Company Quick10K Filing
Quick10K
Synopsys
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$118.90 149 $17,700
10-Q 2019-04-30 Quarter: 2019-04-30
10-Q 2019-01-31 Quarter: 2019-01-31
10-K 2018-10-31 Annual: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-Q 2018-04-30 Quarter: 2018-04-30
10-Q 2018-01-31 Quarter: 2018-01-31
10-K 2017-10-31 Annual: 2017-10-31
10-Q 2017-07-31 Quarter: 2017-07-31
10-Q 2017-04-30 Quarter: 2017-04-30
10-Q 2017-01-31 Quarter: 2017-01-31
10-K 2016-10-31 Annual: 2016-10-31
10-Q 2016-07-31 Quarter: 2016-07-31
10-Q 2016-04-30 Quarter: 2016-04-30
10-Q 2016-01-31 Quarter: 2016-01-31
10-K 2015-10-31 Annual: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-Q 2015-04-30 Quarter: 2015-04-30
10-Q 2015-01-31 Quarter: 2015-01-31
10-K 2014-10-31 Annual: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-Q 2014-04-30 Quarter: 2014-04-30
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-06-14 Other Events, Exhibits
8-K 2019-06-04 Other Events, Exhibits
8-K 2019-05-22 Earnings, Exhibits
8-K 2019-04-08 Officers, Shareholder Vote, Exhibits
8-K 2019-02-20 Earnings, Exhibits
8-K 2018-12-05 Earnings, Exhibits
8-K 2018-08-22 Earnings, Exhibits
8-K 2018-07-03 Regulation FD, Exhibits
8-K 2018-05-31 Other Events, Exhibits
8-K 2018-05-23 Earnings, Exhibits
8-K 2018-04-05 Officers, Shareholder Vote, Exhibits
8-K 2018-02-21 Earnings, Exhibits
LMT Lockheed Martin 95,880
ETM Entercom Communications 930
SD Sandridge Energy 292
BOCH Bank of Commerce Holdings 191
ALIM Alimera Sciences 67
DXF Dunxin Financial Holdings 50
VVPR VivoPower 17
BAYK Bay Banks of Virginia 0
VABK Virginia National Bankshares 0
IMUC Immunocellular Therapeutics 0
SNPS 2019-04-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Description of Business
Note 2. Summary of Significant Accounting Policies
Note 3. Goodwill and Intangible Assets
Note 4. Financial Assets and Liabilities
Note 5. Fair Value Measures
Note 6. Liabilities and Restructuring Charges
Note 7. Credit Facility
Note 8. Accumulated Other Comprehensive Income (Loss)
Note 9. Stock Repurchase Program
Note 10. Stock Compensation
Note 11. Net Income per Share
Note 12. Segment Disclosure
Note 13. Other Income (Expense), Net
Note 14. Taxes
Note 15. Contingencies
Note 16. Effect of New Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Note 14 of The Notes To Unaudited Condensed Consolidated Financial Statements Under The Heading "Non-U.S. Examinations."
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex311043019.htm
EX-31.2 ex312043019.htm
EX-31.3 ex313043019.htm
EX-32.1 ex321043019.htm

Synopsys Earnings 2019-04-30

SNPS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
(MARK ONE)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2019
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
 
 
 
synopsyslogoa07a01a18.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 class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
($0.01 par value)
SNPS
Nasdaq 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 May 22, 2019, there were 149,899,115 shares of the registrant’s common stock outstanding.





