assets and liabilities of its non-U.S. dollar functional currency foreign operations into the U.S. dollar reporting currency at exchange rates in effect at the balance sheet date. The Company translates income and expense items of such foreign operations into the U.S. dollar reporting currency at average exchange rates for the period. Accumulated translation adjustments are reported in stockholders’ equity, as a component of accumulated other comprehensive income (loss).

Foreign Currency Contracts. The Company operates internationally and is exposed to potentially adverse movements in currency exchange rates. The Company enters into hedges in the form of foreign currency forward contracts to reduce its exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions. The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the consolidated balance sheets.

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SYNOPSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. See Note 6. Financial Assets and Liabilities.

Fair Values of Financial Instruments. The Company’s cash equivalents, short-term investments and foreign currency contracts are carried at fair value. The fair value of the Company’s accounts receivable and accounts payable approximates the carrying amount due to their short duration. Non-marketable equity securities are accounted for using either the measurement alternative or equity method of accounting, net of impairments. The Company performs periodic impairment analysis on these non-marketable equity securities. The carrying amount of the short-term debt approximates the estimated fair value. See Note 7. Fair Value Measures.

Cash and Cash Equivalents and Short-term Investments. The Company classifies investments with original maturities of three months or less when acquired as cash equivalents. Debt securities and other investments with stated maturities longer than three months are classified as short-term investments and the Company may convert these investments into cash at any time to fund general operations. These debt securities and other investments generally have an effective maturity term of less than three years and are classified as available-for-sale 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 position, the Company evaluates 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 to 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 6. Financial Assets and Liabilities. There were no credit losses on available-for-sale debt securities recognized in the years ended October 31, 2021.

Concentration of Credit Risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents, marketable securities, foreign currency contracts, and accounts receivable from trade customers. The Company maintains cash equivalents primarily in highly rated taxable and tax-exempt money market funds located in the U.S. and in various overseas locations.

The Company sells its products worldwide primarily to customers in the global electronics market. The Company performs on-going credit evaluations of its customers’ financial condition and does not require collateral. The Company establishes reserves for potential credit losses and such losses have been within management’s expectations and have not been material in any year presented.

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SYNOPSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

Accounts Receivable, Net. The balances consist of accounts receivable billed and unbilled. Unbilled accounts receivable represent amounts recorded as revenue which will be invoiced within one year of the balance sheet date. The following table represents the components of accounts receivable, net:

			October 31,
			2021						2020
			(in thousands)
Accounts receivable			$	563,592					$	758,341
Unbilled accounts receivable			35,589						50,932
Total accounts receivable			599,181						809,273
Less allowance for credit losses			(30,680)						(28,564)
Total accounts receivable, net			$	568,501					$	780,709

Allowance for Credit Losses. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as 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 presents the changes in the allowance for credit losses:

Fiscal Year			Balance at Beginning of Period						Provisions						Write-offs/Adjustments						Balance at End of Period
			(in thousands)
2021			$	28,564					$	18,515					$	(16,399)					$	30,680
2020			$	9,046					$	20,875					$	(1,357)					$	28,564
2019			$	5,613					$	11,669					$	(8,236)					$	9,046

Inventories, net. Inventories are computed at standard costs which approximate actual costs, on a first-in, first-out basis and valued at the lower of cost or net realizable value. Inventories primarily include components and parts used in emulation and prototyping hardware systems. The valuation process includes a review of the stage of the product life cycle and forecasts based upon future demand and market conditions. Inventory provisions are recorded when the costs are determined to be in excess of anticipated demand or considered obsolete. 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.

Income Taxes. The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. An uncertain tax position is considered effectively settled on completion of an examination by a taxing authority if certain other conditions are satisfied.

Property and Equipment. Property and equipment is recorded at cost less accumulated depreciation. Assets, excluding land, are depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over the remaining term of the lease or the economic useful life of the asset, whichever is shorter. Depreciation expenses were $119.1 million, $119.1 million and $100.4

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million in fiscal 2021, 2020 and 2019, respectively. Repair and maintenance costs are expensed as incurred and such costs were $62.6 million, $62.1 million and $52.5 million in fiscal 2021, 2020 and 2019, respectively.

A summary of property and equipment, at cost less accumulated depreciation and amortization, as of October 31, 2021 and 2020 is as follows:

			October 31,
			2021						2020
			(in thousands)
Computer and other equipment			$	812,161					$	788,105
Buildings			134,931						129,746
Furniture and fixtures			73,624						72,702
Land			19,965						19,965
Leasehold improvements			236,064						242,830
			1,276,745						1,253,348
Less accumulated depreciation and amortization(1)			(804,347)						(769,530)
Total			$	472,398					$	483,818

(1)Accumulated depreciation and amortization includes write-offs due to retirement of fully amortized fixed assets.

The useful lives of depreciable assets are as follows:

			Useful Life in Years
Computer and other equipment			3 - 8
Buildings			30
Furniture and fixtures			5
Leasehold improvements			Shorter of the lease term or the estimated useful life

Investments in Equity Securities. The Company holds 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 . The Company accounts for these investments using the measurement alternative when the fair value of the investment is not readily determinable and the Company does not have the ability to exercise significant influence or using the equity method of accounting when it is determined that the Company has the ability to exercise significant influence. For investments accounted for using the equity method of accounting, the Company records its proportionate share of the investee’s income or loss, net of the effects of any basis differences, to other income, in its consolidated statements of income.

Leases. The Company determines 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 the Company has 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 our use. 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.

As most of the Company's leases do not provide an implicit rate, the Company uses the incremental borrowing rate at lease commencement to measure ROU assets and lease liabilities. The Company uses a benchmark senior

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unsecured yield curve for debt instruments and considers specific credit quality, market conditions, tenor of lease arrangements, and quality of collateral to determine the incremental borrowing rate.

The Company used the incremental borrowing rate as of the date of adoption for all leases that commenced on or prior to that date. Operating lease expense is generally recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to account for the lease and non-lease components as a single lease component for the majority of the Company's asset classes. For leases with a term of one year or less, the Company has elected not to record the ROU asset or liability.

Goodwill. Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and identifiable intangible assets acquired by the Company. The carrying amount of goodwill at each reporting unit is tested for impairment annually as of October 31, or more frequently if facts and circumstances warrant a review.

The Company performs a qualitative analysis when testing a reporting unit’s goodwill for impairment. A qualitative goodwill impairment test is performed when the fair value of a reporting unit historically has significantly exceeded the carrying value of its net assets and based on current operations is expected to continue to do so. Otherwise, the Company is required to conduct a quantitative impairment test for each reporting unit and estimate the fair value of each reporting unit using a combination of an income approach based on discounted cash flow analysis and a market approach based on market multiples. The discount rate used in the income approach is based on the Company's weighted-average cost of capital and may be adjusted for the relevant risks pertaining to projecting future cash flows. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference. As of October 31, 2021, the Company performed a qualitative impairment test on each reporting unit and concluded there was no impairment of goodwill.

Intangible Assets. Intangible assets consist of acquired technology, certain contract rights, customer relationships, trademarks and trade names, capitalized software, and in-process research and development. These intangible assets are acquired through business combinations, direct purchases, or internally developed capitalized software. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to ten years, except for in-process research and development (IPR&D) projects not yet completed. IPR&D assets are amortized over their estimated useful lives upon completion or are written off upon abandonment.

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including property and equipment and intangible assets, may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such asset group will be recovered through the undiscounted future cash flow. If the undiscounted future cash flow is less than the carrying amount of the asset group, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the asset group. The Company had no impairment charges for long-lived assets in fiscal 2021, 2020 and 2019.

Restructuring Charges. In the third quarter of fiscal 2021, the Company initiated a restructuring plan for involuntary and voluntary employee termination and facility closure actions as part of a business reorganization. The total charges under the 2021 restructuring plan (the 2021 Plan) are expected to be in the range of $42 million to $53 million and will consist primarily of severance, retirement benefits under the 2021 Voluntary Retirement Program (VRP) and lease abandonment costs. The 2021 Plan and VRP are expected to be completed in the first quarter of fiscal 2022.

During fiscal 2021, the Company 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.

During fiscal 2020, the Company incurred 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.

