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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO
COMMISSION FILE NUMBER: 000-19807
snps-20210131_g1.jpg
SYNOPSYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1546236
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification Number)
690 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
(Address of principal executive offices, including zip code)
(650) 584-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock
($0.01 par value)
SNPSNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý  Accelerated Filer 
Non-accelerated filer 
¨  
  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
As of February 17, 2021, there were 152,373,162 shares of the registrant’s common stock outstanding.



SYNOPSYS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED JANUARY 31, 2021
TABLE OF CONTENTS
  Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 6.




PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
SYNOPSYS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)
January 31,
2021
 October 31,
2020*
ASSETS
Current assets:
Cash and cash equivalents$1,023,074 $1,235,653 
Accounts receivable, net789,320 780,709 
Inventories, net230,907 192,333 
Income taxes receivable and prepaid taxes25,190 32,355 
Prepaid and other current assets329,233 308,167 
Total current assets2,397,724 2,549,217 
Property and equipment, net486,604 483,818 
Operating lease right-of-use assets, net462,136 465,818 
Goodwill3,433,003 3,365,114 
Intangible assets, net254,375 254,322 
Long-term prepaid taxes8,285 8,276 
Deferred income taxes522,871 497,546 
Other long-term assets447,840 405,951 
Total assets$8,012,838 $8,030,062 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$422,928 $623,664 
Operating lease liabilities, current72,769 73,173 
Accrued income taxes32,227 27,738 
Deferred revenue1,546,038 1,388,263 
Short-term debt97,421 27,084 
Total current liabilities2,171,383 2,139,922 
Operating lease liabilities, non-current459,880 462,411 
Long-term accrued income taxes25,184 25,178 
Long-term deferred revenue107,001 104,850 
Long-term debt25,658 100,823 
Other long-term liabilities336,834 284,511 
Total liabilities3,125,940 3,117,695 
Stockholders’ equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding
  
Common stock, $0.01 par value: 400,000 shares authorized; 152,364 and 152,618 shares outstanding, respectively
1,526 1,528 
Capital in excess of par value1,589,175 1,653,166 
Retained earnings3,954,542 3,795,397 
Treasury stock, at cost: 4,897 and 4,643 shares, respectively
(628,216)(488,613)
Accumulated other comprehensive income (loss)(34,775)(54,074)
Total Synopsys stockholders’ equity4,882,252 4,907,404 
Non-controlling interest4,646 4,963 
Total stockholders’ equity4,886,898 4,912,367 
Total liabilities and stockholders’ equity$8,012,838 $8,030,062 
*    Derived from audited financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
1


SYNOPSYS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 Three Months Ended 
 January 31,
 20212020
Revenue:
Time-based products$631,290 $556,439 
Upfront products174,381 150,721 
Maintenance and service164,650 127,221 
Total revenue970,321 834,381 
Cost of revenue:
Products127,347 117,784 
Maintenance and service68,766 61,915 
Amortization of intangible assets11,886 13,169 
Total cost of revenue207,999 192,868 
Gross margin762,322 641,513 
Operating expenses:
Research and development357,468 314,283 
Sales and marketing170,628 152,855 
General and administrative77,488 68,744 
Amortization of intangible assets8,390 9,364 
Restructuring charges 8,751 
Total operating expenses613,974 553,997 
Operating income148,348 87,516 
Other income (expense), net28,756 12,057 
Income before income taxes177,104 99,573 
Provision (benefit) for income taxes15,076 (4,488)
Net income162,028 104,061 
Net income (loss) attributed to non-controlling interest(317) 
Net income attributed to Synopsys$162,345 $104,061 
Net income per share:
Basic$1.06 $0.69 
Diluted$1.03 $0.67 
Shares used in computing per share amounts:
Basic152,498 150,244 
Diluted157,277 154,504 
See accompanying notes to unaudited condensed consolidated financial statements.