SYNOPSYS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED APRIL 30, 2019
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)
 
April 30, 2019
 
 October 31,
2018*
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
631,161

 
$
723,115

Accounts receivable, net
526,691

 
554,217

Inventories
166,329

 
122,407

Income taxes receivable and prepaid taxes
59,853

 
76,525

Prepaid and other current assets
259,849

 
67,533

Total current assets
1,643,883

 
1,543,797

Property and equipment, net
344,176

 
309,310

Goodwill
3,143,795

 
3,143,249

Intangible assets, net
306,927

 
360,404

Long-term prepaid taxes
22,093

 
138,312

Deferred income taxes
352,667

 
404,166

Other long-term assets
380,682

 
246,736

Total assets
$
6,194,223

 
$
6,145,974

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
365,848

 
$
578,326

Accrued income taxes
6,983

 
27,458

Deferred revenue
1,194,404

 
1,152,862

Short-term debt
165,692

 
343,769

Total current liabilities
1,732,927

 
2,102,415

Long-term accrued income taxes
34,667

 
50,590

Long-term deferred revenue
60,825

 
116,859

Long-term debt
126,152

 
125,535

Other long-term liabilities
324,217

 
265,560

Total liabilities
2,278,788

 
2,660,959

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding

 

Common stock, $0.01 par value: 400,000 shares authorized; 149,982 and 149,265 shares outstanding, respectively
1,500

 
1,493

Capital in excess of par value
1,659,484

 
1,644,830

Retained earnings
2,912,811

 
2,543,688

Treasury stock, at cost: 7,278 and 7,996 shares, respectively
(567,503
)
 
(597,682
)
Accumulated other comprehensive income (loss)
(96,720
)
 
(113,177
)
Total Synopsys stockholders’ equity
3,909,572

 
3,479,152

Non-controlling interest
5,863

 
5,863

Total stockholders’ equity
3,915,435

 
3,485,015

Total liabilities and stockholders’ equity
$
6,194,223

 
$
6,145,974

* 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 
 April 30,
 
Six Months Ended 
 April 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Time-based products
$
558,305

 
$
556,770

 
$
1,112,021

 
$
1,127,703

Upfront products
143,401

 
99,960

 
273,914

 
191,564

Maintenance and service
134,536

 
120,106

 
270,708

 
226,995

Total revenue
836,242

 
776,836

 
1,656,643

 
1,546,262

Cost of revenue:
 
 
 
 
 
 
 
Products
116,010

 
108,199

 
232,630

 
219,593

Maintenance and service
59,788

 
50,130

 
118,617

 
100,884

Amortization of intangible assets
14,881

 
20,450

 
32,324

 
39,458

Total cost of revenue
190,679

 
178,779

 
383,571

 
359,935

Gross margin
645,563

 
598,057

 
1,273,072

 
1,186,327

Operating expenses:
 
 
 
 
 
 
 
Research and development
290,299

 
252,134

 
561,625

 
516,545

Sales and marketing
158,652

 
147,188

 
314,611

 
297,700

General and administrative
56,351

 
58,809

 
98,412

 
115,181

Amortization of intangible assets
10,316

 
10,736

 
21,100

 
20,275

Restructuring
14,443

 
2,176

 
14,408

 
1,894

Total operating expenses
530,061

 
471,043

 
1,010,156

 
951,595

Operating income
115,502

 
127,014

 
262,916

 
234,732

Other income (expense), net
18,415

 
(7,715
)
 
18,056

 
4,670

Income before income taxes
133,917

 
119,299

 
280,972

 
239,402

Provision (benefit) for income taxes
15,707

 
16,827

 
9,248

 
140,621

Net income
$
118,210

 
$
102,472

 
$
271,724

 
$
98,781

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.79

 
$
0.69

 
$
1.82

 
$
0.66

Diluted
$
0.77

 
$
0.67

 
$
1.77

 
$
0.64

Shares used in computing per share amounts:
 
 
 
 
 
 
 
Basic
149,712

 
149,034

 
149,500

 
149,245

Diluted
153,904

 
153,167

 
153,383

 
153,664

See accompanying notes to unaudited condensed consolidated financial statements.