During fiscal 2019, the Company incurred restructuring charges of approximately $47.2 million for involuntary employee termination actions and the VRP. As of October 31,2020, no amounts remained outstanding.

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Accounts Payable and Accrued Liabilities. The balance consisted of:

			October 31,
			2021						2020
			(in thousands)
Payroll and related benefits			$	581,687					$	492,626
Other accrued liabilities			85,648						101,035
Accounts payable			27,413						30,003
Total			$	694,748					$	623,664

Other Long-term Liabilities. The balance consisted of:

			October 31,
			2021						2020
			(in thousands)
Deferred compensation liability (See Note 12)			$	343,820					$	269,737
Other long-term liabilities			19,720						14,774
Total			$	363,540					$	284,511

Other Comprehensive Income (Loss). Other comprehensive income (loss) (OCI) includes all changes in equity during a period, such as accumulated net translation adjustments, unrealized gain (loss) on certain foreign currency forward contracts that qualify as cash flow hedges, reclassification adjustments related to cash flow hedges and unrealized gain (loss) on investments. See Note 10. Accumulated Other Comprehensive Income (Loss).

Revenue Recognition. The Company recognizes revenue for the transfer of services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or products. The principle is achieved through the following five-step approach:

• Identification of the contract, or contracts, with the customer

• Identification of the performance obligation in the contract

• Determination of the transaction price

• Allocation of the transaction price to the performance obligations in the contract

• Recognition of revenue when, or as, the Company satisfies a performance obligation

Nature of Products and Services

The Company generates revenue from the 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 the Company's software primarily through Technology Subscription License (TSL) contracts. TSLs are time-based licenses for a finite term and generally provide the customer with limited rights to receive, or to exchange certain quantities of licensed software for, unspecified future technology. The majority of the Company's arrangements are TSLs due to the nature of its business and customer requirements. In addition to the licenses, the arrangements also include: post-contract customer support, which includes providing frequent updates and upgrades to maintain the utility of the software due to rapid changes in technology; other intertwined services such as multiple copies of the tools; assisting the Company's customers in applying the Company's technology in the customers' development environment; and rights to remix licenses for other licenses. Payments are generally received in equal or near equal installments over the term of the arrangement. The Company has concluded that its software licenses in TSL contracts are not distinct from its obligation to provide unspecified software updates to the licensed software throughout the license term. Such updates represent inputs to a single, combined performance obligation, commencing upon the later of the arrangement effective date or transfer of control to the software license. Remix rights are not an additional

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promised good or service in the contract, and where unspecified additional software product rights are part of the contract with the customer, such rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support because such rights are provided for the same period of time and have the same pattern of transfer to the customer over the duration of the subscription term.

IP & System Integration

The Company generally licenses IP under nonexclusive license agreements that provide usage rights for specific applications. Additionally, for certain IP license agreements, royalties are collected as customers sell their own products that incorporate the Company’s IP. 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 the Company’s IP.

Software Integrity Products

Software Integrity product arrangements provide customers the right to software licenses, software updates and technical support. Under the term of these arrangements, the customer expects to receive integral updates to the software licenses that protect the customer’s software from potential security vulnerabilities. The licenses and software updates together serve to fulfill the Company’s commitment to the customer, as they represent inputs to a single, combined performance obligation that commences upon the later of the arrangement effective date or transfer of the software license. Software updates are part of the contract with the customer, and such rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support because such rights are provided for the same period of time and have the same time-based pattern of transfer to the customer.

Hardware

The Company generally has two performance obligations in arrangements involving the sale of hardware products. The first performance obligation is to transfer the hardware product, which includes embedded software integral to the functionality of the hardware product. The second performance obligation is to provide maintenance on the hardware and its embedded software, including rights to technical support, hardware repairs and software updates that are all provided over the same term and have the same time-based pattern of transfer to the customer. The portion of the transaction price allocated to the hardware product is recognized as revenue at a point in time when control of the hardware is transferred to the customer. The Company has 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

The Company's 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 Synopsys has enforceable rights to payment for performance completed. Inputs such as costs incurred and hours expended are used in order to measure progress of performance. The Company has a history of accurately estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances, specification and testing requirement changes, and changes in customer delivery priorities. Payments for services are generally due upon milestones in the contract or upon consumption of the hourly resources.

Flexible Spending Accounts

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

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Synopsys 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

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately versus together requires significant judgment. The Company has concluded that (1) its EDA software licenses in TSL contracts are not distinct from its obligation to provide unspecified software updates to the licensed software throughout the license term, because those promises represent inputs to a single, combined performance obligation, and (2) where unspecified additional software product rights are part of the contract with the customer, such rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support, because such rights are provided for the same period of time and have the same time-based pattern of transfer to the customer. In reaching this conclusion, the Company considered the nature of the obligation to customers which is to provide an ongoing right to use the most up to date and relevant software. As EDA customers operate in a rapidly changing and competitive environment, satisfying the obligation requires providing critical updates to the existing software products, including ongoing iterative interaction with customers to make the software relevant to customers’ ability to meet the time to go to market with advanced products.

Similarly, the Company also concluded that in its Software Integrity business, the licenses and maintenance updates serve together to fulfill the Company’s commitment to the customer as both work together to provide the functionality to the customer and represent a combined performance obligation because the updates are essential to the software’s central utility, which is to identify security vulnerabilities and other threats.

The Company’s 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 prices of products and services sold separately. SSP for license (and related updates and support) in a contract with multiple performance obligations is determined by applying a residual approach whereby all other non-software performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSP, using observable prices, with any residual amount of the transaction price allocated to the license because the Company does not sell the license separately, and the pricing is highly variable.

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables (billed or unbilled), contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated balance sheet. The Company records a contract asset when revenue is recognized prior to the right to invoice, or deferred revenue when revenue is recognized subsequent to invoicing. For time-based software agreements, customers are generally invoiced in equal, quarterly amounts, although some customers prefer to be invoiced in single or annual amounts. The Company records an unbilled receivable when revenue is recognized and it has an unconditional right to invoice and receive payment.

Warranties and Indemnities. The Company generally warrants its products to be free from defects in media and to substantially conform to material specifications for a period of 90 days for software products and for up to six months for hardware systems. In certain cases, the Company also provides its customers with limited indemnification with respect to claims that their use of the Company’s software products infringes on United States patents, copyrights, trademarks or trade secrets. The Company is unable to estimate the potential impact of these commitments on the future results of operations. To date, the Company has not been required to pay any material warranty claims.

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Net Income Per Share. The Company computes basic net income per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the dilution from potential common shares outstanding such as stock options and unvested restricted stock units and awards during the period using the treasury stock method.

The table below reconciles the weighted average common shares used to calculate basic net income per share with the weighted average common shares used to calculate diluted net income per share:

			Year Ended October 31,
			2021						2020						2019
			(in thousands, except per share amounts)
Numerator:
Net income attributed to Synopsys			$	757,516					$	664,347					$	532,367
Denominator:
Weighted average common shares for basic net income per share			152,698						151,135						149,872
Dilutive effect of common share equivalents from equity-based compensation			4,642						4,571						4,318
Weighted average common shares for diluted net income per share			157,340						155,706						154,190
Net income per share:
Basic			$	4.96					$	4.40					$	3.55
Diluted			$	4.81					$	4.27					$	3.45
Anti-dilutive employee stock-based awards excluded(1)			408						97						171

(1)These stock options and unvested restricted stock units were anti-dilutive for the respective periods and are excluded in calculating diluted net income per share. While such awards were anti-dilutive for the respective periods, they could be dilutive in the future.

Recently Adopted Accounting Pronouncements

Beginning in fiscal 2021, the Company adopted ASC 326, which was issued by the Financial Accounting Standards Board (FASB) in June 2016 as Accounting Standards Update (ASU) No. 2016-13 Financial Instruments – Credit Losses (ASC 326): 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 credit losses. The Company 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.

Recent Accounting Pronouncements Not Yet Adopted

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 it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The new standard is effective for the Company’s fiscal year beginning on November 1, 2023. Early adoption is permitted. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the effective date of adoption, and the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04) and also issued subsequent amendments to the

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initial guidance (collectively, Topic 848). Topic 848 provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. The Company will adopt Topic 848 when the relevant contracts are modified upon transition to alternative reference rates. The Company does not expect the adoption of Topic 848 will have a material impact on the consolidated financial statements.