2


SYNOPSYS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 Three Months Ended 
 January 31,
 20212020
Net income$162,028 $104,061 
Other comprehensive income (loss):
Change in foreign currency translation adjustment17,932 6,962 
Cash flow hedges:
Deferred gains (losses), net of tax of $(1,405) and $(417), respectively.
4,093 1,652 
Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $885 and $(97), respectively.
(2,726)522 
Other comprehensive income (loss), net of tax effects19,299 9,136 
Comprehensive income181,327 113,197 
Less: net income (loss) attributed to non-controlling interest(317) 
Comprehensive income attributed to Synopsys$181,644 $113,197 
See accompanying notes to unaudited condensed consolidated financial statements.

3


SYNOPSYS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
 Capital in
Excess of
Par
Value
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total 
Synopsys
Stockholders’
Equity
Non-controlling
Interest
Stockholders’
Equity
Common Stock
 SharesAmount
Balance at October 31, 2020152,618 $1,528 $1,653,166 $3,795,397 $(488,613)$(54,074)$4,907,404 $4,963 $4,912,367 
Net income162,345 162,345 (317)162,028 
Retained earnings adjustment due to adoption of ASC 326(1)
(3,200)(3,200)(3,200)
Other comprehensive income (loss), net of tax effects19,299 19,299 19,299 
Purchases of treasury stock(837)(8)8 (202,871)(202,871)(202,871)
Equity forward contract(50,000)(50,000)(50,000)
Common stock issued, net of shares withheld for employee taxes583 6 (97,781)63,268 (34,507)(34,507)
Stock-based compensation83,782 83,782 83,782 
Balance at January 31, 2021152,364 $1,526 $1,589,175 $3,954,542 $(628,216)$(34,775)$4,882,252 $4,646 $4,886,898 
 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
 SharesAmount
Balance at October 31, 2019150,331 $1,503 $1,635,455 $3,164,144 $(625,642)$(92,447)$4,083,013 $5,863 $4,088,876 
Net income104,061 104,061 104,061 
Other comprehensive income (loss), net of tax effects9,136 9,136 9,136 
Purchases of treasury stock(579)(6)6 (80,000)(80,000)(80,000)
Equity forward contract(20,000)(20,000)(20,000)
Common stock issued, net of shares withheld for employee taxes450 5 (40,561)41,290 734 734 
Stock-based compensation51,883 51,883 51,883 
Balance at January 31, 2020150,202 $1,502 $1,626,783 $3,268,205 $(664,352)$(83,311)$4,148,827 $5,863 $4,154,690 
(1)In June 2016, the Financial Accounting Standards Board (FASB) issued ASC 326, "Measurement of Credit Losses on Financial Instruments", which replaces the incurred loss methodology with an expected loss methodology. The Company adopted the new standard at the beginning of fiscal 2021.
See accompanying notes to unaudited condensed consolidated financial statements.
4


SYNOPSYS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended 
 January 31,
 20212020
Cash flows from operating activities:
Net income attributed to Synopsys$162,345 $104,061 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation50,628 52,232 
Reduction of operating lease right-of-use assets20,974 23,201 
Amortization of capitalized costs to obtain revenue contracts15,008 13,762 
Stock-based compensation83,782 51,883 
Allowance for doubtful accounts7,477 4,861 
Deferred income taxes(20,222)(17,694)
Other non-cash(3,359)(370)
Net changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable(14,910)(246,364)
Inventories(37,764)(5,561)
Prepaid and other current assets(12,289)8,697 
Other long-term assets(50,385)(27,103)
Accounts payable and accrued liabilities(171,137)(132,814)
Operating lease liabilities(20,707)(20,979)
Income taxes12,226 5,039 
Deferred revenue152,291 196,969 
Net cash provided by operating activities173,958 9,820 
Cash flows from investing activities:
Purchases of long-term investments (2,500)
Purchases of property and equipment(27,779)(54,605)
Cash paid for acquisitions, net of cash acquired(74,670)(75,388)
Capitalization of software development costs(1,011)(1,065)
Net cash used in investing activities(103,460)(133,558)
Cash flows from financing activities:
Proceeds from credit facilities  196,490 
Repayment of debt(5,694)(3,750)
Issuances of common stock15,092 14,982 
Payments for taxes related to net share settlement of equity awards(49,591)(14,242)
Purchase of equity forward contract(50,000)(20,000)
Purchases of treasury stock(202,871)(80,000)
Net cash (used in) provided by financing activities(293,064)93,480 
Effect of exchange rate changes on cash, cash equivalents and restricted cash10,001 2,013 
Net change in cash, cash equivalents and restricted cash (212,565)(28,245)
Cash, cash equivalents and restricted cash, beginning of year1,237,970 730,527 
Cash, cash equivalents and restricted cash, end of period$1,025,405 $702,282 
See accompanying notes to unaudited condensed consolidated financial statements.
5