2



SYNOPSYS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
Three Months Ended 
 April 30,
 
Six Months Ended 
 April 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
118,210

 
$
102,472

 
$
271,724

 
$
98,781

Other comprehensive income:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
(3,327
)
 
(11,122
)
 
2,056

 
9,958

Cash flow hedges:
 
 
 
 
 
 
 
Deferred gains (losses), net of tax of $(123) and $(1,714), for the three and six months ended April 30, 2019, respectively, and of $2,264 and $(1,155) for each of the same periods in fiscal 2018, respectively.
447

 
(8,533
)
 
5,914

 
4,480

Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $(1,050) and $(2,286), for the three and six months ended April 30, 2019 respectively, and of $1,195 and $2,520 for each of the same periods in fiscal 2018, respectively.
4,012

 
(5,542
)
 
8,487

 
(10,848
)
Other comprehensive income (loss), net of tax effects
1,132

 
(25,197
)
 
16,457

 
3,590

Comprehensive income
$
119,342

 
$
77,275

 
$
288,181

 
$
102,371

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
 
 
Shares
 
Amount
 
Balance at October 31, 2018
149,265

 
$
1,493

 
$
1,644,830

 
$
2,543,688

 
$
(597,682
)
 
$
(113,177
)
 
$
3,479,152

 
$
5,863

 
$
3,485,015

Net income
 
 
 
 
 
 
153,514

 
 
 
 
 
153,514

 
 
 
153,514

Retained earnings adjustment due to adoption of accounting standards related to revenue(1)
 
 
 
 
 
 
257,594

 
 
 
 
 
257,594

 
 
 
257,594

Retained earnings adjustment due to adoption of an accounting standard related to income taxes(2)
 
 
 
 
 
 
(130,544
)
 
 
 
 
 
(130,544
)
 
 
 
(130,544
)
Other comprehensive income (loss), net of tax effects
 
 
 
 
 
 
 
 
 
 
15,325

 
15,325

 
 
 
15,325

Purchases of treasury stock
(346
)
 
(3
)
 
3

 
 
 
(29,185
)
 
 
 
(29,185
)
 
 
 
(29,185
)
Common stock issued, net of shares withheld for employee taxes
357

 
3

 
(27,736
)
 
(3,342
)
 
26,755

 
 
 
(4,320
)
 
 
 
(4,320
)
Stock-based compensation
 
 
 
 
37,266

 
 
 
 
 
 
 
37,266

 
 
 
37,266

Balance at January 31, 2019
149,276

 
$
1,493

 
$
1,654,363

 
$
2,820,910

 
$
(600,112
)
 
$
(97,852
)
 
$
3,778,802

 
$
5,863

 
$
3,784,665

Net income
 
 
 
 
 
 
118,210

 
 
 
 
 
118,210

 
 
 
118,210

Other comprehensive income (loss), net of tax effects
 
 
 
 
 
 
 
 
 
 
1,132

 
1,132

 
 
 
1,132

Purchases of treasury stock
(780
)
 
(8
)
 
8

 
 
 
(80,000
)
 
 
 
(80,000
)
 
 
 
(80,000
)
Equity forward contract
 
 
 
 
(20,000
)
 
 
 
 
 
 
 
(20,000
)
 
 
 
(20,000
)
Common stock issued, net of shares withheld for employee taxes
1,486

 
15

 
(11,795
)
 
(26,309
)
 
112,609

 
 
 
74,520

 
 
 
74,520

Stock-based compensation
 
 
 
 
36,908

 
 
 
 
 
 
 
36,908

 
 
 
36,908

Balance at April 30, 2019
149,982

 
$
1,500

 
$
1,659,484

 
$
2,912,811

 
$
(567,503
)
 
$
(96,720
)
 
$
3,909,572

 
$
5,863

 
$
3,915,435

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at October 31, 2017
150,445

 
$
1,505

 
$
1,622,429

 
$
2,143,873

 
$
(426,208
)
 
$
(65,979
)
 
$
3,275,620

 
$
4,104

 
$
3,279,724

Net income (loss)
 
 
 
 
 
 
(3,691
)
 
 
 
 
 
(3,691
)
 
 
 
(3,691
)
Other comprehensive income (loss), net of tax effects
 
 
 
 
 
 
 
 
 
 
28,787

 
28,787

 
 
 
28,787

Purchases of treasury stock
(1,987
)
 
(20
)
 
20

 
 
 
(180,000
)
 
 
 
(180,000
)
 
 
 
(180,000
)
Equity forward contract
 
 
 