Note 3. Revenue

Disaggregated Revenue

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

			2021						2020						2019
EDA			55.5		%				57.4		%				58.4		%
IP & System Integration			34.8		%				32.6		%				31.4		%
Software Integrity Products & Services			9.4		%				9.7		%				10.0		%
Other			0.3		%				0.3		%				0.2		%
Total			100.0		%				100.0		%				100.0		%

Contract Balances

The contract assets indicated below are presented as prepaid and other current assets in the consolidated balance sheets. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional. Unbilled receivables are presented as accounts receivable, net, in the consolidated balance sheets.

Contract balances are as follows:

			As of October 31,
			2021						2020
			(in thousands)
Contract assets, net			$	284,574					$	214,583
Unbilled receivables			$	35,589					$	50,932
Deferred revenue			$	1,653,926					$	1,493,113

During fiscal 2021, the Company recognized $1.2 billion of revenue that was included in the deferred revenue balance as of October 31, 2020. During fiscal 2020, the Company recognized $1.1 billion of revenue that was included in the deferred revenue balance as of October 31, 2019.

Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $6.9 billion as of October 31, 2021, which includes $890.9 million in non-cancellable FSA commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date. The Company has elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 40% of the contracted but unsatisfied or partially unsatisfied performance obligations as of October 31, 2021, excluding non-cancellable FSA, are expected to be recognized over the next 12 months with the remainder recognized thereafter.

During fiscal 2021, the Company recognized $116.7 million from performance obligations satisfied from sales-based royalties earned during the periods. During fiscal 2020, the Company recognized $102.4 million from performance obligations satisfied from sales-based royalties earned during the periods.

Costs of Obtaining a Contract with Customer

The incremental costs of obtaining a contract with a customer, which consist primarily of direct sales commissions earned upon execution of the contract, are required to be capitalized under ASC 340-40 and amortized over the estimated period of which the benefit is expected to be received. As direct sales commissions paid for renewals are commensurate with the amounts paid for initial contracts, the deferred incremental costs will be recognized over the contract term. Capitalized direct commission costs, net of accumulated amortization, as of October 31, 2021 were $92.2 million and are included in other assets in the Company’s consolidated balance sheets. Amortization was

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$64.7 million during fiscal 2021 and is included in sales and marketing expense in the Company’s consolidated statements of income. Capitalized direct commission costs, net of accumulated amortization, as of October 31, 2020 were $81.3 million and are included in other assets in the Company’s consolidated balance sheets. Amortization was $61.2 million during fiscal 2020 and is included in sales and marketing expense in the Company’s consolidated statements of income.

Note 4. Business Combinations

Fiscal 2021 Acquisitions

During fiscal 2021, the Company completed several acquisitions for an aggregate consideration of $298.9 million, net of cash acquired. The Company does not consider these acquisitions to be material, individually or in the aggregate, to the Company’s consolidated statements of income. The preliminary purchase allocations are $109.3 million of identifiable intangible assets and $204.5 million in goodwill, of which $158.8 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 will be deductible for tax purposes.

Fiscal 2020 Acquisitions

During fiscal 2020, the Company completed several acquisitions for an aggregate consideration of $238.3 million, net of cash acquired. The Company does not consider these acquisitions to be material, individually or in the aggregate, to the Company's consolidated statements of income. The preliminary purchase allocations are $65.3 million of identifiable intangible assets, and $173.7 million in goodwill, of which $160.4 million is attributable to the Semiconductor & System Design reporting segment and $13.3 million is attributable to the Software Integrity reporting segment.

The preliminary fair value estimates for the assets acquired and liabilities assumed for all acquisitions completed within 12 months from the applicable acquisition date are not yet finalized and may change as additional information becomes available during the respective measurement periods. The primary areas of those preliminary estimates relate to certain tangible assets and liabilities, identifiable intangible assets, and income taxes.

Acquisition-Related Transaction Costs

Transaction costs were $15.4 million and $14.1 million during fiscal 2021 and 2020, respectively. These costs consist of professional fees and administrative costs and were expensed as incurred in the Company’s consolidated statements of income.

Note 5. Goodwill and Intangible Assets

The Company has two reporting units and has assigned assets and liabilities to each of the reporting units based on each unit's operating activities. No impairment of goodwill was identified for any periods presented. Goodwill activity by reportable segment for the year ended October 31, 2021 consisted of the following:

			Semiconductor & System Design						Software Integrity						Total
			(in thousands)
Balance at October 31, 2020			$	2,939,512					$	425,602					$	3,365,114
Additions			158,760						45,709						204,469
Effect of foreign currency translation			6,202						—						6,202
Balance at October 31, 2021			$	3,104,474					$	471,311					$	3,575,785

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Goodwill activity by reportable segment for the year ended October 31, 2020 consisted of the following:

			Semiconductor & System Design						Software Integrity						Total
			(in thousands)
Balance at October 31, 2019			$	2,758,926					$	412,253					$	3,171,179
Additions			160,447						13,285						173,732
Adjustments			59						—						59
Effect of foreign currency translation			20,080						64						20,144
Balance at October 31, 2020			$	2,939,512					$	425,602					$	3,365,114

Intangible assets as of October 31, 2021 consisted of the following:

			Gross Assets						Accumulated Amortization						Net Assets
			(in thousands)
Core/developed technology			$	911,903					$	748,759					$	163,144
Customer relationships			404,571						308,355						96,216
Contract rights intangible			193,317						188,231						5,086
Trademarks and trade names			43,095						31,155						11,940
Capitalized software development costs			46,098						43,352						2,746
Total			$	1,598,984					$	1,319,852					$	279,132

Intangible assets as of October 31, 2020 consisted of the following:

			Gross Assets						Accumulated Amortization						Net Assets
			(in thousands)
Core/developed technology			$	827,232					$	703,009					$	124,223
Customer relationships			380,838						277,219						103,619
Contract rights intangible			192,812						186,763						6,049
Trademarks and trade names			43,096						28,716						14,380
In-process research and development (IPR&D)			1,214						—						1,214
Capitalized software development costs			44,122						39,285						4,837
Total			$	1,489,314					$	1,234,992					$	254,322

Amortization expense related to intangible assets consisted of the following:

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Core/developed technology			$	46,049					$	47,890					$	56,163
Customer relationships			31,478						35,075						37,533
Contract rights intangible			2,413						5,181						3,581
Trademarks and trade names			2,440						3,135						3,637
Capitalized software development costs(1)			4,067						3,723						2,868
Total			$	86,447					$	95,004					$	103,782

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

The following table presents the estimated future amortization of intangible assets as of October 31, 2021:

Fiscal Year			(in thousands)
2022			$	81,778
2023			63,744
2024			52,895
2025			36,793
2026			24,368
2027 and thereafter			19,554
Total			$	279,132

Note 6. Financial Assets and Liabilities

Short-term investments. Gross unrealized gains and losses on our short-term investment portfolio of available-for-sale debt securities at October 31, 2021 were not significant. The stated maturities of the Company's available-for-sale debt securities as of October 31, 2021 were as follows:

			Cost						Fair Value
			(in thousands)
Due within 1 year			$	45,562					$	45,533
After 1 year through 5 years			94,591						94,396
After 5 years through 10 years			5,786						5,785
After 10 years			2,256						2,235
Total			$	148,195					$	147,949

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

As of October 31, 2021, the balances of the Company's cash equivalents, short-term investments and non-marketable equity securities investments were:

			Cost						Gross Unrealized Gains						Gross Unrealized Losses Less Than 12 Continuous Months						Gross Unrealized Losses 12 Continuous Months or Longer						Estimated Fair Value**(1)**
			(in thousands)
Cash equivalents:
Money market funds			$	172,934					$	—					$	—					$	—					$	172,934
Total:			$	172,934					$	—					$	—					$	—					$	172,934
Short-term investments:
U.S. government agency & T-bills			$	6,447					$	—					$	(5)					$	—					$	6,442
Municipal bonds			4,588						—						(12)						—						4,576
Corporate debt securities			103,615						7						(170)						—						103,452
Asset-backed securities			33,545						6						(72)						—						33,479
Total:			$	148,195					$	13					$	(259)					$	—					$	147,949
Other long-term assets:
Non-marketable equity securities			$	17,638					$	—					$	—					$	—					$	17,638
Total:			$	17,638					$	—					$	—					$	—					$	17,638

(1)See Note 7. Fair Value Measures for further discussion on fair values.

