Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Synopsys, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Synopsys, Inc. and subsidiaries (the Company) as of October 29, 2022 and October 30, 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended October 29, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of October 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 29, 2022 and October 30, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended October 29 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 29, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting

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

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

Critical Audit Matter

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

Evaluation of the Company’s analysis of terms and conditions in software and intellectual property license contracts with customers

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company generates revenue from the sale of products that include software and intellectual property (IP) licenses, hardware products, maintenance and services. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Arrangements with customers can involve hundreds of products and various license rights, and customers negotiate with the Company over many aspects of these arrangements. The Company’s customers often request a broader portfolio of solutions, support and services and seek more favorable terms such as expanded license usage, future purchase rights and other unique rights at an overall lower total cost. The Company recognized total revenue of $5,081.5 million for the year ended October 29, 2022, which included revenue related to software and IP licenses.

We identified the evaluation of the Company’s analysis of terms and conditions in significant software and IP license contracts with customers and their effect on revenue recognition as a critical audit matter. Complex auditor judgment was required to assess the Company’s judgments made in applying revenue recognition requirements to certain terms and conditions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s revenue recognition process, including the Company’s analysis of terms and conditions in software and IP license contracts with customers and their effect on revenue recognition. We tested certain software and IP license customer contracts by inspecting the underlying customer agreements and evaluating the Company’s assessment of the contractual terms and conditions in accordance with revenue recognition requirements. For a selection of software and IP license contracts with customers entered during the year, we inquired of personnel outside of the accounting function to corroborate our understanding of certain terms and conditions.

/s/ KPMG LLP

We have served as the Company’s auditor since 1992.

Santa Clara, California

December 12, 2022

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SYNOPSYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

			October 31,
			2022						2021
ASSETS
Current assets:
Cash and cash equivalents			$	1,417,608					$	1,432,840
Short-term investments			147,913						147,949
Total cash, cash equivalents and short-term investments			1,565,521						1,580,789
Accounts receivable, net			796,091						568,501
Inventories			211,927						229,023
Prepaid and other current assets			439,130						430,028
Total current assets			3,012,669						2,808,341
Property and equipment, net			483,300						472,398
Operating lease right-of-use assets, net			559,090						493,251
Goodwill			3,842,234						3,575,785
Intangible assets, net			386,446						279,132
Deferred income taxes			670,653						612,655
Other long-term assets			463,695						510,698
Total assets			$	9,418,087					$	8,752,260
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities			$	809,403					$	741,191
Operating lease liabilities			54,274						79,678
Deferred revenue			1,910,822						1,517,623
Short-term debt			—						74,992
Total current liabilities			2,774,499						2,413,484
Long-term operating lease liabilities			581,273						487,003
Long-term deferred revenue			154,472						136,303
Long-term debt			20,824						25,094
Other long-term liabilities			327,829						391,433
Total liabilities			3,858,897						3,453,317
Redeemable non-controlling interest			38,664						—
Stockholders’ equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding			—						—
Common stock, $0.01 par value: 400,000 shares authorized; 152,375 and 153,062 shares outstanding, respectively			1,524						1,531
Capital in excess of par value			1,487,126						1,576,363
Retained earnings			5,534,307						4,549,713
Treasury stock, at cost: 4,886 and 4,198 shares, respectively			(1,272,955)						(782,866)
Accumulated other comprehensive income (loss)			(234,277)						(49,604)
Total Synopsys stockholders’ equity			5,515,725						5,295,137
Non-controlling interest			4,801						3,806
Total stockholders’ equity			5,520,526						5,298,943
Total liabilities, redeemable non-controlling interest and stockholders’ equity			$	9,418,087					$	8,752,260

See the accompanying Notes to Consolidated Financial Statements.

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SYNOPSYS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

			Year Ended October 31,
			2022						2021						2020
Revenue:
Time-based products			$	2,993,786					$	2,633,763					$	2,365,199
Upfront products			1,226,728						861,063						735,572
Total products revenue			4,220,514						3,494,826						3,100,771
Maintenance and service			861,028						709,367						584,510
Total revenue			5,081,542						4,204,193						3,685,281
Cost of revenue:
Products			653,783						542,114						487,307
Maintenance and service			342,978						271,202						254,931
Amortization of intangible assets			66,936						48,461						52,452
Total cost of revenue			1,063,697						861,777						794,690
Gross margin			4,017,845						3,342,416						2,890,591
Operating expenses:
Research and development			1,680,379						1,504,823						1,279,022
Sales and marketing			779,777						712,491						632,010
General and administrative			353,840						322,988						284,530
Amortization of intangible assets			29,754						33,919						38,829
Restructuring charges			12,057						33,405						36,059
Total operating expenses			2,855,807						2,607,626						2,270,450
Operating income			1,162,038						734,790						620,141
Other income (expense), net			(46,524)						70,724						18,018
Income before income taxes			1,115,514						805,514						638,159
Provision (benefit) for income taxes			137,078						49,155						(25,288)
Net income			978,436						756,359						663,447
Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest			(6,158)						(1,157)						(900)
Net income attributed to Synopsys			$	984,594					$	757,516					$	664,347
Net income per share attributed to Synopsys:
Basic			$	6.44					$	4.96					$	4.40
Diluted			$	6.29					$	4.81					$	4.27
Shares used in computing per share amounts:
Basic			153,002						152,698						151,135
Diluted			156,485						157,340						155,706

See the accompanying Notes to Consolidated Financial Statements.

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SYNOPSYS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

			Year Ended October 31,
			2022						2021						2020
Net income			$	978,436					$	756,359					$	663,447
Other comprehensive income (loss):
Change in foreign currency translation adjustment			(108,145)						9,415						30,466
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $0 for periods presented			(2,353)						(246)						—
Cash flow hedges:
Deferred gains (losses), net of tax of $28,416, $(1,736), and $(3,192) for fiscal years 2022, 2021 and 2020, respectively			(79,069)						9,860						7,834
Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $(1,342), $4,593, and $176 for fiscal years 2022, 2021 and 2020, respectively			4,894						(14,559)						73
Other comprehensive income (loss), net of tax effects			(184,673)						4,470						38,373
Comprehensive income			793,763						760,829						701,820
Less: Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest			(6,158)						(1,157)						(900)
Comprehensive income attributed to Synopsys			$	799,921					$	761,986					$	702,720

See the accompanying Notes to Consolidated Financial Statements.

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SYNOPSYS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

															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, 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, net															(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
Net income																					984,594																		984,594						(1,306)						983,288
Other comprehensive income (loss), net of tax effects																																	(184,673)						(184,673)												(184,673)
Purchases of treasury stock			(3,609)						(36)						36												(1,135,000)												(1,135,000)												(1,135,000)
Equity forward contract, net															35,000																								35,000												35,000
Common stock issued, net of shares withheld for employee taxes			2,922						29						(581,001)												644,911												63,939												63,939
Stock-based compensation															456,728																								456,728						2,301						459,029
Balance at October 31, 2022			152,375						$	1,524					$	1,487,126					$	5,534,307					$	(1,272,955)					$	(234,277)					$	5,515,725					$	4,801					$	5,520,526

See the accompanying Notes to Consolidated Financial Statements.

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SYNOPSYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Year Ended October 31,
			2022						2021						2020
Cash flows from operating activities:
Net income			$	978,436					$	756,359					$	663,447
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation			228,405						203,676						209,986
Reduction of operating lease right-of-use assets			89,541						86,645						82,895
Amortization of capitalized costs to obtain revenue contracts			73,026						64,698						61,185
Stock-based compensation			459,029						345,272						248,584
Allowance for credit losses			(3,477)						18,515						20,875
Deferred income taxes			(36,913)						(128,583)						(111,526)
Other non-cash			10,188						15,859						4,325
Net changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable			(251,390)						201,706						(236,806)
Inventories			1,320						(48,046)						(55,024)
Prepaid and other current assets			(89,983)						(102,174)						(11,298)
Other long-term assets			(15,283)						(153,037)						(83,367)
Accounts payable and accrued liabilities			(34,066)						125,133						113,773
Operating lease liabilities			(85,828)						(82,581)						(78,578)
Income taxes			1,644						28,855						14,120
Deferred revenue			414,251						160,325						148,722
Net cash provided by operating activities			1,738,900						1,492,622						991,313
Cash flows from investing activities:
Proceeds from sales and maturities of short-term investments			93,696						12,850						—
Purchases of short-term investments			(97,245)						(161,732)						—
Proceeds from sales of long-term investments			582						—						2,151
Purchases of long-term investments			(7,000)						(7,591)						(2,762)
Purchases of property and equipment			(136,589)						(93,764)						(154,717)
Acquisitions, net of cash acquired			(422,374)						(296,017)						(201,045)
Capitalization of software development costs			(2,493)						(1,976)						(4,045)
Other			(1,200)						(800)						—
Net cash used in investing activities			(572,623)						(549,030)						(360,418)
Cash flows from financing activities:
Proceeds from credit facilities			—						—						276,489
Repayment of debt			(76,838)						(28,061)						(288,879)
Issuances of common stock			237,956						210,719						197,403
Payments for taxes related to net share settlement of equity awards			(174,005)						(138,950)						(82,225)
Purchase of equity forward contract			—						(35,000)						—
Purchases of treasury stock			(1,100,000)						(753,081)						(242,078)
Other			(3,413)						(4,375)						(1,316)
Net cash used in financing activities			(1,116,300)						(748,748)						(140,606)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(65,296)						2,369						17,154
Net change in cash, cash equivalents and restricted cash			(15,319)						197,213						507,443
Cash, cash equivalents and restricted cash, beginning of year			1,435,183						1,237,970						730,527
Cash, cash equivalents and restricted cash, end of year			$	1,419,864					$	1,435,183					$	1,237,970
Supplemental disclosure of cash flow information:
Cash paid for income taxes during the year:			$	167,768					$	149,762					$	70,711
Interest payments during the year:			$	1,258					$	3,365					$	5,136
Non-cash activities:
Purchase of property and equipment included in accounts payable			$	17,857					$	8,654					$	6,900
Conversion of notes receivable to non-marketable equity securities			$	14,280					$	—					$	—