SYNOPSYS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business
Synopsys, Inc. (Synopsys or the Company) provides products and services used across the entire silicon to software spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure the security and quality of their code. The Company is a global leader in supplying the electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips. The Company also offers semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. The Company provides software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. To complement these offerings, the Company provides technical services and support to help its customers develop advanced chips and electronic systems. These products and services are part of the Company’s Semiconductor & System Design segment.
The Company is also a leading provider of software tools and services that improve the security, quality and compliance of software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and industrials. These tools and services are part of the Company’s Software Integrity segment.
Note 2. Summary of Significant Accounting Policies
The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its unaudited condensed consolidated balance sheets, results of operations, comprehensive income, stockholders’ equity and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020 as filed with the SEC on December 15, 2020.
Use of Estimates. To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and may result in material effects on the Company’s operating results and financial position. In addition, the Company has considered the potential impact of the COVID-19 pandemic on the business operations. Although no impairment or other effects have been identified to date related to the COVID-19 pandemic, there is substantial uncertainty in the nature and degree of its continued effects over time. This uncertainty affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information are known.
Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.
Fiscal Year End. The Company’s fiscal year generally ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, the Company has a 53-week year. When a 53-week year occurs, the Company includes the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2021 and 2020 are both 52-week years. Fiscal 2021 will end on October 30, 2021. Fiscal 2020 ended on October 31, 2020. For presentation purposes, the unaudited condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.
There have been no recent accounting pronouncements or changes in accounting pronouncements that are of significance or potential significance to the Company as of January 31, 2021.
Note 3. Revenue
Disaggregated Revenue
6


The following table shows the percentage of revenue by product groups:
Three Months Ended 
 January 31,
20212020
EDA55.2 %59.0 %
IP & System Integration35.0 %30.6 %
Software Integrity Products & Services9.5 %10.3 %
Other0.3 %0.1 %
Total100.0 %100.0 %
Contract Balances
The contract assets indicated below are presented as prepaid and other current assets in the unaudited condensed 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 unaudited condensed consolidated balance sheets.
Contract balances are as follows:
As of
January 31, 2021October 31, 2020
 (in thousands)
Contract assets$217,699 $214,583 
Unbilled receivables$49,459 $50,932 
Deferred revenue$1,653,039 $1,493,113 
During the three months ended January 31, 2021 and 2020, the Company recognized $574.0 million and $504.5 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the period.
Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $4.6 billion as of January 31, 2021, which includes $621.6 million 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. The Company has elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 52% of the contracted but unsatisfied or partially unsatisfied performance obligations as of January 31, 2021, excluding non-cancellable FSA, are expected to be recognized over the next 12 months, with the remainder recognized thereafter.
During the three months ended January 31, 2021 and 2020, the Company recognized $26.3 million and $17.9 million, respectively, from performance obligations satisfied from sales-based royalties earned during the periods.
Costs of Obtaining a Contract with Customer
The incremental costs of obtaining a contract with a customer, which consist primarily of direct sales commissions earned upon execution of the contract, are required to be capitalized under ASC 340-40 and amortized over the estimated period of which the benefit is expected to be received. As direct sales commissions paid for renewals are commensurate with the amounts paid for initial contracts, the deferred incremental costs will be recognized over the contract term. Total capitalized direct commission costs as of January 31, 2021 were $79.4 million and included in other assets in the Company’s unaudited condensed consolidated balance sheets. Amortization of these assets was $15.0 million and $13.8 million during the three months ended January 31, 2021 and 2020, respectively, and included in sales and marketing expense in the Company’s unaudited condensed consolidated statements of operations.
7