As of October 31, 2020, the balances of the Company's cash equivalents and non-marketable equity securities investments were:

			Cost						Gross Unrealized Gains						Gross Unrealized Losses Less Than 12 Continuous Months						Gross Unrealized Losses 12 Continuous Months or Longer						Estimated Fair Value**(1)**
			(in thousands)
Cash equivalents:
Money market funds			$	304,127					$	—					$	—					$	—					$	304,127
Total:			$	304,127					$	—					$	—					$	—					$	304,127
Other long-term assets:
Non-marketable equity securities			$	13,200					$	—					$	—					$	—					$	13,200
Total:			$	13,200					$	—					$	—					$	—					$	13,200

(1)See Note 7. Fair Value Measures for further discussion on fair values.

Restricted cash. The Company includes amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows. All restricted cash is primarily associated with office leases.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

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

			October 31,
			2021						2020
			(in thousands)
Cash and cash equivalents			$	1,432,840					$	1,235,653
Restricted cash included in Prepaid expenses and other current assets			1,560						1,523
Restricted cash included in Other long-term assets			783						794
Total cash, cash equivalents and restricted cash			$	1,435,183					$	1,237,970

Non-marketable equity securities. The Company’s 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 2021, fiscal 2020, or fiscal 2019.

Derivatives.

The Company recognizes derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value and provides qualitative and quantitative disclosures about such derivatives. The Company operates internationally and is exposed to potentially adverse movements in foreign currency exchange rates. The Company enters into hedges in the form of foreign currency forward contracts to reduce its exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies.

The duration of forward contracts ranges from approximately one month to 23 months, the majority of which are short-term. The Company does not use foreign currency forward contracts for speculative or trading purposes. The Company enters into foreign exchange forward contracts with high credit quality financial institutions that are rated ‘A’ or above and to date has not experienced nonperformance by counterparties. In addition, the Company mitigates credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty and anticipates continued performance by all counterparties to such agreements.

The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. The cash flow impact upon settlement of the derivative contracts will be included in “Net cash provided by operating activities” in the consolidated statements of cash flows.

Cash Flow Hedging Activities

Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of approximately 23 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to the Company’s foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The related gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (loss) (OCI), in stockholders’ equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. The Company expects a majority of the hedge balance in OCI to be reclassified to the statements of income within the next 12 months.

The Company did not record any gains or losses related to discontinuation of cash flow hedges for fiscal years 2021, 2020 and 2019.

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Non-designated Hedging Activities

The Company’s foreign exchange forward contracts that are used to hedge non-functional currency denominated balance sheet assets and liabilities are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying assets and liabilities, which are also recorded in other income (expense), net. The duration of the forward contracts for hedging the Company’s balance sheet exposure is approximately one month.

The Company also has certain foreign exchange forward contracts for hedging certain international revenues and expenses that are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the foreign currency in operating income. The duration of these forward contracts is usually less than one year. The overall goal of the Company’s hedging program is to minimize the impact of currency fluctuations on its net income over its fiscal year.

The effects of the non-designated derivative instruments on the Company’s consolidated statements of income for fiscal years 2021, 2020, and 2019 are summarized as follows:

			October 31,
			2021						2020						2019
			(in thousands)
Gain (loss) recorded in other income (expense), net			$	(855)					$	1,957					$	4,538

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

			October 31,
			2021						2020
			(in thousands)
Total gross notional amount			$	1,176,152					$	981,234
Net fair value			$	13,404					$	6,940

The Company’s exposure to market gain or loss will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The following table represents the consolidated balance sheets location and amount of derivative instrument fair values segregated between designated and non-designated hedge instruments:

			Fair values of derivative instruments designated as hedging instruments						Fair values of derivative instruments not designated as hedging instruments
			(in thousands)
Balance at October 31, 2021
Other current assets			$	15,455					$	17
Accrued liabilities			$	2,027					$	42
Balance at October 31, 2020
Other current assets			$	9,182					$	138
Accrued liabilities			$	2,088					$	292

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

The following table represents 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 gain (loss) recognized in OCI on derivatives						Amount of gain (loss) recognized in OCI on derivatives (effective portion)						Location of gain (loss) reclassified from OCI						Amount of gain (loss) reclassified from OCI (effective portion)
			(in thousands)
Fiscal year ended October 31, 2021
Foreign exchange contracts			Revenue						$	1,148					Revenue						$	4,181
Foreign exchange contracts			Operating expenses						8,712						Operating expenses						10,378
Total									$	9,860											$	14,559
Fiscal year ended October 31, 2020
Foreign exchange contracts			Revenue						$	3,034					Revenue						$	530
Foreign exchange contracts			Operating expenses						4,800						Operating expenses						(603)
Total									$	7,834											$	(73)
Fiscal year ended October 31, 2019
Foreign exchange contracts			Revenue						$	278					Revenue						$	1,436
Foreign exchange contracts			Operating expenses						4,455						Operating expenses						(16,073)
Total									$	4,733											$	(14,637)

Other Commitments — Credit and Term Loan

On January 22, 2021, the Company entered into a Fourth Extension and Amendment Agreement (the Fourth Amendment), which amends and restates the Company's previous credit agreement, dated as of November 28, 2016 (as amended and restated, the Credit Agreement). The Company's 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, are carried over under the Credit Agreement.

The Fourth Amendment extends the termination date of the existing $650.0 million senior unsecured revolving credit facility from November 28, 2021 to January 22, 2024, which may be further extended at the Company's option. The outstanding term loans under the Credit Agreement will continue to amortize in quarterly installments with the balance due at maturity on November 28, 2021. 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 the Company 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, 2021, the Company was in compliance with all financial covenants.

As of October 31, 2021, the Company had $75.0 million outstanding balance, net of debt issuance costs, under the Term Loan. The remaining outstanding balance of $75.0 million was repaid in full on November 26, 2021.

As of October 31, 2020, the Company had $102.1 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $75.0 million was classified as long-term liabilities.

There was no outstanding balance under the Revolver as of October 31, 2021 and October 31, 2020. The Company expects its borrowings under the Revolver will fluctuate from quarter to quarter.

Borrowings bear interest at a floating rate based on a margin over the Company’s choice of market observable base rates as defined in the Credit Agreement. As of October 31, 2021, borrowings under the Term Loan bore interest at LIBOR +1.125% and the applicable interest rate for the Revolver was LIBOR +1.000%. In addition, commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on the Company’s leverage ratio on the daily amount of the revolving commitment.

In July 2018, the Company entered into a 12-year 220.0 million RMB (approximately $33.0 million) credit agreement with a lender in China to support its facilities expansion. Borrowings bear interest at a floating rate based on the 5

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

year Loan Prime Rate plus 0.74%. As of October 31, 2021, the Company had $25.1 million outstanding under the agreement.

The carrying amount of the short-term and long-term debt approximates the estimated fair value. These borrowings under the Credit Agreement have a variable interest rate structure and are classified within Level 2 of the fair value hierarchy.

Note 7. Fair Value Measurements

Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes guidelines and enhances disclosure requirements for fair value measurements. The accounting guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance also establishes a fair value hierarchy based on the independence of the source and objective evidence of the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value measurement:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical instruments in active markets;

Level 2—Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3—Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

On a recurring basis, the Company measures the fair value of certain of its assets and liabilities, which include cash equivalents, non-qualified deferred compensation plan assets, and foreign currency derivative contracts.

The Company’s cash equivalents 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.

The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets and are therefore classified within Level 1.

The Company’s foreign currency derivative contracts are classified within Level 2 because these contracts are not actively traded and the valuation inputs are based on quoted prices and market observable data of similar instruments.