See the 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, we, our or us) provides products and services used across the entire Silicon to Software spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure the security and quality of their code.

We are a global leader in electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips. We also offer semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. We provide software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. We also provide technical services and support to help our customers develop advanced chips and electronic systems. These products and services are part of our Semiconductor & System Design segment.

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

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation. Our fiscal year generally ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2022, 2021 and 2020 were 52-week years ending on October 29, 2022, October 30, 2021 and October 31, 2020, respectively. For presentation purposes, the consolidated financial statements and accompanying notes refer to the closest calendar month end. Fiscal 2023 will be a 52-week year.

The consolidated financial statements include our accounts and the accounts of our wholly and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. To prepare financial statements in conformity with U.S. generally accepted accounting principles, management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and could have a material impact on our operating results and financial position.

Comparability. Effective beginning of fiscal 2022, we adopted an Accounting Standards Update (ASU) to simplify the accounting for income taxes in Accounting Standards Codification (ASC) 740, Income Taxes, on a prospective basis. Effective beginning the second quarter of fiscal 2022, we early adopted an ASU, on a prospective basis, to apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination on the acquisition date, instead of measuring them at fair value. The adoption of these updates did not have a material impact on our consolidated financial statements.

Effective beginning of fiscal 2021, we adopted ASC 326, Measurement of Credit Losses on Financial Instruments. Prior periods were not retrospectively recast and accordingly, the consolidated statements of income for the year ended October 31, 2020 were prepared using accounting standards that were different than those in effect for the years ended October 31, 2022 and 2021.

Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current year presentation. The reclassifications did not have a material impact on the prior year's consolidated balance sheets, statements of income, statements of comprehensive income and statements of cash flows.

Cash and Cash Equivalents and Short-term Investments. We classify investments with original maturities of three months or less when acquired as cash equivalents. Our investments in debt securities with maturities of longer than three months from the consolidated balance sheets date are classified as short-term investments as we may convert these investments into cash at any time to fund general operations. Our debt securities generally have an effective maturity term of less than three years and are classified as available-for-sale securities carried at fair value, with unrealized gains and losses included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss). For available-for-sale debt securities in an unrealized loss

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SYNOPSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

position, we evaluate whether a current expected credit loss exists based on available information relevant to the credit rating of the security, current economic conditions and reasonable and supportable forecasts. The allowance for credit loss is recorded in other income (expense), net, on the consolidated statements of income, not to exceed the amount of the unrealized loss. Any excess unrealized loss other than the credit loss is recognized in accumulated other comprehensive income or loss in the stockholders' equity section of the consolidated balance sheets. The cost of securities sold is based on the specific identification method and realized gains and losses are included in other income (expense), net. See Note 7. Financial Assets and Liabilities. There were no credit losses on available-for-sale debt securities recognized in the years ended October 31, 2022 and 2021.

Accounts Receivable, Net. The balances consist of billed accounts receivable and current portion of unbilled accounts receivable. Trade accounts receivable are recorded at the invoiced amount and do not bear interest.

Allowance for Credit Losses. We maintain an allowance for credit losses for expected uncollectible accounts receivable and contract assets, which is recorded as an offset to accounts receivable or contract assets and provisions for credit losses are recorded in general and administrative expense in the consolidated statements of income. The allowance for current expected credit losses is based on a review of customer accounts and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance. The following table presented the changes in the allowance for credit losses:

Fiscal Year			Balance at Beginning of Period						Provisions						Write-offs/Adjustments						Balance at End of Period
			(in thousands)
2022			$	31,605					$	12,424					$	(2,793)					$	41,236
2021			$	29,489					$	18,515					$	(16,399)					$	31,605
2020			$	9,971					$	20,875					$	(1,357)					$	29,489

Inventories. Inventories are computed at standard costs which approximate actual costs, on a first-in, first-out basis and valued at the lower of cost or net realizable value. Inventories primarily include components and finished goods for complex emulation and prototyping hardware systems. The valuation process includes a review of the forecasts based upon future demand and market conditions. Inventory provisions are recorded when the costs are determined to be in excess of anticipated demand or considered obsolete. Inventory provisions are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction, and require estimates that may include uncertain elements.

Fair Values of Financial Instruments. Our cash equivalents, short-term investments and foreign currency contracts are carried at fair value. The fair value of our accounts receivable and accounts payable approximates the carrying amount due to their short duration. Non-marketable equity securities are accounted for using either the measurement alternative or equity method of accounting, net of impairments. We perform periodic impairment analysis on these non-marketable equity securities. The carrying amount of the short-term and long-term debt approximates the estimated fair value. See Note 8. Fair Value Measurements.

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

The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. See Note 7. Financial Assets and Liabilities.

Concentration of Credit Risk. Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash equivalents, short-term investments, foreign currency contracts, and trade accounts receivable. We maintain cash equivalents primarily in highly rated taxable and tax-exempt money market funds located in the U.S. and in various overseas locations.

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SYNOPSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

We sell our products worldwide primarily to customers in the global electronics market. We perform on-going credit evaluations of our customers’ financial condition and do not require collateral. We establish reserves for potential credit losses and such losses have been within management’s expectations and have not been material in any year presented.

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

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

Property and Equipment. Property and equipment is recorded at cost less accumulated depreciation. Assets, excluding land, are depreciated using the straight-line method over their estimated useful lives. Depreciation expenses were $107.7 million, $119.1 million and $119.1 million in fiscal 2022, 2021 and 2020, respectively. Repair and maintenance costs are expensed as incurred and such costs were $72.9 million, $62.6 million and $62.1 million in fiscal 2022, 2021 and 2020, respectively.

The useful lives of depreciable assets are as follows:

			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. We hold equity securities in privately held companies for the promotion of business and strategic objectives. These investments are initially recorded at cost and included in other long-term assets in the consolidated balance sheets and are subject to a periodic impairment review. We account for these investments using the measurement alternative when the fair value of the investment is not readily determinable and we do not have the ability to exercise significant influence or using the equity method of accounting when it is determined that we have the ability to exercise significant influence. For investments accounted for using the equity method of accounting, we record our proportionate share of the investee’s income or loss to other income (expense), net, in our consolidated statements of income.

Leases. We determine if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. A contract is or contains a lease when we have the right to control the use of an identified asset for a period of time. The commencement date of the lease is the date that the lessor makes an underlying asset available for use by the lessee. On the commencement date, leases are evaluated for classification and assets and liabilities are recognized based on the present value of lease payments over the lease term.

The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The right of use (ROU) asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments and any lease incentives. Variable lease payments, consisting primarily of reimbursement of costs incurred by lessors for common area maintenance, real estate taxes and insurance, are not included in the lease liability and are recognized as they are incurred.

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As most of our leases do not provide an implicit rate, we use the incremental borrowing rate at lease commencement to measure ROU assets and lease liabilities. We use a benchmark senior unsecured yield curve for debt instruments over the similar term, and consider specific credit quality, market conditions, tenor of lease arrangements, and quality of collateral to determine the incremental borrowing rate.

Operating lease expense is generally recognized on a straight-line basis over the lease term. We have elected the practical expedient to account for the lease and non-lease components as a single lease component for the majority of our asset classes. For leases with an initial term of one year or less, we have elected not to record the ROU asset or liability.

Business Combinations. We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their acquisition-date fair values with the exception of contract assets and contract liabilities (deferred revenue) which are recognized and measured on the acquisition date in accordance with our “Revenue Recognition” policy. The excess of the fair value of purchase consideration over the fair value of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. We include the results of operations of the businesses that are acquired from the acquisition date.