Note 4. Business Combinations
During the three months ended January 31, 2021, the Company completed two acquisitions for an aggregate consideration of $77.5 million, net of cash acquired. The Company does not consider these acquisitions to be material, individually or in the aggregate, to the Company’s unaudited condensed consolidated statements of operations. The preliminary purchase allocations are $20.3 million of identifiable intangible assets and $59.3 million in goodwill, which is attributable to the Semiconductor & System Design reporting segment. The fair value of these intangible assets and goodwill are estimated using the income method.
The preliminary fair value estimates for the assets acquired and liabilities assumed for all acquisitions completed within 12 months from the applicable acquisition date are not yet finalized and may change as additional information becomes available during the respective measurement periods. The primary areas of those preliminary estimates relate to certain tangible assets and liabilities, identifiable intangible assets, and income taxes.    
Note 5. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill during the three months ended January 31, 2021 were as follows:
 (in thousands)
Balance at October 31, 2020$3,365,114 
Additions59,285 
Effect of foreign currency translation8,604 
Balance at January 31, 2021$3,433,003 
Intangible Assets
In-process research and development (IPR&D) as of January 31, 2021 consisted of acquired projects that, if completed, will be reclassified to core/developed technology upon completion, or if abandoned, will be written off. Intangible assets as of January 31, 2021 consisted of the following:
Gross AssetsAccumulated
Amortization
Net Assets
 (in thousands)
Core/developed technology$846,611 $714,026 $132,585 
Customer relationships381,686 285,019 96,667 
Contract rights intangible193,087 187,758 5,329 
Trademarks and trade names43,095 29,325 13,770 
In-process research and development (IPR&D)1,214  1,214 
Capitalized software development costs45,133 40,323 4,810 
Total$1,510,826 $1,256,451 $254,375 
Intangible assets as of October 31, 2020 consisted of the following:
Gross AssetsAccumulated
Amortization
Net Assets
 (in thousands)
Core/developed technology$827,232 $703,009 $124,223 
Customer relationships380,838 277,219 103,619 
Contract rights intangible192,812 186,763 6,049 
Trademarks and trade names43,096 28,716 14,380 
In-process research and development (IPR&D)1,214  1,214 
Capitalized software development costs44,122 39,285 4,837 
Total$1,489,314 $1,234,992 $254,322 
8


Amortization expense related to intangible assets consisted of the following:
 Three Months Ended 
 January 31,
 20212020
 (in thousands)
Core/developed technology$11,016 $12,318 
Customer relationships7,780 8,562 
Contract rights intangible870 875 
Trademarks and trade names610 778 
Capitalized software development costs(1)
1,038 901 
Total$21,314 $23,434 
(1) Amortization of capitalized software development costs is included in cost of products revenue in the unaudited condensed consolidated statements of operations.
The following table presents the estimated future amortization of intangible assets as of January 31, 2021:
Fiscal year(in thousands)
Remainder of fiscal 2021$59,323 
202265,764 
202348,868 
202438,407 
202522,304 
2026 and thereafter18,495 
IPR&D1,214 
Total$254,375 
Note 6. Financial Assets and Liabilities
Cash equivalents. The Company classifies time deposits and other investments with original maturities less than three months as cash equivalents.
As of January 31, 2021, the balances of the Company’s cash equivalents were:
CostGross
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$166,882 $ $ $ $166,882 
Total:$166,882 $ $ $ $166,882 
(1)See Note 7. Fair Value Measures for further discussion on fair values of cash equivalents.
As of October 31, 2020, the balances of the Company’s cash equivalents were:
CostGross
Unrealized
Gains
Gross
Unrealized
Losses Less Than 12 Continuous Months
Gross
Unrealized
Losses 12 Continuous Months or Longer
Estimated
Fair Value
(1)
 (in thousands)
Cash equivalents:
Money market funds$304,127 $ $ $ $304,127 
Total:$304,127 $ $ $ $304,127 
(1)See Note 7. Fair Value Measures for further discussion on fair values of cash equivalents.
9