The Company’s borrowings under its credit and term loan facilities are classified within Level 2 because these borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities. See Note 6. Financial Assets and Liabilities for more information on these borrowings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

Assets/Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2021:

									Fair Value Measurement Using
Description			Total						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
			(in thousands)
Assets
Cash equivalents:
Money market funds			$	172,934					$	172,934					$	—					$	—
Short-term investments:
U.S. government agency & T-bills			6,442												6,442						—
Municipal bonds			4,576						—						4,576						—
Corporate debt securities			103,452						—						103,452						—
Asset-backed securities			33,479						—						33,479						—
Prepaid and other current assets:
Foreign currency derivative contracts			15,472						—						15,472						—
Other long-term assets:
Deferred compensation plan assets			343,820						343,820						—						—
Total assets			$	680,175					$	516,754					$	163,421					$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts			$	2,068					$	—					$	2,068					$	—
Other long-term liabilities:
Deferred compensation plan liabilities			343,820						343,820						—						—
Total liabilities			$	345,888					$	343,820					$	2,068					$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2020:

Description			Total						Fair Value Measurement Using
Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
			(in thousands)
Assets
Cash equivalents:
Money market funds			$	304,127					$	304,127					$	—					$	—
Prepaid and other current assets:
Foreign currency derivative contracts			9,320						—						9,320						—
Other long-term assets:
Deferred compensation plan assets			269,737						269,737						—						—
Total assets			$	583,184					$	573,864					$	9,320					$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts			$	2,380					$	—					$	2,380					$	—
Other long-term liabilities:
Deferred compensation plan liabilities			269,737						269,737						—						—
Total liabilities			$	272,117					$	269,737					$	2,380					$	—

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 significant unobservable inputs or data in an inactive market due to the absence of market price and inherent lack of liquidity.

Note 8. Leases

The Company has operating lease arrangements for office space, data center, equipment and other corporate assets. These leases have various expiration dates through December 31, 2040, some of which include options to extend the leases for up to 10 years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments.

The components of the Company’s lease expense during the period presented are as follows:

			Year Ended October 31,
			2021						2020
			(in thousands)
Operating lease expense (1)			$	93,848					$	93,636
Variable lease expense (2)			8,231						5,147
Total lease expense			$	102,079					$	98,783

(1) Operating lease expense includes immaterial amounts of short-term leases, net of sublease income.

(2) 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

Supplemental cash flow information during the period presented is as follows:

			Year Ended October 31,
			2021						2020
			(in thousands)
Cash paid for amounts included in the measurement of operating lease liabilities			$	86,360					$	72,828
ROU assets obtained in exchange for operating lease liabilities			$	112,637					$	69,439

Lease term and discount rate information related to the Company’s operating leases as of the end of the period presented are as follows:

			October 31, 2021						October 31, 2020
Weighted-average remaining lease term (in years)			8.00						8.62
Weighted-average discount rate			2.01		%				2.56		%

The following represents the maturities of the Company’s future lease payments due under operating leases as of October 31, 2021:

			Lease Payments
Fiscal year			(in thousands)
2022			$	89,891
2023			83,062
2024			76,762
2025			65,434
2026			55,647
Thereafter			243,891
Total future minimum lease payments			614,687
Less: Imputed interest			48,006
Total lease liabilities			$	566,681

As of October 31, 2021, the Company has additional operating leases that have not yet commenced with future undiscounted lease payments of $0.8 million. These operating leases may commence in January 2022, with lease terms between 3 years and 5 years.

In addition, certain facilities owned by the Company 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, due to the Company as of October 31, 2021 are as follows:

			Lease Receipts
			(in thousands)
Fiscal year
2022			$	17,131
2023			16,433
2024			13,949
2025			6,375
2026			6,566
Thereafter			31,466
Total			$	91,920

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

Note 9. Contingencies

Legal Proceedings

The Company is subject to routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of its business. The ultimate outcome of any litigation is often uncertain and unfavorable outcomes could have a negative impact on the Company’s results of operations and financial condition. The Company regularly reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount is estimable, the Company accrues a liability for the estimated loss. Legal proceedings are inherently uncertain and as circumstances change, it is possible that the amount of any accrued liability may increase, decrease, or be eliminated.

The Company has determined that, except as set forth below, no disclosure of estimated loss is required for a claim against the Company because: (1) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (2) a reasonably possible loss or range of loss cannot be estimated; or (3) such estimate is immaterial.

Mentor Patent Litigation

Prior to the legal settlement as further described below, the Company was engaged in complex patent litigation with Mentor Graphics Corporation (Mentor) involving several actions in different forums. The Company succeeded to the litigation when it acquired Emulation & Verification Engineering S.A. on October 4, 2012.

Legal Settlement

In March 2017, Siemens PLM Software (Siemens) acquired Mentor. On June 29, 2018, the Company, Siemens and Mentor settled all outstanding patent litigation between the Company and Mentor for a $65.0 million payment made from the Company 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 the Company and Siemens, and between the Company and Mentor. The Company and Mentor also amended an existing interoperability agreement to collaborate on a wide range of EDA products for the benefit of their mutual customers. The amendment includes a one-time termination charge between $0.0 and $25.0 million, payable to Mentor under certain conditions.

Tax Matters

The Company undergoes examination from time to time by U.S. and foreign authorities for non-income based taxes, such as sales, use and value-added taxes, and is currently under examination by tax authorities in certain jurisdictions. If the potential loss from such examinations is considered probable and the amount or the range of loss could be estimated, the Company would accrue a liability for the estimated expense. In addition to the foregoing, the Company is, from time to time, party to various other claims and legal proceedings in the ordinary course of its business, including with tax and other governmental authorities. For a description of certain of these other matters, refer to Note 13. Income Taxes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

Note 10. Accumulated Other Comprehensive Income (Loss)

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

			Year Ended October 31,
			2021						2020
			(in thousands)
Cumulative currency translation adjustments			$	(48,047)					$	(57,463)
Unrealized gain (loss) on derivative instruments, net of taxes			(1,311)						3,389
Unrealized gain (loss) on available-for-sale securities, net of taxes			(246)						—
Total accumulated other comprehensive income (loss)			$	(49,604)					$	(54,074)

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

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Reclassifications from accumulated other comprehensive income (loss) into consolidated statements of income:
Gain (loss) on cash flow hedges, net of taxes
Revenues			$	4,181					$	530					$	1,436
Operating expenses			10,378						(603)						(16,073)
Total reclassifications into net income			$	14,559					$	(73)					$	(14,637)

Amounts reclassified in fiscal 2021, 2020, and 2019 primarily consisted of gains (losses) from the Company’s cash flow hedging activities. See Note 6. Financial Assets and Liabilities.

Note 11. Stock Repurchase Program

The Company’s Board of Directors (the Board) previously approved a stock repurchase program pursuant to which the Company was authorized to purchase up to $500.0 million of its common stock and has periodically replenished the stock repurchase program to such amount. The Board approved a replenishment of the stock repurchase program up to $500.0 million on June 17, 2021. As of October 31, 2021, $110.0 million remained available for future repurchases under the program. In December 2021, our Board approved a stock repurchase program with authorization to purchase up to $1.0 billion of our common stock.

In August 2021, the Company entered into an accelerated share repurchase agreement (the August 2021 ASR) to repurchase an aggregate of $175.0 million of the Company's common stock. Pursuant to the August 2021 ASR, the Company made a prepayment of $175.0 million to receive initial deliveries of shares valued at $140.0 million. The remaining balance of $35.0 million was settled in November 2021. Total shares purchased under the August 2021 ASR were approximately 0.5 million shares, at an average purchase price of $325.0 per share.

Stock repurchase activities as well as the reissuance of treasury stock for employee stock-based compensation purposes are as follows:

			Year Ended October 31,
			2021						2020						2019
			(in thousands, except per share price)
Shares repurchased(1)			2,780						1,585						2,732
Average purchase price per share(1)			$	270.84					$	152.76					$	120.49
Aggregate purchase price(1)			$	753,081					$	242,078					$	329,185
Reissuance of treasury stock			3,224						3,872						3,798

(1) Excludes 107,701 shares and $35.0 million equity forward contract that was settled in November 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

Note 12. Employee Benefit Plans

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan (ESPP), participating employees are granted the right to purchase shares of common stock at a price per share that is 85% of the lesser of the fair market value of the shares at (1) the beginning of an offering period (generally, a rolling two year period) or (2) the purchase date (generally occurring at the end of each semi-annual purchase period), subject to the terms of ESPP, including a limit on the number of shares that may be purchased in a purchase period.