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

Because the fair values of our reporting units have historically exceeded and are expected to continue to significantly exceed the carrying value of our net assets, we perform a qualitative goodwill impairment assessment. A quantitative goodwill impairment assessment is performed if it is determined that it is more likely than not that the fair value of one of our reporting units is lower than the carrying value. When a quantitative goodwill impairment assessment is performed, we use an income approach based on discounted cash flow analysis, a market approach based on market multiples, or a combination of both. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference. There was no goodwill impairment in fiscal 2022, 2021 and 2020.

Intangible Assets. Intangible assets consist of acquired technology, certain contract rights, customer relationships, trademarks and trade names, and capitalized software. These intangible assets are acquired through business combinations, direct purchases, or internally developed capitalized software. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to ten years.

We review the carrying values of long-lived assets including intangible assets whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Recoverability of long-lived assets is measured by comparing the carrying value of such asset group to the future undiscounted cash flows that asset group is expected to generate. If the undiscounted future cash flow is less than the carrying amount of the asset group, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the asset group. There were no impairment charges for long-lived assets in fiscal 2022, 2021 and 2020.

Redeemable Non-controlling Interest. Non-controlling interest that is not solely redeemable within our control is reported as temporary equity in our consolidated balance sheets. The carrying value of the redeemable non-controlling interest equals the redemption value at the end of each reporting period, after giving effect to the change from the net income (loss) attributable to the redeemable non-controlling interest. We remeasure the redemption value of the non-controlling interest on a quarterly basis and changes in the estimated redemption value are recognized through retained earnings and may also impact the net income or loss attributable to common stockholders of Synopsys if the redemption value falls below a stated threshold. See Note 4. Business Combinations for more information regarding the redeemable non-controlling interests.

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

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

• Identification of the performance obligation in the contract

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• Determination of the transaction price

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

• Recognition of revenue when, or as, we satisfy a performance obligation

Nature of Products and Services

We generate revenue from the licensing of our EDA software, IP Blocks, and Software Integrity products, as well as sale of hardware products, and maintenance and services. The various types are set forth below.

Electronic Design Automation

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

IP & System Integration

We generally license IP under nonexclusive license agreements that provide usage rights for specific applications. Additionally, for certain IP license agreements, royalties are collected as customers sell their own products that incorporate our IP. These arrangements generally have two distinct performance obligations that consist of transferring the licensed IP and the post contract support service. Support services consist of a stand-ready obligation to provide technical support and software updates over the support term. Revenue allocated to the IP license is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term. Royalties are recognized as revenue is earned, generally when the customer sells its products that incorporate our IP.

Software Integrity Products

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

Hardware

We generally have two performance obligations in arrangements involving the sale of hardware products. The first performance obligation is to transfer the hardware product, which includes embedded software integral to the functionality of the hardware product. The second performance obligation is to provide maintenance on the hardware and our embedded software, including rights to technical support, hardware repairs and software updates that are all provided over the same term and have the same time-based pattern of transfer to the customer. The

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portion of the transaction price allocated to the hardware product is recognized as revenue at a point in time when control of the hardware is transferred to the customer. We have concluded that control generally transfers upon shipment because the customer has the ability to direct the use of the asset and an obligation to pay for the hardware. The portion of the transaction price allocated to maintenance is recognized as revenue that is ratable over the maintenance term.

Professional Services

Our arrangements often include service elements (other than maintenance and support services). These services include training, design assistance, and consulting. These services are generally performed on a time and materials basis, and are recognized over time, as the customer simultaneously receives and consumes the benefit provided. Certain arrangements also include the customization or modification of licensed IP. Revenue from these contracts is recognized over time as the services are performed, when the development is specific to the customer’s needs and we have enforceable rights to payment for performance completed. Inputs such as costs incurred and hours expended are used in order to measure progress of performance. We have a history of accurately estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances, specification and testing requirement changes, and changes in customer delivery priorities. Payments for services are generally due upon milestones in the contract or upon consumption of the hourly resources.

Flexible Spending Accounts

Our customers frequently enter into non-cancelable Flexible Spending Account arrangements (FSA) whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of our products or services. These arrangements do not meet the definition of a revenue contract until the customer executes a separate order (pulldown request) to identify the required products and services that they are purchasing. The combination of the FSA arrangement and the subsequent order creates enforceable rights and obligations, thus meeting the definition of a revenue contract. Each separate order under the agreement is treated as an individual contract and accounted for based on the respective performance obligations included within the pulldown requests.

Significant Judgments

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

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

Our contracts with customers can involve hundreds of products and various license rights. Customers often negotiate a broad portfolio of solutions, and favorable terms along with future purchase options to manage their overall costs. Determining whether the purchase options are considered distinct performance obligations that should be accounted for separately as material rights versus combined together may require significant judgment.

Judgment is also required to determine the standalone selling price (SSP) for each distinct performance obligation. For non-software performance obligations (IP, Hardware, and services), SSP is established based on observable

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

Contract Balances

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

Warranties and Indemnities

Warranties. We generally warrant our products to be free from defects in media and to substantially conform to material specifications for a period of 90 days for our software products and for up to six months for our hardware products.

Indemnities. In addition to such warranties, in certain cases, we provide our customers with limited indemnification with respect to claims that their use of our software products infringes on patents, copyrights, trademarks or trade secrets. For example, in connection with a litigation campaign launched by Bell Semiconductor LLC (Bell Semic), a patent monetization entity, some customers have requested defense and indemnification against claims of patent infringement asserted by Bell Semic in various district court litigations and at the U.S. International Trade Commission. Bell Semic alleges that the customers’ use of one or more features of certain of our products infringes one or more of six patents held by Bell Semic. We have offered to defend some of our customers consistent with the terms of our End User License Agreement. We are unable to estimate the potential impact of these commitments on the future results of operations.

Net Income Per Share. We compute basic net income per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the dilution from potential common shares outstanding such as stock options and unvested restricted stock units and awards during the period using the treasury stock method. See Note 14. Net Income Per Share.

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

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. We adopted the standard as of the beginning of fiscal 2022 on a prospective basis and the adoption did not have a material impact on our consolidated financial statements.

Beginning in fiscal 2021, we adopted ASC 326, which was issued by the FASB in June 2016 as ASU 2016-13 Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU replaced previous incurred loss impairment guidance and established a single expected credit losses allowance framework for financial assets carried at amortized cost. It also eliminated the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for

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credit losses. We adopted ASC 326 using the modified retrospective method, which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption and, accordingly, recorded a net decrease of $3.2 million to retained earnings as of beginning of fiscal 2021. Please see the “Allowance for Credit Losses” accounting policy above.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. We early adopted the standard in the second quarter of fiscal 2022 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03), which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. The standard will become effective for us beginning on November 1, 2024 and will be applied prospectively. Early adoption is permitted. Any future impact from the adoption of this guidance will depend on the facts and circumstances of future transactions.

Note 3. Revenue

Disaggregated Revenue

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

			2022						2021						2020
EDA			50.8		%				55.5		%				57.4		%
IP & System Integration			39.3		%				34.8		%				32.6		%
Software Integrity Products & Services			9.2		%				9.4		%				9.7		%
Other			0.7		%				0.3		%				0.3		%
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 were as follows:

			As of October 31,
			2022						2021
			(in thousands)
Contract assets, net			$	260,498					$	284,574
Unbilled receivables			$	46,254					$	35,589
Deferred revenue			$	2,065,294					$	1,653,926

During fiscal 2022, we recognized $1.2 billion of revenue that was included in the deferred revenue balance as of October 31, 2021. During fiscal 2021, we recognized $1.2 billion of revenue that was included in the deferred revenue balance as of October 31, 2020.

Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $7.1 billion as of October 31, 2022, which includes $1.1 billion in non-cancellable Flexible Spending Account (FSA) commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date. We have elected to exclude future sales-based royalty payments from the remaining

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performance obligations. Approximately 44% of the contracted but unsatisfied or partially unsatisfied performance obligations as of October 31, 2022, excluding non-cancellable FSA, are expected to be recognized over the next 12 months with the remainder recognized thereafter.

During fiscal 2022 and fiscal 2021, we recognized $137.3 million and $116.7 million, respectively, from performance obligations satisfied from sales-based royalties earned during the periods.

Costs of Obtaining a Contract with Customer

The incremental costs of obtaining a contract with a customer, which consist primarily of direct sales commission earned upon execution of the contract, were capitalized in compliance with authoritative guidance, and amortized over the estimated period of which the benefit is expected to be received. As direct sales commission paid for renewals are commensurate with the amounts paid for initial contracts, the deferred incremental costs will be recognized over the contract term.

Capitalized commission costs, net of accumulated amortization, as of October 31, 2022 and 2021 were $96.5 million and $92.2 million, respectively. The balances are included in other long-term assets in our consolidated balance sheets. Amortization of these assets were $73.0 million, $64.7 million and $61.2 million, respectively, during fiscal 2022, fiscal 2021 and fiscal 2020, and are included in sales and marketing expense in our consolidated statements of income.