Restricted cash. The Company includes amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows. All restricted cash is primarily associated with office leases.
The following table provides a reconciliation of cash, cash equivalents and restricted cash included in the unaudited condensed consolidated balance sheets:
As of
January 31, 2021October 31, 2020
(in thousands)
Cash and cash equivalents$1,023,074 $1,235,653 
Restricted cash included in Prepaid expenses and other current assets1,523 1,523 
Restricted cash included in Other long-term assets808 794 
Total cash, cash equivalents and restricted cash$1,025,405 $1,237,970 
Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately held companies. When the Company does not have the ability to exercise significant influence over the investments, these securities are accounted for using the measurement alternative when the fair value of the investment is not readily determinable. Securities accounted for as equity method investments are recorded at cost plus the proportional share of the issuers’ income or loss, which is recorded in the Company’s other income (expense), net. The cost basis of securities sold is based on the specific identification method. See Note 7. Fair Value Measures.
Derivatives
The Company recognizes derivative instruments as either assets or liabilities in the unaudited condensed consolidated balance sheets at fair value and provides qualitative and quantitative disclosures about such derivatives. The Company operates internationally and is exposed to potentially adverse movements in foreign currency exchange rates. The Company enters into hedges in the form of foreign currency forward contracts to reduce its exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies.
The duration of forward contracts ranges from approximately one month to 22 months, the majority of which are short-term. The Company does not use foreign currency forward contracts for speculative or trading purposes. The Company enters into foreign exchange forward contracts with high credit quality financial institutions that are rated ‘A’ or above and to date has not experienced nonperformance by counterparties. In addition, the Company mitigates credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty and anticipates continued performance by all counterparties to such agreements.
The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the unaudited condensed consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. The cash flow impact upon settlement of the derivative contracts will be included in “Net cash provided by operating activities” in the unaudited condensed 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 22 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to the Company’s foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The related gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (loss) (OCI) in stockholders’ equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. The Company expects a majority of the hedge balance in OCI to be reclassified to the statements of operations within the next 12 months.

10


The Company did not have any gains or losses related to discontinuation of cash flow hedges during the three months ended January 31, 2021 and 2020.
Non-designated Hedging Activities
The Company’s foreign exchange forward contracts that are used to hedge non-functional currency denominated balance sheet assets and liabilities are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying assets and liabilities, which are also recorded in other income (expense), net. The duration of the forward contracts for hedging the Company’s balance sheet exposure is approximately one month.
The Company also has certain foreign exchange forward contracts for hedging certain international revenues and expenses that are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the foreign currency in operating income. The duration of these forward contracts is usually less than one year. The overall goal of the Company’s hedging program is to minimize the impact of currency fluctuations on its net income over its fiscal year.
The effects of the non-designated derivative instruments on the Company’s unaudited condensed consolidated statements of operations is summarized as follows:
 Three Months Ended 
 January 31,
 20212020
 (in thousands)
Gain (loss) recorded in other income (expense), net$1,129 $245 
The notional amounts in the table below for derivative instruments provide one measure of the transaction volume outstanding:
As of
January 31, 2021October 31, 2020
 (in thousands)
Total gross notional amount$865,642 $981,234 
Net fair value$6,047 $6,940 
The Company’s exposure to market gain or loss will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.
The following table represents the unaudited condensed 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 January 31, 2021
Other current assets$9,870 $23 
Accrued liabilities$3,384 $463 
Balance at October 31, 2020
Other current assets$9,182 $138 
Accrued liabilities$2,088 $292 
11