On April 9, 2020, the Company’s stockholders approved an amendment to the ESPP to increase the number of shares of common stock authorized for issuance under the plan by 5.0 million shares. During fiscal 2021, 2020 and 2019, the Company issued 1.0 million, 1.0 million, and 1.2 million shares, respectively, under the ESPP at average per share prices of $134.26, $103.41 and $73.18, respectively. As of October 31, 2021, 12.8 million shares of common stock were reserved for future issuance under the ESPP.

Equity Compensation Plans

2006 Employee Equity Incentive Plan. On April 25, 2006, the Company’s stockholders approved the 2006 Employee Equity Incentive Plan (2006 Employee Plan), which provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and other forms of equity compensation, including performance stock awards and performance cash awards, as determined by the plan administrator. The terms and conditions of each type of award are set forth in the 2006 Employee Plan and in the award agreements governing particular awards.

Restricted stock units are granted under the 2006 Employee Plan as part of the Company’s incentive compensation program. In general, restricted stock units vest over three to four years and are subject to the employee's continuing service with the Company. Restricted stock units granted with specific performance criteria vest to the extent performance conditions are met. For each restricted stock unit granted under the 2006 Employee Plan, a share reserve ratio is applied for the purpose of determining the remaining number of shares reserved for future grants under the plan. As of October 31, 2021, the share reserve ratio was 1.70. Options granted under this plan generally have a contractual term of seven years and generally vest over four years.

On April 8, 2021, the Company's 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. As of October 31, 2021, an aggregate of 3.0 million stock options and 4.2 million restricted stock units were outstanding, and 13.8 million shares were available for future issuance under the 2006 Employee Plan.

2005 and 2017 Non-Employee Directors Equity Incentive Plans. On April 6, 2017, the Company’s stockholders approved the 2017 Non-Employee Directors Equity Incentive Plan (2017 Directors Plan). In connection with stockholder approval of the 2017 Directors Plan, the 2005 Non-Employee Directors Equity Incentive Plan (2005 Directors Plan) was terminated as of April 6, 2017, and no awards could be granted under the 2005 Directors Plan after that date.

Under the 2005 Directors Plan, the Company granted options, which vest over a period of three to four years to non-employee directors. As of October 31, 2021, 15,000 stock options were outstanding under the 2005 Directors Plan.

The 2017 Directors Plan provides for equity awards to non-employee directors in the form of stock options, restricted stock units, restricted stock or a combination thereof. On April 6, 2017, the Company’s stockholders approved an aggregate of 0.45 million shares of common stock reserved under the 2017 Directors Plan.

The Company grants 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, 2021, 4,690 shares of restricted stock awards were unvested and 5,998 stock options were outstanding, and a total of 384,992 shares of common stock were reserved for future issuance under the 2017 Directors Plan.

Other Assumed Stock Plans through Acquisitions. The Company has assumed certain outstanding stock awards of acquired companies, including restricted stock units and options. If these assumed equity awards are canceled, forfeited or expire unexercised, the underlying shares do not become available for future grant. As of October 31,

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2021, 0.1 million shares of the Company’s common stock remained subject to such outstanding assumed equity awards.

Restricted Stock Units. The following table contains information concerning activities related to restricted stock units granted under the 2006 Employee Plan:

			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 and life amounts)
Balance at October 31, 2018			3,769						$	72.75					1.46
Granted(2)			1,844						$	119.27
Vested(3)			(1,508)						$	65.97											$	176,659
Forfeited			(248)						$	79.49
Balance at October 31, 2019			3,857						$	97.21					1.56
Granted(2)			2,041						$	168.15
Vested(3)			(1,480)						$	88.70											$	261,563
Forfeited			(288)						$	104.67
Balance at October 31, 2020			4,130						$	134.80					1.47
Granted(2)			1,901						$	258.58
Vested(3)			(1,565)						$	122.01											$	421,034
Forfeited			(279)						$	167.76
Balance at October 31, 2021			4,187						$	193.58					1.39

(1)No restricted stock units were assumed in connection with acquisitions in the last three fiscal years, but the balance at fiscal year-end includes certain restricted stock units that were previously assumed in connection with acquisitions.

(2) Includes restricted stock units 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.

(3) The number of vested restricted stock units includes shares that were withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements.

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Stock Options. The following table summarizes stock option activity and includes stock options granted under the 2006 Employee Plan:

						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)
Balance at October 31, 2018						6,291						$	55.63					4.39						$	214,432
Granted						799						$	113.17
Exercised						(1,615)						$	44.29
Canceled/forfeited/expired						(185)						$	58.02
Balance at October 31, 2019						5,290						$	65.57					4.08						$	373,112
Granted						700						$	143.44
Exercised						(1,891)						$	51.76
Canceled/forfeited/expired						(106)						$	84.14
Balance at October 31, 2020						3,993						$	85.26					4.10						$	513,845
Granted						353						$	239.46
Exercised						(1,203)						$	66.50
Canceled/forfeited/expired						(36)						$	128.49
Balance at October 31, 2021						3,107						$	109.51					3.81						$	694,921
Vested and expected to vest as of October 31, 2021						3,107						109.51						3.81						$	694,921
Exercisable at October 31, 2021						1,990						81.88						3.08						$	500,210

(1)No stock options were assumed in connection with acquisitions in the last three fiscal years, but the balance at fiscal year-end includes certain stock options that were previously assumed in connection with acquisitions.

The aggregate intrinsic value in the preceding table represents the pre-tax intrinsic value based on stock options with an exercise price less than the Company’s closing stock price of $333.18 as of October 31, 2021. The pre-tax intrinsic value of options exercised and their average exercise prices were:

			Year Ended October 31,
			2021						2020						2019
			(in thousands, except per share price)
Intrinsic value			$	254,587					$	218,640					$	110,815
Average exercise price per share			$	66.50					$	51.76					$	44.29

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Restricted Stock Units and Stock Options. The following table contains 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) (3)
			(in thousands, except per share and life amounts)
Balance at October 31, 2018			12,439
Options granted(2)			(799)
Options canceled/forfeited/expired(2)			129
Restricted stock units granted(1)			(3,134)
Restricted stock units forfeited(1)			373
Additional shares reserved			3,200
Balance at October 31, 2019			12,208
Options granted(2)			(694)
Options canceled/forfeited/expired(2)			102
Restricted stock units granted(1)			(3,469)
Restricted stock units forfeited(1)			482
Additional shares reserved			3,500
Balance at October 31, 2020			12,129
Options granted(2)			(353)
Options canceled/forfeited/expired(2)			36
Restricted stock units granted(1)			(3,232)
Restricted stock units forfeited(1)			471
Additional shares reserved			4,700
Balance at October 31, 2021			13,751

(1)Restricted stock units include awards granted under the 2006 Employee Plan and assumed through acquisitions. The number of RSUs reflects the application of the award multiplier of 1.70x as described above.

(2)Options granted by the Company are not subject to the award multiplier ratio described above.

(3)Excluding shares reserved for future issuance under the 2017 Directors Plan.

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Restricted Stock Awards. The following table summarizes restricted stock award activities during fiscal 2021 under the 2005 Directors Plan and 2017 Directors Plan:

			Restricted Shares						Weighted-Average Grant Date Fair Value
			(in thousands, except per share)
Unvested at October 31, 2018			20						$	73.95
Granted			11						$	116.43
Vested			(20)						$	73.95
Forfeited			—						$	—
Unvested at October 31, 2019			11						$	116.43
Granted			9						$	140.97
Vested			(11)						$	116.43
Forfeited			—						$	—
Unvested at October 31, 2020			9						$	140.97
Granted			5						$	261.01
Vested			(9)						$	140.97
Forfeited			—						$	—
Unvested at October 31, 2021			5						$	261.01

Valuation and Expense of Stock-Based Compensation. The Company estimates 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. The Company uses the straight-line attribution method to recognize stock-based compensation costs over the service period of the award except for performance grants with specific performance criteria. With respect to such performance grants in each reporting period, the Company estimates the probability of achievement of applicable performance goals and recognizes related stock-based compensation expense using the graded-vesting method. The amount of stock-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the various performance goals. If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options 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 the Company’s common stock with a term of six months or longer and the historical stock price volatility over the estimated expected term of such awards, which is based on historical experience. Restricted stock units are valued based on the closing price of the Company’s common stock on the grant date.