Note 4. Business Combinations

Fiscal 2022

NTT Security AppSec Solutions Inc.

On June 22, 2022, we completed the acquisition of all outstanding shares of NTT Security AppSec Solutions Inc. (which has operated under the name WhiteHat Security, or WhiteHat), a provider of dynamic application security testing solutions, from NTT Security Corporation for an aggregate purchase price of $330.1 million in cash. With this acquisition, we have broadened our product offering in the application security testing market.

The aggregate purchase consideration was preliminarily allocated as follows:

						(in thousands)
Total purchase consideration						$	330,112
Less: cash acquired						22,849
Total purchase consideration, net of cash acquired						$	307,263
Allocations
Goodwill						$	249,852
Intangible assets						97,500
Deferred revenue						(40,367)
Other tangible assets, net						278
						$	307,263

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The goodwill was primarily attributed to the expected post-acquisition synergies from the integration of WhiteHat. The $249.9 million of goodwill was assigned to the Software Integrity reporting unit and the amount recognized was not deductible for tax purposes. The acquired identifiable intangible assets of $97.5 million were valued using the income approach. The intangible assets are being amortized over their respective useful lives ranging from 5 to 10 years.

During the fourth quarter of fiscal 2022, we recorded measurement period adjustments to reflect the facts and circumstances in existence as of the acquisition date. These adjustments primarily related to the valuation of individually immaterial net tangible assets of $2.1 million with corresponding increase to goodwill.

OpenLight Photonics, Inc.

During the three months ended April 30, 2022, we acquired 75% equity interest in OpenLight Photonics, Inc. (OpenLight) for cash consideration of $90.0 million. The remaining 25% equity interest in OpenLight is held by Juniper Networks, Inc. (the Minority Investor) from their contribution of IP and certain tangible assets.

The agreement with the Minority Investor contains redemption features whereby the interest held by the Minority Investor is redeemable either (i) at the option of the Minority Investor on or after the third anniversary of the acquisition or sooner in certain circumstances or (ii) at our option beginning on the third anniversary of the acquisition. This option is exercisable at the greater of fair value at the time of redemption or $30.0 million and was valued at $10.1 million, resulting in a total consideration of $100.1 million.

The preliminary purchase price was allocated as follows: $94.0 million to identifiable intangible assets and $46.7 million to goodwill, which were attributable to the Semiconductor & System Design reporting unit. The goodwill was mainly attributable to the assembled workforce and planned growth in new markets. There was no tax-deductible goodwill related to the acquisition.

During the fourth quarter of fiscal 2022, we recorded a measurement period adjustment to reflect the facts and circumstances in existence as of the acquisition date. This adjustment relates to the valuation of deferred tax assets of $1.6 million with corresponding increase to goodwill.

From the date of acquisition through October 31, 2022, OpenLight incurred a net loss of $19.4 million, of which $4.9 million was attributable to redeemable non-controlling interest. As of October 31, 2022, the carrying value of the redeemable non-controlling interest was $38.7 million in the consolidated balance sheets.

Other Fiscal 2022 Acquisitions

During fiscal 2022, we completed two other acquisitions for aggregate purchase consideration of $31.8 million, net of cash acquired. The preliminary purchase price was allocated as follows: $12.7 million to identifiable intangible assets and $22.2 million to goodwill, which were attributable to the Semiconductor & System Design reporting unit. There was no tax-deductible goodwill related to the acquisitions.

We have included the financial results of the fiscal 2022 acquisitions in our consolidated financial statements from their respective acquisition date. We do not consider these acquisitions to be material, individually or in the aggregate, to our consolidated financial statements.

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Fiscal 2021

During fiscal 2021, we completed several acquisitions for an aggregate consideration of $298.9 million, net of cash acquired. We do not consider these acquisitions to be material, individually or in the aggregate, to our consolidated financial statements. Total purchase consideration was primarily allocated to identifiable intangible assets of $109.3 million and goodwill of $205.8 million, of which $160.1 million is attributable to the Semiconductor & System Design reporting segment and $45.7 million is attributable to the Software Integrity reporting segment.

Approximately $34.0 million of the goodwill related to the fiscal 2021 acquisitions was deductible for tax purposes.

Preliminary Fair Value Estimates

For all acquisitions completed in fiscal 2022, the purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their preliminary estimated fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management at the time of acquisition. These estimates and assumptions are subject to change as additional information becomes available during the respective measurement period, which is not expected to exceed 12 months from applicable acquisition date. The primary areas of those preliminary estimates relate to certain tangible assets and liabilities, identifiable intangible assets, and income taxes.

Acquisition-Related Transaction Costs

Acquisition-related transaction costs were $14.1 million and $15.4 million during fiscal 2022 and 2021, respectively. These costs consist of professional fees and administrative costs and were expensed as incurred in our consolidated statements of income.

Note 5. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in business combinations. We have two reportable segments, and reporting units are determined to be the same as reportable segments. In fiscal 2022, we changed our annual assessment date from the last day of the fourth fiscal quarter to the first day of the fourth fiscal quarter to align the impairment assessment date more closely with our long-term planning and forecasting process. We performed the required annual goodwill impairment test and concluded that goodwill was not impaired. As a result of our qualitative assessment, we determined that it was not necessary to perform the quantitative assessment at measurement date.

Goodwill activity by reportable segment for the year ended October 31, 2022 consisted of the following:

			Semiconductor & System Design						Software Integrity						Total
			(in thousands)
Balance at October 31, 2021			$	3,104,474					$	471,311					$	3,575,785
Additions			68,923						249,852						318,775
Adjustments			1,285						—						1,285
Effect of foreign currency translation			(53,611)						—						(53,611)
Balance at October 31, 2022			$	3,121,071					$	721,163					$	3,842,234

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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

Intangible Assets

Intangible assets as of October 31, 2022 consisted of the following:

			Gross Carrying Amount						Accumulated Amortization						Net Amount
			(in thousands)
Core/developed technology			$	1,083,703					$	813,226					$	270,477
Customer relationships			426,242						333,984						92,258
Contract rights intangible			190,666						188,262						2,404
Trademarks and trade names			52,795						34,054						18,741
Capitalized software development costs			48,591						46,025						2,566
Total			$	1,801,997					$	1,415,551					$	386,446

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

			Gross Carrying Amount						Accumulated Amortization						Net Amount
			(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

Amortization expense related to intangible assets consisted of the following:

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Core/developed technology			$	64,469					$	46,049					$	47,890
Customer relationships			26,640						31,478						35,075
Contract rights intangible			2,682						2,413						5,181
Trademarks and trade names			2,899						2,440						3,135
Capitalized software development costs(1)			2,672						4,067						3,723
Total			$	99,362					$	86,447					$	95,004

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

Table of Contents

SYNOPSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

The following table presented the estimated future amortization of intangible assets as of October 31, 2022:

Fiscal Year			(in thousands)
2023			$	99,311
2024			88,021
2025			71,113
2026			58,688
2027			38,487
2028 and thereafter			30,826
Total			$	386,446

Note 6. Balance Sheet Components

			As of
			October 31, 2022						October 31, 2021
			(in thousands)
Accounts receivable, net:
Accounts receivable			$	779,390					$	563,592
Unbilled accounts receivable			46,254						35,589
Total accounts receivable			825,644						599,181
Less: allowance for credit losses			(29,553)						(30,680)
Total			$	796,091					$	568,501
Property and equipment, net:
Computer and other equipment			$	870,388					$	812,161
Buildings			135,722						134,931
Furniture and fixtures			80,885						73,624
Land			21,598						19,965
Leasehold improvements			241,062						236,064
			1,349,655						1,276,745
Less: accumulated depreciation (1)			(866,355)						(804,347)
Total			$	483,300					$	472,398
Other long-term assets:
Deferred compensation plan assets			$	279,096					$	343,820
Capitalized commission, net			96,509						92,249
Other long-term assets			88,090						74,629
Total			$	463,695					$	510,698
Accounts payable and accrued liabilities:
Payroll and related benefits			$	559,886					$	581,687
Other accrued liabilities			211,937						132,091
Accounts payable			37,580						27,413
Total			$	809,403					$	741,191
Other long-term liabilities:
Deferred compensation plan liabilities			$	279,096					$	343,820
Other long-term liabilities			48,733						47,613
Total			$	327,829					$	391,433

*(1)*Accumulated depreciation includes write-offs due to retirement of fully depreciated fixed assets.