The following table represents the unaudited condensed consolidated statements of operations location in Revenue/Deferred Revenue and Operating Expenses and amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax:
Location of gain (loss)
recognized in OCI on
derivatives
Amount of gain (loss)
recognized in OCI on
derivatives
(effective portion)
Location of
gain (loss)
reclassified from OCI
Amount of
gain (loss)
reclassified from
OCI
(effective portion)
 (in thousands)
Three months ended 
 January 31, 2021
Foreign exchange contractsRevenue$(163)Revenue$113 
Foreign exchange contractsOperating expenses4,256 Operating expenses2,613 
Total$4,093 $2,726 
Three months ended 
 January 31, 2020
Foreign exchange contractsRevenue$1,080 Revenue$(89)
Foreign exchange contractsOperating expenses571 Operating expenses(433)
Total$1,651 $(522)

Note 7. Fair Value Measures
Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes guidelines and enhances disclosure requirements for fair value measurements. The accounting guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance also establishes a fair value hierarchy based on the independence of the source and objective evidence of the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value measurement:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical instruments in active markets;
Level 2—Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3—Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
On a recurring basis, the Company measures the fair value of certain of its assets and liabilities, which include cash equivalents, non-qualified deferred compensation plan assets, and foreign currency derivative contracts.
The Company’s cash equivalents are classified within Level 1 or Level 2 because they are valued using quoted market prices in an active market or alternative independent pricing sources and models utilizing market observable inputs.
The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets and are therefore classified within Level 1.
The Company’s foreign currency derivative contracts are classified within Level 2 because these contracts are not actively traded and the valuation inputs are based on quoted prices and market observable data of similar instruments.
The Company’s borrowings under its credit and term loan facilities are classified within Level 2 because these borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities. See Note 9. Credit and Term Loan Facilities for more information on these borrowings.
12


Assets/Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below as of January 31, 2021:
  Fair Value Measurement Using
DescriptionTotalQuoted 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$166,882 $166,882 $ $ 
Prepaid and other current assets:
Foreign currency derivative contracts9,893  9,893  
Other long-term assets:
Deferred compensation plan assets307,980 307,980   
Total assets$484,755 $474,862 $9,893 $ 
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts$3,847 $ $3,847 $ 
Other long-term liabilities:
Deferred compensation plan liabilities309,339 309,339   
Total liabilities$313,186 $309,339 $3,847 $ 
Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2020:
  Fair Value Measurement Using
DescriptionTotalQuoted Prices in 
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable 
Inputs
(Level 3)
 (in thousands)
Assets
Cash equivalents:
Money market funds$304,127 $304,127 $ $ 
Prepaid and other current assets:
Foreign currency derivative contracts9,320  9,320  
Other long-term assets:
Deferred compensation plan assets269,737 269,737   
Total assets$583,184 $573,864 $9,320 $ 
Liabilities
Accounts payable and accrued liabilities:
Foreign currency derivative contracts$2,380 $ $2,380 $ 
Other long-term liabilities:
Deferred compensation plan liabilities269,737 269,737   
Total liabilities$272,117 $269,737 $2,380 $ 
Assets/Liabilities Measured at Fair Value on a Non-Recurring Basis
Non-Marketable Equity Securities
Equity investments in privately-held companies, also called non-marketable equity securities, are accounted for using either the measurement alternative method or equity method of accounting.

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Non-marketable equity securities accounted for under the measurement alternative method are recorded at fair value and are adjusted for subsequent observable changes in fair value. Non-marketable equity securities accounted for under the equity method of accounting are recorded at cost plus the proportional share of the issuers’ income or loss. These equity investments would be classified within Level 3 as they are valued using significant unobservable inputs or data in an inactive market, and the valuation requires management judgment due to the absence of market price and inherent lack of liquidity. The Company monitors these investments and generally uses the income approach to assess impairments based primarily on the financial conditions of these companies.
Note 8. Liabilities
Accounts payable and accrued liabilities consist of:
As of
January 31, 2021October 31, 2020
 (in thousands)
Payroll and related benefits$311,983 $492,626 
Other accrued liabilities85,567 101,035 
Accounts payable25,378 30,003 
Total$422,928 $623,664 