 
(20,000
)
 
 
 
 
 
 
 
(20,000
)
 
 
 
(20,000
)
Common stock issued, net of shares withheld for employee taxes
495

 
5

 
(22,103
)
 
(6,328
)
 
32,126

 
 
 
3,700

 
 
 
3,700

Stock-based compensation
 
 
 
 
32,113

 
 
 
 
 
 
 
32,113

 
 
 
32,113

Balance at January 31, 2018
148,953

 
$
1,490

 
$
1,612,459

 
$
2,133,854

 
$
(574,082
)
 
$
(37,192
)
 
$
3,136,529

 
$
4,104

 
$
3,140,633

Net income
 
 
 
 
 
 
102,472

 
 
 
 
 
102,472

 
 
 
102,472

Retained earnings adjustment due to adoption of an accounting standard related to reclassification of certain tax effects from accumulated other comprehensive income

 
 
 
 
 
 
(293
)
 
 
 
 
 
(293
)
 
 
 
(293
)
Other comprehensive income (loss), net of tax effects
 
 
 
 
 
 
 
 
 
 
(25,197
)
 
(25,197
)
 
 
 
(25,197
)
Purchases of treasury stock
(916
)
 
(9
)
 
9

 
 
 
(75,000
)
 
 
 
(75,000
)
 
 
 
(75,000
)
Equity forward contract
 
 
 
 
40,000

 
 
 
 
 
 
 
40,000

 
 
 
40,000

Common stock issued, net of shares withheld for employee taxes
924

 
9

 
(6,196
)
 
(12,746
)
 
64,066

 
 
 
45,133

 
 
 
45,133

Stock-based compensation
 
 
 
 
32,649

 
 
 
 
 
 
 
32,649

 
 
 
32,649

Balance at April 30, 2018
148,961

 
$
1,490

 
$
1,678,921

 
$
2,223,287

 
$
(585,016
)
 
$
(62,389
)
 
$
3,256,293

 
$
4,104

 
$
3,260,397


(1) See Note 2. Summary of Significant Accounting Policies for additional information on the retained earnings adjustment due to adoption of Accounting Standards Codification (ASC) 606 and ASC 340.
(2) See Note 14. Taxes for additional information on the retained earnings adjustment due to adoption of Accounting Standard Update (ASU) 2016-16.
See accompanying notes to unaudited condensed consolidated financial statements.

4




SYNOPSYS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended 
 April 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
271,724

 
$
98,781

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and depreciation
102,841

 
96,829

Amortization of capitalized costs to obtain revenue contracts
28,425

 

Stock compensation
75,374

 
65,288

Allowance for doubtful accounts
3,950

 
3,367

(Gain) loss on sale of property and investments
(3,744
)
 
(93
)
Deferred income taxes
(23,486
)
 
38,878

Net changes in operating assets and liabilities, net of acquired assets and liabilities:
 
 
 
Accounts receivable
23,478

 
(105,457
)
Inventories
(50,358
)
 
(40,997
)
Prepaid and other current assets
(18,547
)
 
(6,442
)
Other long-term assets
(91,271
)
 
(21,728
)
Accounts payable and accrued liabilities
(160,492
)
 
(131,763
)
Income taxes
(32,059
)
 
(44,577
)
Deferred revenue
82,966

 
52,229

Net cash provided by operating activities
208,801

 
4,315

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of short-term investments

 
12,449

Proceeds from sales of long-term investments
4,176

 

Proceeds from sales of property and equipment

 
1,662

Purchases of property and equipment
(68,962
)
 
(48,612
)
Cash paid for acquisitions and intangible assets, net of cash acquired

 
(643,537
)
Capitalization of software development costs
(1,491
)
 
(1,760
)
Net cash used in investing activities
(66,277
)
 
(679,798
)
Cash flows from financing activities:
 
 
 
Proceeds from credit facilities
188,760

 
450,000

Repayment of debt
(366,562
)
 
(69,687
)
Issuances of common stock
83,352

 
58,975

Payments for taxes related to net share settlement of equity awards
(13,173
)
 