Note 7. Financial Assets and Liabilities

Cash Equivalents and Short-term investments

As of October 31, 2022, the balances of our cash equivalents and short-term investments were as follows:

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses Less Than 12 Continuous Months						Gross Unrealized Losses 12 Continuous Months or Longer						Estimated Fair Value**(1)**
			(in thousands)
Cash equivalents:
Money market funds			$	77,683					$	—					$	—					$	—					$	77,683
Total:			$	77,683					$	—					$	—					$	—					$	77,683
Short-term investments:
U.S. government agency & T-bills			$	25,816					$	—					$	(174)					$	(39)					$	25,603
Municipal bonds			2,970						—						(12)						(80)						2,878
Corporate debt securities			95,899						7						(747)						(1,135)						94,024
Asset-backed securities			25,826						—						(149)						(269)						25,408
Total:			$	150,511					$	7					$	(1,082)					$	(1,523)					$	147,913

*(1)*See Note 8. Fair Value Measurements for further discussion on fair values.

Our short-term investment portfolio includes both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. Most of our unrealized losses are due to changes in market interest rates, and bond yields. We believe that we have the ability to realize the full value of all of these investments upon maturity. As of October 31, 2022, our investments that were in a continuous loss position of 12 months or more, as well as the unrealized losses on those investments, were immaterial.

The contractual maturities of our available-for-sale debt securities as of October 31, 2022 were as follows:

			Amortized Cost						Fair Value
			(in thousands)
Less than 1 year			$	83,234					$	82,264
1-5 years			61,593						60,156
5-10 years			3,230						3,165
>10 years			2,454						2,328
Total			$	150,511					$	147,913

As of October 31, 2021, the balances of our cash equivalents and short-term investments were as follows:

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses Less Than 12 Continuous Months						Gross Unrealized Losses 12 Continuous Months or Longer						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

*(1)*See Note 8. Fair Value Measurements for further discussion on fair values.

Restricted cash

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

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

			October 31,
			2022						2021
			(in thousands)
Cash and cash equivalents			$	1,417,608					$	1,432,840
Restricted cash included in prepaid and other current assets			1,566						1,560
Restricted cash included in other long-term assets			690						783
Total cash, cash equivalents and restricted cash			$	1,419,864					$	1,435,183

Non-marketable equity securities

Our portfolio of non-marketable equity securities consists of strategic investments in privately held companies. There were no material impairments of non-marketable equity securities in fiscal 2022, fiscal 2021, or fiscal 2020.

Derivatives

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

The duration of forward contracts, the majority of which are short-term, ranges from approximately 1 month to 27 months at inception. We do not use foreign currency forward contracts for speculative or trading purposes. We enter into foreign exchange forward contracts with high credit quality financial institutions that are rated "A" or above and

to date have not experienced nonperformance by counterparties. In addition, we mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty and anticipate continued performance by all counterparties to such agreements.

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

Cash Flow Hedging Activities

Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of approximately 27 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to our foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The related gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (loss) (OCI), in stockholders’ equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. We expect a majority of the hedge balance in OCI to be reclassified to the statements of income within the next 12 months.

We did not record any gains or losses related to discontinuation of cash flow hedges for fiscal years 2022, 2021 and 2020.

Non-designated Hedging Activities

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

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

The effects of the non-designated derivative instruments on our consolidated statements of income for fiscal years 2022, 2021, and 2020 were summarized as follows:

			October 31,
			2022						2021						2020
			(in thousands)
Gains (losses) recorded in other income (expense), net			$	(15,851)					$	(855)					$	1,957

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

			October 31,
			2022						2021
			(in thousands)
Total gross notional amounts			$	1,386,140					$	1,176,152
Net fair value			$	(50,080)					$	13,404

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

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

			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, 2022
Other current assets			$	2,315					$	223
Accrued liabilities			$	52,171					$	447
Balance at October 31, 2021
Other current assets			$	15,455					$	17
Accrued liabilities			$	2,027					$	42

The following table represented the location of the amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax in the consolidated statements of income:

			Location of gains (losses) recognized in OCI on derivatives						Amount of gains (losses) recognized in OCI on derivatives (effective portion)						Location of gains (losses) reclassified from OCI						Amount of gains (losses) reclassified from OCI (effective portion)
			(in thousands)
Fiscal year ended October 31, 2022
Foreign exchange contracts			Revenue						$	(19,755)					Revenue						$	10,975
Foreign exchange contracts			Operating expenses						(59,314)						Operating expenses						(15,869)
Total									$	(79,069)											$	(4,894)
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)

Other Commitments — Credit and Term Loan

On January 22, 2021, we entered into a Fourth Extension and Amendment Agreement (the Fourth Amendment), which amended and restated our previous credit agreement, dated as of November 28, 2016 (as amended and restated, the Credit Agreement). Our outstanding borrowings under the previous credit agreement, which as of January 22, 2021 consisted of term loans in the aggregate principal amount of $97.5 million, were carried over under the Credit Agreement and fully paid on November 26, 2021.

The Fourth Amendment extended the termination date of the existing $650.0 million senior unsecured revolving credit facility (the Revolver) from November 28, 2021 to January 22, 2024, which could be further extended at our option. The Credit Agreement also provides an uncommitted incremental loan facility of up to $150.0 million in the aggregate principal amount. The Credit Agreement contains financial covenants requiring us to maintain a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, as well as other non-financial covenants. As of October 31, 2022, we were in compliance with all financial covenants.

There was no outstanding balance under the Revolver as of October 31, 2022 and October 31, 2021. We expect our borrowings, if any, under the Revolver will fluctuate from quarter to quarter.

Borrowings bear interest at a floating rate based on a margin over our choice of market observable base rates as defined in the Credit Agreement. As of October 31, 2022, the Revolver bore interest at LIBOR +1%. In addition, commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on our leverage ratio on the daily amount of the revolving commitment.

In July 2018, we entered into a 12-year 220.0 million Renminbi (approximately $33.0 million) credit agreement with a lender in China to support our facilities expansion. Borrowings bear interest at a floating rate based on the 5-year Loan Prime Rate plus 0.74%. As of October 31, 2022, we had a $20.8 million outstanding balance under the agreement.

The carrying amount of the short-term and long-term debt approximates the estimated fair value.

Note 8. Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes guidelines and enhances disclosure requirements for fair value measurements. The accounting guidance requires an entity to maximize the

use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance also establishes a fair value hierarchy based on the independence of the source and objective evidence of the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value measurement:

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

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

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

On a recurring basis, we measure the fair value of certain assets and liabilities, which include cash equivalents, short-term investments, non-qualified deferred compensation plan assets, and foreign currency derivative contracts.

Our cash equivalents and short-term investments are classified within Level 1 or Level 2 because they are valued using quoted market prices in an active market or alternative independent pricing sources and models utilizing market observable inputs.

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

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

Our borrowings under our Credit and Term Loan facilities are classified within Level 2 because these borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to us for debt with similar terms and maturities. See Note 7*. Financial Assets and Liabilities* for more information on these borrowings.

Assets/Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis were summarized below as of October 31, 2022:

									Fair Value Measurement Using
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			$	77,683					$	77,683					$	—					$	—
Short-term investments:
U.S. government agency & T-bills			25,603						—						25,603						—
Municipal bonds			2,878						—						2,878						—
Corporate debt securities			94,024						—						94,024						—
Asset-backed securities			25,408						—						25,408						—
Prepaid and other current assets:
Foreign currency derivative contracts			2,538						—						2,538						—
Other long-term assets:
Deferred compensation plan assets			279,096						279,096						—						—
Total assets			$	507,230					$	356,779					$	150,451					$	—
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts			$	52,618					$	—					$	52,618					$	—
Other long-term liabilities:
Deferred compensation plan liabilities			279,096						279,096						—						—
Total liabilities			$	331,714					$	279,096					$	52,618					$	—

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

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			$	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					$	—

Assets/Liabilities Measured at Fair Value on a Non-Recurring Basis

Non-Marketable Equity Securities

Non-marketable equity securities are classified within Level 3 as they are valued using a combination of observable transaction price and unobservable inputs or data in an inactive market due to the absence of market price and inherent lack of liquidity.

Note 9. Leases

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

The components of our lease expense during the period presented were as follows:

			Year Ended October 31,
			2022						2021
			(in thousands)
Operating lease expense (1)			$	91,972					$	93,848
Variable lease expense (2)			11,649						8,231
Total lease expense			$	103,621					$	102,079

*(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.