Other long-term liabilities consist of:
As of
January 31, 2021October 31, 2020
 (in thousands)
Deferred compensation liability$309,339 $269,737 
Other long-term liabilities27,495 14,774 
Total$336,834 $284,511 

Note 9. Credit and Term Loan Facilities
On January 22, 2021, Synopsys, Inc. (“Synopsys”) entered into a Fourth Extension and Amendment Agreement (the “Fourth Amendment”), which amends and restates Synopsys’ previous credit agreement, dated as of November 28, 2016 (as amended and restated, the “Credit Agreement”). Synopsys’ outstanding borrowings under the previous credit agreement, which as of January 22, 2021 consisted of term loans in the aggregate principal amount of $97.5 million, are carried over under the Credit Agreement.
The Fourth Amendment extends the termination date of the existing $650 million senior unsecured revolving credit facility from November 28, 2021 to January 22, 2024, which may be further extended in Synopsys’ option. The outstanding term loans under the Credit Agreement will continue to amortize in quarterly installments with the balance due at maturity on November 28, 2021. The Credit Agreement also provides an uncommitted incremental loan facility of up to $150 million in the aggregate principal amount. The Credit Agreement contains financial covenants requiring the Company to maintain a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, as well as other non-financial covenants. As of January 31, 2021, the Company was in compliance with all financial covenants.
As of January 31, 2021, the Company had $97.4 million outstanding balance, net of debt issuance costs, under the Term Loan. Outstanding principal payments under the Term Loan are due as follows:

Fiscal year(in thousands)
Remainder of fiscal 2021$22,500 
202275,000 
Total$97,500 
In July 2018, the Company entered into a 12-year 220.0 million RMB (approximately $33.0 million) credit agreement with a lender in China to support its facilities expansion. Borrowings bear interest at a floating rate based on the 5
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year Loan Prime Rate plus 0.74%. As of January 31, 2021, the Company had $25.7 million outstanding under the agreement.
As of October 31, 2020, the Company had $102.1 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $75.0 million was classified as long-term liabilities.
There was no outstanding balance under the Revolver as of October 31, 2020 and January 31, 2021. The Company expects its borrowings under the Revolver will fluctuate from quarter to quarter. Borrowings bear interest at a floating rate based on a margin over the Company’s choice of market observable base rates as defined in the Credit Agreement. As of January 31, 2021, borrowings under the Term Loan bore interest at LIBOR +1.125% and the applicable interest rate for the Revolver was LIBOR +1.000%. In addition, commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on the Company’s leverage ratio on the daily amount of the revolving commitment.
The carrying amount of the short-term and long-term debt approximates the estimated fair value. These borrowings under the Credit Agreement have a variable interest rate structure and are classified within Level 2 of the fair value hierarchy.
Note 10. Leases
The Company has operating lease arrangements for office space, data center, equipment and other corporate assets. These leases have various expiration dates through December 31, 2040, some of which include options to extend the leases for up to 10 years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments.
The components of the Company’s lease expense during the period presented are as follows:
Three Months Ended January 31,
20212020
(in thousands)
Operating lease expense (1)
$23,626 $23,201 
Variable lease expense (2)
1,335 942 
Total lease expense$24,961 $24,143 
(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 is as follows:
Three Months Ended January 31,
20212020
(in thousands)
Cash paid for amounts included in the measurement of operating lease liabilities$20,644 $16,204 
ROU assets obtained in exchange for operating lease liabilities$15,635 $4,775 
Lease term and discount rate information related to the Company’s operating leases as of the end of the period presented are as follows:
January 31, 2021October 31, 2020
Weighted-average remaining lease term (in years)8.408.62
Weighted-average discount rate2.55 %2.56 %
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The following represents the maturities of the Company’s future lease payments due under operating leases as of January 31, 2021:
Lease Payments
Fiscal year(in thousands)
Remainder of fiscal 2021$63,327 
202284,525 
202368,615 
202462,975 
202554,961 
Thereafter261,904 
Total future minimum lease payments
596,307 
Less: Imputed interest63,658