(11,883
)
Purchase of equity forward contract
(20,000
)
 

Purchases of treasury stock
(109,185
)
 
(235,000
)
Other
(762
)
 

Net cash (used in) provided by financing activities
(237,570
)
 
192,405

Effect of exchange rate changes on cash, cash equivalents and restricted cash
3,093

 
5,773

Net change in cash, cash equivalents and restricted cash
(91,953
)
 
(477,305
)
Cash, cash equivalents and restricted cash, beginning of period
725,001

 
1,050,075

Cash, cash equivalents and restricted cash, end of period
$
633,048

 
$
572,770

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 by designers 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 and quality of software code in a wide variety of industries, including electronics, financial services, media, 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 Synopsys’ Annual Report on Form 10-K for the fiscal year ended October 31, 2018 as filed with the SEC on December 17, 2018.
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.
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 every five or six 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 2019 is a 52-week year and will end on November 2, 2019. Fiscal 2018 was a 53-week year and ended on November 3, 2018.
The results of operations for the first six months of fiscal 2019 and 2018 included 26 weeks and 27 weeks, respectively, and ended on May 4, 2019 and May 5, 2018, respectively. For presentation purposes, the unaudited condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.
Segment Reporting. Effective in fiscal 2019, the Company realigned its business to evaluate the results of its Software Integrity business separately from Synopsys’ traditional electronic design automation (EDA) and semiconductor IP business. The Chief Operating Decision Makers (CODMs) now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. Synopsys' CODMs are its two co-Chief Executive Officers. Historical segment disclosures have been recast to retrospectively reflect the change from one to two reportable segments.

6



Goodwill. Effective in the first quarter of fiscal 2019, with the change in the Company’s reportable segments, the Company has determined there are now two reporting units, requiring goodwill to be allocated to the two reporting units using a relative fair value method. Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and identifiable intangible assets acquired by the Company. The carrying amount of goodwill at each reporting unit is tested for impairment annually as of October 31, or more frequently if facts and circumstances warrant a review. As a result of changes to the Company's segment reporting, the Company conducted a quantitative impairment test for each of its reporting units and concluded that there was no impairment. The Company performs either a qualitative or quantitative analysis when testing a reporting unit’s goodwill for impairment. A qualitative goodwill impairment test is performed when the fair value of a reporting unit historically has significantly exceeded the carrying value of its net assets and based on current operations is expected to continue to do so. Otherwise, the Company is required to conduct a quantitative impairment test for each reporting unit and estimates the fair value of each reporting unit using a combination of a discounted cash flow analysis and a market approach based on market multiples. The discount rate used in an income approach is based on the Company's weighted-average cost of capital and may be adjusted for the relevant risks pertaining to projecting future cash flows. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference. Refer to Note 3. Goodwill and Intangible Assets for a discussion of the change in reporting units as related to the realignment of the Company’s segments.
Revenue Recognition. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC 606), "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in “Revenue Recognition (ASC 605).” The new guidance creates a single, principle-based model for revenue recognition that is intended to expand and improve companies' revenue disclosures. For revenue recognition policies under ASC 605, refer to Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended October 31, 2018.
ASC 606 requires a company to recognize revenue when goods are transferred or services are provided to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. ASC 606 also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to ASC 606, including amendments that deferred the initially proposed adoption date and clarified accounting for licenses of intellectual property and identifying performance obligations.
The Company adopted ASC 606 at the beginning of fiscal 2019 using the modified retrospective transition method. Under this method, periods prior to the adoption date are not adjusted and continue to be reported under the revenue accounting literature in effect during those periods. The Company evaluated contracts that were in effect at the beginning of fiscal 2019 as if they had been accounted for under ASC 606 from the contract inception and summarized the most significant adoption impacts as follows:
Revenue for certain ongoing contracts that was previously deferred would have been recognized in the periods prior to adoption under ASC 606. Therefore, upon adoption, the Company recorded the following adjustments to the beginning balances to reflect the amount of revenue that will no longer be recognized in future periods for such contracts: an increase to retained earnings of $265.1 million, a decrease to unbilled receivables of $27.4 million, an increase to contract assets of $126.9 million, and a decrease in deferred revenue of $165.6 million.
The Company capitalized $73.8 million of incremental costs for obtaining contracts with customers at the adoption date with a corresponding adjustment to retained earnings and is amortizing these costs over the contract term.
The Company recorded an increase in its opening deferred tax liability of $81.4 million, with a corresponding adjustment to retained earnings, to record the tax effect of the above adjustments.