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

			Year Ended October 31,
			2022						2021
			(in thousands)
Cash paid for amounts included in the measurement of operating lease liabilities			$	83,858					$	86,360
ROU assets obtained in exchange for operating lease liabilities			$	168,095					$	112,637

Lease term and discount rate information related to our operating leases as of the end of the period presented were as follows:

			October 31, 2022						October 31, 2021
Weighted-average remaining lease term (in years)			9.16						8.00
Weighted-average discount rate			2.19		%				2.01		%

The following table represented the maturities of our future lease payments due under operating leases as of October 31, 2022:

			Lease Payments
Fiscal year			(in thousands)
2023			$	64,198
2024			92,741
2025			82,272
2026			72,620
2027			71,301
2028 and thereafter			329,782
Total future minimum lease payments			712,914
Less: Imputed interest			77,367
Total lease liabilities			$	635,547

In addition, certain facilities owned by us were leased to third parties under non-cancellable operating lease agreements. These leases have annual escalating payments and have expiration dates through March 31, 2031 in accordance with the terms and conditions of the existing agreement. The lease receipts from owned facilities, including sublease income from other facilities leased by us, due to us as of October 31, 2022, were as follows:

			Lease Receipts
			(in thousands)
Fiscal year
2023			$	16,240
2024			24,591
2025			24,479
2026			25,333
2027			26,452
2028 and thereafter			83,737
Total			$	200,832

Note 10. Contingencies

Legal Proceedings

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

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

Mentor Patent Litigation

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

Legal Settlement

In March 2017, Siemens PLM Software (Siemens) acquired Mentor. On June 29, 2018, we, Siemens and Mentor settled all outstanding patent litigation between us and Mentor for a $65.0 million payment made from us to Mentor. As a result of the settlement, the litigation with Mentor was dismissed and the injunction entered in connection with that litigation was vacated. The settlement included mutual seven-year patent cross-licenses between us and Siemens, and between us and Mentor. We and Mentor also amended an existing interoperability agreement to collaborate on a wide range of EDA products for the benefit of our mutual customers. The amendment includes a one-time termination charge between $0.0 and $25.0 million, payable to Mentor under certain conditions.

Tax Matters

We undergo examination from time to time by U.S. and foreign authorities for non-income based taxes, such as sales, use and value-added taxes, and are currently under examination by tax authorities in certain jurisdictions. If the potential loss from such examinations is considered probable and the amount or the range of loss could be estimated, we would accrue a liability for the estimated expense. In addition to the foregoing, we are, from time to time, party to various other claims and legal proceedings in the ordinary course of our business, including with tax and other governmental authorities. For a description of certain of these other matters, refer to Note 15. Income Taxes.

Note 11. Accumulated Other Comprehensive Income (Loss)

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

			Year Ended October 31,
			2022						2021
			(in thousands)
Cumulative currency translation adjustments			$	(156,192)					$	(48,047)
Unrealized gains (losses) on derivative instruments, net of taxes			(75,486)						(1,311)
Unrealized gains (losses) on available-for-sale securities, net of taxes			(2,599)						(246)
Total			$	(234,277)					$	(49,604)

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,
			2022						2021						2020
			(in thousands)
Reclassifications:
Gains (losses) on cash flow hedges, net of taxes
Revenues			$	10,975					$	4,181					$	530
Operating expenses			(15,869)						10,378						(603)
Total			$	(4,894)					$	14,559					$	(73)

Amounts reclassified in fiscal 2022, 2021, and 2020 primarily consisted of gains (losses) from our cash flow hedging activities. See Note 7. Financial Assets and Liabilities.

Note 12. Stock Repurchase Program

Our Board of Directors (the Board) previously approved a stock repurchase program (the Program) with authorization to purchase up to $1.0 billion of our common stock in December 2021. The Board approved a replenishment of the Program with authorization to purchase up to $1.5 billion in September 2022. As of October 31, 2022, $1.4 billion remained available for future repurchases under the program.

In August 2022, we entered into an accelerated stock repurchase agreement (the August 2022 ASR) to repurchase an aggregate of $240.0 million of our common stock. Pursuant to the August 2022 ASR, we made a prepayment of $240.0 million to receive initial deliveries of shares valued at $192.0 million. The remaining balance of $48.0 million was settled in October 2022. Total shares purchased under the August 2022 ASR were approximately 0.8 million shares, at an average purchase price of $307.60 per share.

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

			Year Ended October 31,
			2022						2021 (1)						2020
			(in thousands, except per share price)
Shares repurchased			3,609						2,780						1,585
Average purchase price per share			$	314.51					$	270.84					$	152.76
Aggregate purchase price			$	1,135,000					$	753,081					$	242,078
Reissuance of treasury stock			2,922						3,224						3,872

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

Note 13. Employee Benefit Plans

Employee Stock Purchase Plan

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

On April 9, 2020 and April 12, 2022, our stockholders approved amendments to the ESPP to increase the number of shares of common stock authorized for issuance under the plan by 5.0 million and 2.0 million shares, respectively. During fiscal 2022, 2021 and 2020, we issued 0.7 million, 1.0 million, and 1.0 million shares, respectively, under the ESPP at average per share prices of $195.48, $134.26 and $103.41, respectively. As of October 31, 2022, 14.1 million shares of common stock were reserved for future issuance under the ESPP.

Equity Compensation Plans

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

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

On April 8, 2021 and April 12, 2022, our stockholders amended the 2006 Employee Plan to, among other things, increase the number of shares of common stock reserved for future issuance under the plan by 4.7 million shares and 3.0 million shares, respectively. As of October 31, 2022, an aggregate of 2.1 million stock options and 4.6 million restricted stock units were outstanding, and 13.1 million shares were available for future issuance under the 2006 Employee Plan.

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

Under the 2005 Directors Plan, we granted options, which vest over a period of three to four years to non-employee directors. As of October 31, 2022, 7,500 stock options were outstanding under the 2005 Directors Plan.

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

We grant restricted stock awards and options under the 2017 Directors Plan. Restricted stock awards generally vest on an annual basis and options vest over a period of three years. As of October 31, 2022, 4,985 shares of restricted stock awards were unvested and 12,792 stock options were outstanding, and a total of 373,213 shares of common stock were reserved for future issuance under the 2017 Directors Plan.

Other Assumed Stock Plans through Acquisitions. We have assumed certain outstanding stock awards of acquired companies, including restricted stock units and options. If these assumed equity awards are canceled, forfeited or

expire unexercised, the underlying shares do not become available for future grant. As of October 31, 2022, 0.1 million shares of our common stock remained subject to such outstanding assumed equity awards.

Restricted Stock Units. The following table contained information concerning activities related to restricted stock units granted under the 2006 Employee Plan and assumed from acquisitions:

			Restricted Stock Units Outstanding**(1)**						Weighted Average Grant Date Fair Value						Weighted Average Remaining Contractual Life (In Years)						Aggregate Fair Value
			(in thousands, except per share amounts and years)
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
Granted(2)			2,402						$	323.46
Vested(3)			(1,589)						$	170.36											$	529,766
Forfeited			(362)						$	228.70
Balance at October 31, 2022			4,638						$	265.76					1.32

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

*(2)*The number of granted restricted stock units included those granted to senior management with performance-based vesting criteria (in addition to service-based vesting criteria) (performance-based RSUs) reported at the maximum possible number of shares that may ultimately be issuable if all applicable performance-based criteria are achieved at their maximum levels and all applicable service-based criteria are fully satisfied.

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

Stock Options. The following table summarized stock option activity and included stock options granted under all equity plans:

						Options Outstanding
			Shares Under Stock Option (1)						Weighted- Average Exercise Price per Share						Weighted- Average Remaining Contractual Life (In Years)						Aggregate Intrinsic Value
						(in thousands, except per share amounts and years)
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
Granted						293						$	342.86
Exercised						(1,126)						$	86.24
Canceled/forfeited/expired						(114)						$	164.46
Balance at October 31, 2022						2,160						$	150.37					3.57						$	328,120
Vested and expected to vest as of October 31, 2022						2,160						$	150.37					3.57						$	328,120
Exercisable at October 31, 2022						1,449						$	103.44					2.77						$	278,915

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

The aggregate intrinsic value in the preceding table represented the pre-tax intrinsic value based on stock options with an exercise price less than our closing stock price of $295.84 as of October 31, 2022. The pre-tax intrinsic value of options exercised and their average exercise prices were:

			Year Ended October 31,
			2022						2021						2020
			(in thousands, except per share price)
Intrinsic value			$	273,524					$	254,587					$	218,640
Average exercise price per share			$	86.24					$	66.50					$	51.76

Restricted Stock Units and Stock Options. The following table contained additional information concerning activities related to stock options and restricted stock units that were granted under the 2006 Employee Plan and assumed from acquisitions:

			Available for Grant (1)(2)
			(in thousands)
Balance at October 31, 2019			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
Options granted(2)			(286)
Options canceled/forfeited/expired(2)			114
Restricted stock units granted(1)(3)			(4,083)
Restricted stock units forfeited(1)			615
Additional shares reserved			3,000
Balance at October 31, 2022			13,111

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

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

*(3)*The number of granted restricted stock units included those granted to senior management with market-based vesting and performance-based vesting criteria (in addition to service-based vesting criteria) (market-based RSUs) reported at the maximum possible number of shares that may ultimately be issuable if all applicable market-based and performance-based criteria are achieved at their maximum levels and all applicable service-based criteria are fully satisfied.