The assumptions presented in the following table were used to estimate the fair value of stock options and employee stock purchase rights granted under the Company’s stock plans or stock plans assumed from acquisitions:

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			Year Ended October 31,
			2021						2020						2019
Stock Options
Expected life (in years)			4.1						4.1						4.1
Risk-free interest rate			0.35%- 1.00%						0.26% - 1.71%						1.28% - 2.73%
Volatility			29.19% -32.28%						23.05% - 32.80%						23.16%- 24.76%
Weighted average estimated fair value			$61.58						$33.02						$22.86
ESPP
Expected life (in years)			0.5 - 2.0						0.5 - 2.0						0.5 - 2.0
Risk-free interest rate			0.00% - 0.19%						0.09% - 1.24%						1.54% - 2.60%
Volatility			28.02% - 39.68%						25.59% - 43.06%						23.73% - 27.86%
Weighted average estimated fair value			$89.82						$47.69						$35.18

The compensation cost recognized in the consolidated statements of income for the Company's stock compensation arrangements was as follows:

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Cost of products			$	38,345					$	27,193					$	17,193
Cost of maintenance and service			13,817						9,327						6,385
Research and development expense			171,013						125,814						75,853
Sales and marketing expense			61,940						43,205						28,834
General and administrative expense			60,157						43,045						26,736
Stock-based compensation expense before taxes			345,272						248,584						155,001
Income tax benefit			(53,483)						(39,077)						(26,226)
Stock-based compensation expense after taxes			$	291,789					$	209,507					$	128,775

As of October 31, 2021, the Company had $680.8 million of total unrecognized stock-based compensation expense relating to options and restricted stock units and awards, which is expected to be recognized over a weighted average period of 2.2 years. As of October 31, 2021, the Company had $49.3 million of total unrecognized stock-based compensation expense relating to the ESPP, which is expected to be recognized over a period of 2.0 years.

Deferred Compensation Plan. The Company maintains the Synopsys Deferred Compensation Plan (Deferred Plan), which permits eligible employees to defer up to 50% of their annual cash base compensation and up to 100% of their eligible cash variable compensation. Amounts may be withdrawn from the Deferred Plan pursuant to elections made by the employees in accordance with the terms of the plan. Since the inception of the Deferred Plan, the Company has not made any matching or discretionary contributions to the Deferred Plan. There are no Deferred Plan provisions that provide for any guarantees or minimum return on investments. Undistributed amounts under the Deferred Plan are subject to the claims of the Company’s creditors. The securities held by the Deferred Plan are classified as trading securities.

Deferred plan assets and liabilities are as follows:

			As of October 31, 2021						As of October 31, 2020
			(in thousands)
Plan assets recorded in other long-term assets			$	343,820					$	269,737
Plan liabilities recorded in other long-term liabilities(1)			$	343,820					$	269,737

(1)Undistributed deferred compensation balances due to participants.

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Income or loss from the change in fair value of the Deferred Plan assets is recorded in other income (expense), net. The increase or decrease in the fair value of the undistributed Deferred Plan obligation is recorded in total cost of revenue and operating expense. The following table summarizes the impact of the Deferred Plan:

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Increase (reduction) to cost of revenue and operating expense			$	71,603					$	21,469					$	27,759
Other income (expense), net			71,603						21,469						27,759
Net increase (decrease) to net income			$	—					$	—					$	—

Other Retirement Plans. The Company sponsors various retirement plans for its eligible U.S. and non-U.S. employees. Total contributions to these plans were $68.8 million, $54.7 million, and $50.7 million in fiscal 2021, 2020, and 2019, respectively. For employees in the United States and Canada, the Company matches pre-tax employee contributions up to a maximum of U.S. $3,000 and Canadian $4,000, respectively, per participant per year.

Note 13. Income Taxes

The domestic and foreign components of the Company’s total income (loss) before provision for income taxes are as follows:

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
United States			$	640,531					$	544,391					$	487,430
Foreign			164,983						93,768						58,076
Total income (loss) before provision for income taxes			$	805,514					$	638,159					$	545,506

The components of the provision (benefit) for income taxes were as follows:

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Current:
Federal			$	85,950					$	29,272					$	22,821
State			11,898						1,863						11,846
Foreign			79,890						55,103						61,092
			177,738						86,238						95,759
Deferred:
Federal			(108,530)						(84,739)						(41,219)
State			1,796						(20,233)						(7,227)
Foreign			(21,849)						(6,554)						(34,174)
			(128,583)						(111,526)						(82,620)
Provision (benefit) for income taxes			$	49,155					$	(25,288)					$	13,139

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The provision (benefit) for income taxes differs from the taxes computed with the statutory federal income tax rate as follows:

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Statutory federal tax			$	168,745					$	133,979					$	114,557
State tax (benefit), net of federal effect			(2,419)						(29,096)						6,529
Federal Tax credits			(45,503)						(39,206)						(34,485)
Tax on foreign earnings			7,988						(3,980)						23,467
Foreign-derived intangible income deduction			(31,214)						(24,282)						(26,615)
Tax settlements			(7,134)						(13,167)						(10,953)
Stock-based compensation			(62,620)						(50,047)						(25,356)
Changes in valuation allowance			15,232						(614)						(42,144)
Undistributed earnings of foreign subsidiaries			—						—						6,341
Other			6,080						1,125						1,798
Provision (benefit) for income taxes			$	49,155					$	(25,288)					$	13,139

The Company has provided for foreign withholding taxes on undistributed earnings of certain of its foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries. 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, the taxes due, after allowable foreign tax credits, are not expected to be material.

On June 7, 2019, the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) overturned a prior ruling to exclude stock-based compensation in cost-sharing arrangements. In the third quarter of 2019, as a result of the Ninth Circuit decision, the Company recorded a tax expense of $18.3 million, which is net of estimated U.S. foreign tax credits.

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The significant components of deferred tax assets and liabilities were as follows:

			October 31,
			2021						2020
			(in thousands)
Net deferred tax assets:
Deferred tax assets:
Deferred revenue			30,113						2,367
Deferred compensation			59,823						55,172
Intangible and depreciable assets			117,211						115,097
Capitalized research and development costs			203,052						118,857
Stock-based compensation			40,922						28,478
Tax loss carryovers			30,305						35,571
Foreign tax credit carryovers			32,498						18,645
Research and other tax credit carryovers			326,164						320,317
Operating Lease Liabilities			94,519						101,386
Gross deferred tax assets			934,607						795,890
Valuation allowance			(174,117)						(158,895)
Total deferred tax assets			760,490						636,995
Deferred tax liabilities:
Intangible assets			61,448						45,915
Operating lease Right-of-Use-Assets			77,877						84,716
Accruals and reserves			6,216						7,780
Undistributed earnings of foreign subsidiaries			7,580						3,063
Other			628						372
Total deferred tax liabilities			153,749						141,846
Net deferred tax assets			$	606,741					$	495,149

It is more likely than not that the results of future operations will be able to generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance provided against the Company's deferred tax assets as of October 31, 2021 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 $15.2 million in fiscal 2021 primarily related to the net increase of valuation allowance on California research credits.

The Company has the following tax loss and credit carryforwards available to offset future income tax liabilities:

Carryforward			Amount						Expiration Date
			(in thousands)
Federal net operating loss carryforward			$	43,778					2022-2040
Federal research credit carryforward			158,143						2022-2041
Federal foreign tax credit carryforward			12,153						2027-2032
International foreign tax credit carryforward			17,364						Indefinite
International net operating loss carryforward			55,342						2027-Indefinite
California research credit carryforward			193,404						Indefinite
Other state research credit carryforward			17,767						2024-2041
State net operating loss carryforward			79,621						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.