7



The impacts of adopting ASC 606 on the Company's unaudited condensed consolidated financial statements for the six months are summarized in the tables below.
Balance Sheet Accounts
The following table summarizes the effects of adopting ASC 606 on certain account balances of the unaudited condensed consolidated balance sheet that were impacted as of April 30, 2019:
 
As reported under ASC 606
 
Adjustments
 
Adjusted balance under ASC 605
 
(in thousands)
Receivables, net
$
526,691

 
$
61,849

 
$
588,540

Prepaid and other current assets
259,849

 
(168,487
)
 
91,362

Deferred income taxes
352,667

 
67,763

 
420,430

Other long-term assets
380,682

 
(96,441
)
 
284,241

Accounts payable and other accrued liabilities
365,848

 
(9,499
)
 
356,349

Deferred revenue
1,194,404

 
91,067

 
1,285,471

Long-term deferred revenue
60,825

 
73,454

 
134,279

Other long-term liabilities (1)
324,217

 
(16,671
)
 
307,546

Retained earnings
2,912,811

 
(273,667
)
 
2,639,144

(1) Includes long-term deferred tax liabilities.
Statements of Operations
The following table summarizes the effects of adopting ASC 606 on the unaudited condensed consolidated statements of operations for the three and six months ended April 30, 2019:

8



 
Three Months Ended 
 April 30, 2019
 
Six Months Ended 
 April 30, 2019
 
As reported under ASC 606
 
Adjustments
 
Adjusted under ASC 605
 
As reported under ASC 606
 
Adjustments
 
Adjusted under ASC 605
 
(in thousands, except per share amounts)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
    Time-based products
$
558,305

 
$
86,762

 
$
645,067

 
$
1,112,021

 
$
102,618

 
$
1,214,639

    Upfront products
143,401

 
(61,057
)
 
82,344

 
273,914

 
(77,843
)
 
196,071

    Maintenance and service
134,536

 
(9,379
)
 
125,157

 
270,708

 
(30,793
)
 
239,915

Total revenue
836,242

 
16,326

 
852,568

 
1,656,643

 
(6,018
)
 
1,650,625

Cost of Revenue:
 
 
 
 


 
 
 
 
 


    Products
116,010

 

 
116,010

 
232,630

 

 
232,630

    Maintenance and service
59,788

 

 
59,788

 
118,617

 

 
118,617

Amortization of intangible assets
14,881

 

 
14,881

 
32,324

 

 
32,324

Total cost of revenue
190,679

 

 
190,679

 
383,571

 

 
383,571

Gross margin
645,563

 
16,326

 
661,889

 
1,273,072

 
(6,018
)
 
1,267,054

Operating expenses:
 
 
 
 


 
 
 
 
 


Research and development
290,299

 

 
290,299

 
561,625

 

 
561,625

    Sales and marketing
158,652

 
1,942

 
160,594

 
314,611

 
13,126

 
327,737

General and administrative
56,351

 

 
56,351

 
98,412

 

 
98,412

Amortization of intangible assets
10,316

 

 
10,316

 
21,100

 

 
21,100

Restructuring
14,443

 

 
14,443

 
14,408

 

 
14,408

Total operating expenses
530,061

 
1,942

 
532,003

 
1,010,156

 
13,126

 
1,023,282

Operating income
115,502

 
14,384

 
129,886

 
262,916

 
(19,144
)
 
243,772

Other income (expense), net
18,415

 

 
18,415

 
18,056

 

 
18,056

Income before provision for income taxes
133,917

 
14,384

 
148,301

 
280,972

 
(