Restricted Stock Awards. The following table summarized restricted stock award activities during fiscal 2022 under the 2005 Directors Plan and 2017 Directors Plan:

			Restricted Shares						Weighted-Average Grant Date Fair Value
			(in thousands, except per share amounts)
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
Granted			5						$	310.02
Vested			(5)						$	261.01
Forfeited			—						$	—
Unvested at October 31, 2022			5						$	310.02

Valuation and Expense of Stock-Based Compensation. We estimate the fair value of stock options and employee stock purchase rights under the ESPP on the grant date. The value of awards expected to vest is recognized as expense over the applicable service periods. We use the straight-line attribution method to recognize stock-based compensation costs over the service period of the award except for performance grants with specific performance criteria. With respect to such performance grants in each reporting period, we estimate the probability of achievement of applicable performance goals and recognize related stock-based compensation expense using the graded-vesting method. The amount of stock-based compensation expense recognized in any period can vary based on the attainment or expected attainment of the various performance goals. If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

We use the Black-Scholes option-pricing model to determine the fair value of stock options and employee stock purchase plan rights*.* The Black-Scholes option-pricing model incorporates various subjective assumptions including expected volatility, expected term and interest rates. The expected volatility for both stock options and employee stock purchase rights is estimated by a combination of implied volatility for publicly traded options of our common stock with a term of six months or longer and the historical stock price volatility over the estimated expected term of such awards, which is based on historical experience. Restricted stock units are valued based on the closing price of our common stock on the grant date. The fair value for market-based RSUs is estimated on the grant date using a Monte Carlo simulation model with the following assumptions: expected volatilities ranging from 33.01% to 37.8%, based on the historical volatilities of our common stock and peer companies' common stock over the remaining performance period; risk-free interest rate ranging from 1.33% to 3.46%, based on the yield of the zero-coupon U.S. Treasury bill that is commensurate with the remaining performance period; and an expected term of 1.16 to 1.69 years, based on the remaining performance period of the market-based award.

The assumptions presented in the following table were used to estimate the fair value of stock options and employee stock purchase rights granted under our stock plans:

			Year Ended October 31,
			2022						2021						2020
Stock Options
Expected life (in years)			4.1						4.1						4.1
Risk-free interest rate			1.07%- 4.42%						0.35% - 1.00%						0.26% - 1.71%
Volatility			32.28% -37.04%						29.19% - 32.28%						23.05%- 32.80%
Weighted average estimated fair value			$98.07						$61.58						$33.02
ESPP
Expected life (in years)			0.5 - 2.0						0.5 - 2.0						0.5 - 2.0
Risk-free interest rate			0.67% - 3.44%						0.00% - 0.19%						0.09% - 1.24%
Volatility			34.51% - 38.69%						28.02% - 39.68%						25.59% - 43.06%
Weighted average estimated fair value			$102.63						$89.82						$47.69

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

			Year Ended October 31,
			2022 (1)						2021						2020
			(in thousands)
Cost of products			$	55,134					$	38,345					$	27,193
Cost of maintenance and service			24,146						13,817						9,327
Research and development expense			241,978						171,013						125,814
Sales and marketing expense			81,617						61,940						43,205
General and administrative expense			56,154						60,157						43,045
Stock-based compensation expense before taxes			459,029						345,272						248,584
Income tax benefit			(74,271)						(53,483)						(39,077)
Stock-based compensation expense after taxes			$	384,758					$	291,789					$	209,507

*(1)*During fiscal 2022, we recognized stock-based compensation expense relating to restricted stock units, granted to senior executives in February, May and August 2022 with certain market, performance and service conditions (market-based RSUs). Under the award agreements, the vesting of the market-based RSUs is contingent on achieving total stockholder return (TSR) relative to a peer index as well as revenue growth metrics. The performance period during which the achievement goals will be measured is fiscal 2022 and fiscal 2023. The maximum potential awards that may be earned are 187.5% of the target number of the initial awards. The awards will vest in equal increments in December 2023 and December 2024 if the TSR target, revenue growth metrics, and service conditions are achieved.

As of October 31, 2022, we had $999.7 million of total unrecognized stock-based compensation expense relating to options, RSUs and restricted stock awards, which is expected to be recognized over a weighted average period of 2.2 years. As of October 31, 2022, we had $77.6 million of total unrecognized stock-based compensation expense relating to the ESPP, which is expected to be recognized over a period of 2.0 years.

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

Deferred plan assets and liabilities were as follows:

			As of October 31, 2022						As of October 31, 2021
			(in thousands)
Plan assets recorded in other long-term assets			$	279,096					$	343,820
Plan liabilities recorded in other long-term liabilities(1)			$	279,096					$	343,820

*(1)*Undistributed deferred compensation balances due to participants.

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

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Increase (reduction) to cost of revenue and operating expense			$	(68,778)					$	71,603					$	21,469
Other income (expense), net			(68,778)						71,603						21,469
Net increase (decrease) to net income			$	—					$	—					$	—

Other Retirement Plans. We sponsor various defined contribution retirement plans for our eligible U.S. and non-U.S. employees. Total contributions to these plans were $51.2 million, $49.4 million, and $41.7 million in fiscal 2022, 2021, and 2020, respectively. For employees in the United States and Canada, we match pre-tax employee contributions up to a maximum of U.S. $3,000 and Canadian $4,000, respectively, per participant per year.

Certain of our international subsidiaries sponsor defined benefit retirement plans. The unfunded projected benefit obligation for these defined benefit retirement plans as of October 31, 2022 and 2021 was immaterial and recorded in other long-term liabilities in our consolidated balance sheets.

Note 14. Net Income Per Share

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

			Year Ended October 31,
			2022						2021						2020
			(in thousands, except per share amounts)
Numerator:
Net income attributed to Synopsys			$	984,594					$	757,516					$	664,347
Denominator:
Weighted average common shares for basic net income per share			153,002						152,698						151,135
Dilutive effect of common share equivalents from equity-based compensation			3,483						4,642						4,571
Weighted average common shares for diluted net income per share			156,485						157,340						155,706
Net income per share attributed to Synopsys:
Basic			$	6.44					$	4.96					$	4.40
Diluted			$	6.29					$	4.81					$	4.27
Anti-dilutive employee stock-based awards excluded			281						408						97

Note 15. Income Taxes

The domestic and foreign components of our total income (loss) before provision for income taxes were as follows:

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
United States			$	1,036,279					$	640,531					$	544,391
Foreign			79,235						164,983						93,768
Total income (loss) before provision for income taxes			$	1,115,514					$	805,514					$	638,159

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

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Current:
Federal			$	105,493					$	85,950					$	29,272
State			23,201						11,898						1,863
Foreign			45,297						79,890						55,103
			173,991						177,738						86,238
Deferred:
Federal			(42,086)						(108,530)						(84,739)
State			1,519						1,796						(20,233)
Foreign			3,654						(21,849)						(6,554)
			(36,913)						(128,583)						(111,526)
Provision (benefit) for income taxes			$	137,078					$	49,155					$	(25,288)

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

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Statutory federal tax			$	234,257					$	168,745					$	133,979
State tax (benefit), net of federal effect			(2,514)						(2,419)						(29,096)
Federal tax credits			(61,582)						(45,503)						(39,206)
Tax on foreign earnings			25,930						7,988						(3,980)
Foreign-derived intangible income deduction			(38,924)						(31,214)						(24,282)
Tax settlements			—						(7,134)						(13,167)
Stock-based compensation			(52,625)						(62,620)						(50,047)
Changes in valuation allowance			19,794						15,232						(614)
Other			12,742						6,080						1,125
Provision (benefit) for income taxes			$	137,078					$	49,155					$	(25,288)

We have provided for foreign withholding taxes on undistributed earnings of certain of our foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries. Where foreign subsidiaries are considered indefinitely reinvested, and if the tax effect of undistributed earnings and other outside basis differences were recognized, the nature of taxes expected would be primarily withholding taxes, taxes in non-conforming states, and taxes on intermediate holding companies outside of the U.S., net of foreign tax credits where available. As of October 31, 2022, the taxes due, after allowable foreign tax credits, are not expected to be material.

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

			October 31,
			2022						2021
			(in thousands)
Net deferred tax assets:
Deferred tax assets:
Deferred revenue			41,941						30,113
Deferred compensation			67,782						59,823
Intangible and depreciable assets			119,791						117,211
Capitalized research and development costs			231,733						203,052
Stock-based compensation			60,537						40,922
Tax loss carryovers			59,754						30,305
Foreign tax credit carryovers			27,153						32,498
Research and other tax credit carryovers			316,650						326,164
Operating Lease Liabilities			119,575						94,519
Other			16,887						—
Gross deferred tax assets			1,061,803						934,607
Valuation allowance			(198,213)						(174,117)
Total deferred tax assets			863,590						760,490
Deferred tax liabilities:
Intangible assets			102,796						61,448
Operating lease Right-of-Use-Assets			96,598						77,877
Accruals and reserves			5,998						6,216
Undistributed earnings of foreign subsidiaries			1,000						7,580
Other			—						628
Total deferred tax liabilities			206,392						153,749
Net deferred tax assets			$	657,198					$	606,741

It is more likely than not that the results of future operations will be able to generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance provided against our deferred tax assets as of October 31, 2022 is mainly attributable to foreign tax credits available to non-U.S. subsidiaries and the California research credits. The valuation allowance increased by a net of $24.1 million in fiscal 2022 primarily related to the net increase of valuation allowance on California research credits.