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The gross unrecognized tax benefits decreased by approximately $0.8 million during fiscal 2021 resulting in gross unrecognized tax benefits of $82.4 million as of October 31, 2021. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:

			As of October 31, 2021						As of October 31, 2020
			(in thousands)
Beginning balance			$	83,149					$	116,212
Increases in unrecognized tax benefits related to prior year tax positions			794						5,390
Decreases in unrecognized tax benefits related to prior year tax positions			(7,372)						(43,783)
Increases in unrecognized tax benefits related to current year tax positions			9,168						9,226
Decreases in unrecognized tax benefits related to settlements with taxing authorities			(1,538)						(1,411)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations			(1,235)						(2,472)
Increases in unrecognized tax benefits acquired			—						778
Changes in unrecognized tax benefits due to foreign currency translation			(606)						(791)
Ending balance			$	82,360					$	83,149

As of October 31, 2021 and 2020, approximately $82.4 million and $83.1 million, respectively, of the unrecognized tax benefits would affect the Company's effective tax rate if recognized upon resolution of the uncertain tax positions.

Interest and penalties related to estimated obligations for tax positions taken in the Company’s tax returns are recognized as a component of income tax expense (benefit) in the consolidated statements of income and totaled approximately $0.4 million**,** $0.2 million and $0.3 million for fiscal years 2021, 2020 and 2019, respectively. As of October 31, 2021 and 2020, the combined amount of accrued interest and penalties related to tax positions taken on the Company’s tax returns was approximately $13.5 million and $13.1 million, respectively.

The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. The Company believes that in the coming 12 months, it is reasonably possible that either certain audits and ongoing tax litigation will conclude or the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is between $0.0 and $42.5 million.

The Company and/or its subsidiaries remain subject to tax examination in the following jurisdictions:

Jurisdiction			Year(s) Subject to Examination
United States			Fiscal 2020
California			Fiscal years after 2017
Hungary			Fiscal years after 2018
Ireland			Fiscal years after 2017
Japan and Taiwan			Fiscal years after 2016
Korea			Fiscal years after 2016

In addition, the Company has made acquisitions with operations in several of its significant jurisdictions which may have years subject to examination different from the years indicated in the above table.

Intra-Entity Transfers of Assets

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In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.” This ASU requires the immediate recognition of current and deferred income tax effects of intra-entity transfers of assets other than inventory. This ASU was adopted on the first day of fiscal 2019. As a result of the adoption, the Company recorded a decrease of approximately $130.5 million in retained earnings as of the beginning of the period of adoption, with a corresponding decrease in prepaid taxes related to the unamortized tax expense attributed to intra-entity transfers of assets other than inventory previously deferred. The Company recognizes the income tax consequences of new intra-entity transfers of assets other than inventory in the consolidated statements of income in the period when the transaction takes place.

IRS Examinations

In fiscal 2021, the Examination Division of the IRS completed its pre-filing review for fiscal 2020 and as a result the Company recognized approximately $7.1 million in unrecognized tax benefits, primarily due to the allowance of research tax credits.

In fiscal 2020, the Company reached partial settlement with the Examination Division of the IRS for fiscal 2019 and recognized approximately $6.3 million in unrecognized tax benefits, primarily due to the allowance of certain foreign tax credits and research tax credits.

In fiscal 2019, the Company reached final settlement with the Examination Division of the IRS for fiscal 2018 and recognized approximately $5.4 million in unrecognized tax benefits and realized $28.1 million of foreign tax credits.

State Examinations

In fiscal 2020, the Company reached final settlement with the California Franchise Tax Board for fiscal 2015, 2016, and 2017. As a result of the settlement, the Company recognized $20.2 million in unrecognized tax benefits and increased its valuation allowance by $20.2 million.

Non-U.S. Examinations

Hungarian Tax Authority

In July 2017, the Hungarian Tax Authority (the HTA) issued a final assessment against the Company's Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA has applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $25.0 million and interest and penalties of $11.0 million. On August 2, 2017, Synopsys Hungary filed a claim contesting the final assessment with the Hungarian Administrative Court (the Administrative Court). In the first quarter of fiscal 2018, Synopsys Hungary paid the assessments, penalties and interest as required by law and recorded these amounts as prepaid taxes on its balance sheet, while continuing its challenge to the assessment through the Hungarian Administrative Court. On April 30, 2019, the Administrative Court ruled against Synopsys Hungary. The Administrative Court's opinion was received on May 16, 2019 and the Company filed an appeal with the Hungarian Supreme Court on July 5, 2019. In the second quarter of 2019, as a result of the Court's decision, the Company recorded a tax expense due to an unrecognized tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits for the tax assessments. The Hungarian Supreme Court heard the Company's appeal on November 12, 2020 and remanded the case to the Administrative Court for further proceedings. The Company received the Hungarian Supreme Court's written decision in the first quarter of fiscal 2021. On April 27, 2021, the Administrative Court reheard the case and again ruled against Synopsys Hungary. The Company received the written opinion from the Administrative Court on May 19, 2021. The Company filed an appeal with the Hungarian Supreme Court on July 19, 2021 and the hearing for the appeal is scheduled for January 27, 2022.

In fiscal 2020, the Company reached final settlement with the HTA for fiscal years 2014 through 2018. As a result of the settlement, the Company recognized tax expense of $1.4 million, and recognized $6.9 million in unrecognized tax benefits.

National Taxation Bureau of Taipei

In fiscal 2019, the Company reached final settlement with the National Taxation Bureau of Taipei for fiscal year 2017 and recognized $5.5 million in previously unrecognized tax benefits.

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Note 14. Other Income (Expense), Net

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

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Interest income			$	2,442					$	3,561					$	6,859
Interest expense			(3,365)						(5,140)						(11,659)
Gain (loss) on assets related to deferred compensation plan			71,603						21,469						27,759
Foreign currency exchange gain (loss)			5,292						5,544						3,588
Other, net			(5,248)						(7,416)						(1,272)
Total			$	70,724					$	18,018					$	25,275

Note 15. Segment Disclosure

Segment reporting is based upon the “management approach,” i.e., how management organizes the Company’s operating segments for which separate financial information is (1) available and (2) evaluated regularly by the Chief Operating Decision Makers (CODMs) in deciding how to allocate resources and in assessing performance. The Company's CODMs are its two Co-Chief Executive Officers.

The Company has 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 CODMs to assist in making operational decisions, allocating resources, and assessing performance reflects consolidated financial information as well as revenue, adjusted operating income, and adjusted operating margin information for the Semiconductor & System Design and Software Integrity segments, accompanied by disaggregated information relating to revenue by geographic region.

Information by reportable segment was as follows:

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Total Segments:
Revenue			$	4,204,193					$	3,685,281					$	3,360,694
Adjusted operating income			1,281,389						1,031,630						838,821
Adjusted operating margin			30		%				28		%				25		%
Semiconductor & System Design:
Revenue			$	3,810,409					$	3,327,211					$	3,026,097
Adjusted operating income			1,243,078						990,837						806,618
Adjusted operating margin			33		%				30		%				27		%
Software Integrity:
Revenue			$	393,784					$	358,070					$	334,597
Adjusted operating income			38,311						40,793						32,203
Adjusted operating margin			10		%				11		%				10		%

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 and certain other operating expenses, are presented in the table below to provide a reconciliation of the total adjusted operating income from segments to the Company's consolidated operating income:

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SYNOPSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Total segment adjusted operating income			$	1,281,389					$	1,031,630					$	838,821
Reconciling items:
Amortization of intangible expense			(82,380)						(91,281)						(100,914)
Stock-based compensation expense			(345,272)						(248,584)						(155,001)
Other			(118,947)						(71,624)						(62,675)
Total operating income			$	734,790					$	620,141					$	520,231

The CODMs do not use total assets by segment to evaluate segment performance or allocate resources. As a result, total assets by segment are not required to be disclosed.

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

			Year Ended October 31,
			2021						2020						2019
			(in thousands)
Revenue:
United States			$	1,951,964					$	1,774,348					$	1,676,178
Europe			440,825						385,287						349,033
China			562,711						420,829						321,777
Korea			427,471						389,008						353,358
Other			821,222						715,809						660,348
Consolidated			$	4,204,193					$	3,685,281					$	3,360,694

			As of October 31,
			2021						2020
			(in thousands)
Property and Equipment, net:
United States			$	283,602					$	311,350
Other			188,796						172,468
Total			$	472,398					$	483,818

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

One customer, including its subsidiaries, accounted for 10.6%, 12.4%, and 12.8% of the Company’s consolidated revenue in fiscal 2021, 2020, and 2019, respectively.

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