We have 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			$	142,645					2023-2041
Federal research credit carryforward			140,331						2023-2042
Federal foreign tax credit carryforward			16,813						2027-2033
International foreign tax credit carryforward			12,025						Indefinite
International net operating loss carryforward			37,086						2027-Indefinite
California research credit carryforward			226,519						Indefinite
Other state research credit carryforward			20,743						2025-2042
State net operating loss carryforward			198,348						2023-2044

The federal and state net operating loss carryforward is from acquired companies and the annual use of such loss is subject to significant limitations under Internal Revenue Code Section 382 and certain provisions of the Tax Act. Foreign tax credits may only be used to offset tax attributable to foreign source income.

The gross unrecognized tax benefits decreased by approximately $1.2 million during fiscal 2022 resulting in gross unrecognized tax benefits of $81.2 million as of October 31, 2022. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:

			As of October 31, 2022						As of October 31, 2021
			(in thousands)
Beginning balance			$	82,360					$	83,149
Increases in unrecognized tax benefits related to prior year tax positions			435						794
Decreases in unrecognized tax benefits related to prior year tax positions			(9,791)						(7,372)
Increases in unrecognized tax benefits related to current year tax positions			6,794						9,168
Decreases in unrecognized tax benefits related to settlements with taxing authorities			(1,104)						(1,538)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations			(2,601)						(1,235)
Increases in unrecognized tax benefits acquired			14,121						—
Changes in unrecognized tax benefits due to foreign currency translation			(9,031)						(606)
Ending balance			$	81,183					$	82,360

As of October 31, 2022 and 2021, approximately $81.2 million and $82.4 million, respectively, of the unrecognized tax benefits would affect our effective tax rate if recognized upon resolution of the uncertain tax positions.

Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized as a component of income tax expense (benefit) in the consolidated statements of income and totaled approximately $0.8 million**,** $0.4 million and $0.2 million for fiscal years 2022, 2021 and 2020, respectively. As of October 31, 2022 and 2021, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns was approximately $12.7 million and $13.5 million, respectively.

The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. We believe that in the coming 12 months, it is reasonably possible that either certain audits and ongoing tax litigation will conclude or the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is between $0.0 and $28.0 million.

We and/or our subsidiaries remain subject to tax examination in the following jurisdictions:

Jurisdiction			Year(s) Subject to Examination
United States			Fiscal years after 2020
California			Fiscal years after 2017
Hungary			Fiscal years after 2018
Ireland			Fiscal years after 2017
Japan			Fiscal years after 2016
Korea and Taiwan			Fiscal years after 2020
China			Fiscal years after 2012
India			Fiscal years after 2018

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

IRS Examinations

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

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

State Examinations

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

Non-U.S. Examinations

Hungarian Tax Authority

In 2017, the Hungarian Tax Authority (the HTA) assessed withholding taxes of approximately $25.0 million and interest and penalties of $11.0 million, against our Hungary subsidiary (Synopsys Hungary). Synopsys Hungary contested the assessment with the Hungarian Administrative Court (Administrative Court). In 2019, as required under Hungarian law, Synopsys Hungary paid the assessment and recorded a tax expense due to an unrecognized tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits. The Administrative Court found against Synopsys Hungary, and we appealed to the Hungarian Supreme Court. During 2021, the Hungarian Supreme Court heard our appeal and remanded the case to the Administrative Court for further proceedings. The Administrative Court once again ruled against Synopsys Hungary, and we filed another appeal with the Hungarian Supreme Court. The Hungarian Supreme Court heard our appeal on January 27, 2022, vacated the lower court's decision and remanded the case back to the Administrative Court for further proceedings. Hearings with the Administrative Court were held on June 30, 2022 and September 22, 2022. In response to a request by the Administrative Court, we filed an additional brief on November 23, 2022. We expect a hearing to be scheduled in early 2023.

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

Note 16. Other Income (Expense), Net

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

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Interest income			$	8,545					$	2,442					$	3,561
Interest expense			(1,698)						(3,365)						(5,140)
Gains (losses) on assets related to deferred compensation plan			(68,778)						71,603						21,469
Foreign currency exchange gains (losses)			4,694						5,292						5,544
Other, net			10,713						(5,248)						(7,416)
Total			$	(46,524)					$	70,724					$	18,018

Note 17. Segment Disclosure

Segment reporting is based upon the “management approach,” i.e., how management organizes our operating segments for which separate financial information is (1) available and (2) evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. Until the second quarter of fiscal 2022, we had two CODMs, our two Co-Chief Executive Officers. One of our Co-Chief Executive Officers transitioned out of this role effective May 1, 2022. Commencing in the third quarter of fiscal 2022, our CODM is our sole Chief Executive Officer.

We have two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and other associated revenue categories, and (2) Software Integrity, which includes a comprehensive solution for building integrity—security, quality and compliance testing—into the customers’ software development lifecycle and supply chain.

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

Information by reportable segment was as follows:

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Total Segments:
Revenue			$	5,081,542					$	4,204,193					$	3,685,281
Adjusted operating income			1,675,102						1,281,389						1,031,630
Adjusted operating margin			33		%				30		%				28		%
Semiconductor & System Design:
Revenue			$	4,615,714					$	3,810,409					$	3,327,211
Adjusted operating income			1,628,108						1,243,078						990,837
Adjusted operating margin			35		%				33		%				30		%
Software Integrity:
Revenue			$	465,828					$	393,784					$	358,070
Adjusted operating income			46,994						38,311						40,793
Adjusted operating margin			10		%				10		%				11		%

Certain operating expenses are not allocated to the segments and are managed at a consolidated level. The unallocated expenses managed at a consolidated level, including amortization of intangible assets, stock-based compensation, changes in the fair value of deferred compensation plan and certain other operating expenses, were

presented in the table below to provide a reconciliation of the total adjusted operating income from segments to our consolidated operating income:

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Total segment adjusted operating income			$	1,675,102					$	1,281,389					$	1,031,630
Reconciling items:
Amortization of intangible assets			(96,690)						(82,380)						(91,281)
Stock-based compensation expense			(459,029)						(345,272)						(248,584)
Deferred compensation plan			68,778						(71,603)						(21,469)
Other			(26,123)						(47,344)						(50,155)
Total operating income			$	1,162,038					$	734,790					$	620,141

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

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

			Year Ended October 31,
			2022						2021						2020
			(in thousands)
Revenue:
United States			$	2,349,766					$	1,951,964					$	1,774,348
Europe			493,430						440,825						385,287
China			795,405						562,711						420,829
Korea			531,542						427,471						389,008
Other			911,399						821,222						715,809
Consolidated			$	5,081,542					$	4,204,193					$	3,685,281

			As of October 31,
			2022						2021
			(in thousands)
Property and Equipment, net:
United States			$	297,780					$	283,602
Other			185,520						188,796
Total			$	483,300					$	472,398

Geographic revenue data for multi-regional, multi-product transactions reflect internal allocations and are therefore subject to certain assumptions and to our allocation methodology.

One customer, including its subsidiaries, accounted for 11.7%, 10.6%, and 12.4% of our consolidated revenue in fiscal 2022, 2021, and 2020, respectively. No customer was responsible for over 10% of our accounts receivables as of October 31, 2022 and 2021.

Note 18. Restructuring Charges

In the third quarter of fiscal 2021, we initiated a restructuring plan for involuntary and voluntary employee termination and facility closure actions as part of a business reorganization (the 2021 Plan). The 2021 Plan consisted primarily of severance, retirement benefits under the 2021 Voluntary Retirement Program (2021 VRP) and lease abandonment costs, and was substantially completed in the first quarter of fiscal 2022. Total charges under the 2021 Plan were $45.5 million.

During fiscal 2022, we recorded restructuring charges of $12.1 million and made payments of $26.3 million under the 2021 Plan. As of October 31, 2022, the outstanding restructuring related liabilities were immaterial and recorded in accounts payable and accrued liabilities in the consolidated balance sheets.

During fiscal 2021, we recorded restructuring charges of $33.4 million and made payments of $19.2 million under the 2021 Plan. As of October 31, 2021, $14.2 million of payroll and related benefits liabilities remained outstanding and was recorded in accounts payable and accrued liabilities in the consolidated balance sheets. The remaining balance was paid in fiscal 2022.

During fiscal 2020, we recorded restructuring charges of $36.1 million under the 2019 restructuring plan. These charges consisted primarily of severance and retirement benefits. $57.4 million was paid in fiscal 2020 which included payments of remaining balances in fiscal 2019. As of October 31, 2020, $1.3 million remained outstanding and was recorded in accounts payable and accrued liabilities as payroll and related benefits in the consolidated balance sheets. The remaining balance was paid in fiscal 2021.

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