Press Releases

Synopsys Posts Financial Results for First Quarter Fiscal Year 2007
PRNewswire-FirstCall
MOUNTAIN VIEW, Calif.

Synopsys, Inc. (NASDAQ: SNPS), a world leader in semiconductor design software, today reported results for its first quarter ended January 31, 2007.

For the first quarter, Synopsys reported revenue of $300.2 million, a 15 percent increase compared to $260.2 million for the first quarter of fiscal 2006.

"After a very successful 2006, we continued our excellent execution with a strong first quarter of 2007," said Aart de Geus, chairman and CEO of Synopsys. "We delivered excellent financial results, and saw continued product momentum with technology advances, competitive wins, and customer adoptions."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the first quarter of fiscal 2007 was $23.4 million, or $0.16 per share, compared to $1.7 million, or $0.01 per share, for the first quarter of fiscal 2006.

Non-GAAP Results

On a non-GAAP basis, net income for the first quarter of fiscal 2007 was $44.0 million, or $0.30 per share, compared to non-GAAP net income of $26.4 million, or $0.18 per share, for the first quarter of fiscal 2006.

Non-GAAP net income consists of GAAP net income excluding employee stock- based compensation expense calculated in accordance with FAS 123( R ) and, to the extent incurred in a particular quarter or period, amortization of intangible assets, in-process research and development charges, integration and other acquisition-related expenses, facilities and workforce realignment charges, and other significant items which, in the opinion of management, are infrequent or non-recurring. See "GAAP Reconciliation" below.

Financial Targets

Synopsys also announced its operating model targets for the second quarter and full fiscal year 2007. These targets constitute forward-looking information and are based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see "Forward-Looking Statements" below.

  Second Quarter of Fiscal 2007 Targets:

  -- Revenue: $285 million - $295 million
  -- GAAP expenses: $255 million - $276 million
  -- Non-GAAP expenses: $230 million - $245 million
  -- Other income and expense: $0 million - $5 million
  -- Tax rate applied in non-GAAP net income calculations: 27 - 28 percent
  -- Fully diluted outstanding shares: 145 million - 151 million
  -- GAAP earnings per share: $0.11 - $0.17
  -- Non-GAAP earnings per share: $0.26 - $0.29
  -- Revenue from backlog: more than 90 percent

  Full-Year Fiscal Year 2007 Targets

  -- Revenue: $1.185 billion - $1.205 billion
  -- Tax rate applied in non-GAAP net income calculations: 26 - 27 percent
  -- Fully diluted outstanding shares: 145 million - 151 million
  -- GAAP earnings per share: $0.64 - $0.77
  -- Non-GAAP earnings per share: $1.23 - $1.31
  -- Cash flow from operations: greater than $275 million

  GAAP Reconciliation

Synopsys' management evaluates and makes decisions about the Company's business operations primarily based on the bookings, revenue and direct, ongoing and recurring costs of those operations. Management does not believe amortization of intangible assets, in-process research and development charges, integration and other acquisition-related expenses, facilities and workforce realignment charges and other significant infrequent items are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while employee stock- based compensation expense calculated in accordance with FAS 123( R ) and change in the fair value of the Company's non-qualified deferred plan compensation plan obligations constitute ongoing and recurring expenses of the Company, such expenses are excluded from non-GAAP results because they are not expenses that require cash settlement by the Company and because such expenses are not used by management to assess the core profitability of the Company's business operations. Therefore, management excludes such costs, to the extent incurred in a particular quarter, from the following GAAP financial measures included in this earnings release: total cost of revenue, gross margin, total operating expenses, operating income (loss), income (loss) before provision (benefit) for income taxes, provision (benefit) for income taxes, net income (loss) and net income (loss) per share.

For each such measure, excluding these costs provides management with more consistent, comparable information about the Company's core profitability. For example, since the Company does not acquire businesses on a predictable cycle, management would have difficulty evaluating the Company's profitability as measured by gross margin, operating margin, income before taxes and net income on a period-to-period basis unless it excluded acquisition-related charges. Similarly, the Company does not undertake significant restructuring or realignments on a regular basis, and, as a result, excludes associated charges in order to enable better and more consistent evaluations of the Company's operating expenses before and after such actions are taken. Management also uses these measures to help it make budgeting decisions, for example, as between product development expenses (which affect cost of revenue and gross margin) and research and development, sales and marketing and general and administrative expenses (which affect operating expenses and operating margin). Finally, the availability of such information helps management track performance to both internal and externally communicated financial targets and to its competitors' operating results.

Management recognizes that the use of these non-GAAP measures has certain limitations, including the fact that management must exercise judgment in determining whether certain types of charges, such as those relating to workforce reductions executed in the ordinary course, should be excluded from non-GAAP results. However, management believes that, although it is important for investors to understand GAAP measures, providing investors with these non- GAAP measures gives them additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations.

Reconciliation of First Quarter Results

The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for the first quarter 2007.

         GAAP to Non-GAAP Reconciliation of First Quarter Results
                 (in thousands, except per share amounts)

  Income Statement Reconciliation                    Three Months Ended
                                                         January 31,
                                                   2007              2006

  GAAP net income                                $23,357            $1,697
  Adjustments:
   Amortization of intangible assets              13,353            16,000
   Share-based compensation                       16,215            18,492
   In-process research and development               -                 800
   Tax effect                                     (8,920)          (10,550)
  Non-GAAP net income                            $44,005           $26,439



  Earnings Per Share Reconciliation                   Three Months Ended
                                                          January 31,
                                                    2007              2006
  GAAP earnings per share                          $0.16             $0.01
  Adjustments:
   Amortization of intangible assets                0.09              0.11
   Share-based compensation                         0.11              0.12
   In-process research and development               -                0.01
   Tax effect                                      (0.06)            (0.07)
  Non-GAAP earnings per share                      $0.30             $0.18

  Shares used in calculation                     148,113           146,969


  Reconciliation of Target Operating Results

The following tables reconcile the specific items excluded from GAAP in the calculation of target non-GAAP operating results for the periods indicated below:

GAAP to Non-GAAP Reconciliation of Second Quarter Fiscal Year 2007 Targets
                 (in thousands, except per share amounts)

                                                  Range for Three Months
                                                   Ending April 30, 2007
                                                  Low               High

  Target GAAP expenses                          $255,000          $276,000
  Adjustment:
   Estimated impact of amortization of
    intangible assets                            (11,000)          (13,000)
   Estimated impact of share-based compensation  (14,000)          (18,000)
  Target non-GAAP expenses                      $230,000          $245,000


                                                   Range for Three Months
                                                   Ending April 30, 2007
                                                   Low               High

  Target GAAP earnings per share                   $0.11             $0.17
  Adjustment:
   Estimated impact of amortization of
    intangible assets                               0.09              0.07
   Estimated impact of share-based compensation     0.12              0.10
   Net non-GAAP tax effect                         (0.06)            (0.05)
  Target non-GAAP earnings per share               $0.26             $0.29

  Shares used in non-GAAP calculation
   (midpoint of target range)                    148,000           148,000


       GAAP to Non-GAAP Reconciliation of Fiscal Year 2007 Targets

                                                   Range for Fiscal Year
                                                  Ending October 31, 2007
                                                   Low               High

  Target GAAP earnings per share                   $0.64             $0.77
  Adjustment:
   Estimated impact of amortization of
    intangible assets                               0.33              0.32
   Estimated impact of share-based compensation     0.49              0.46
   Net non-GAAP tax effect                         (0.23)            (0.24)
  Target non-GAAP earnings per share               $1.23             $1.31

  Shares used in non-GAAP calculation
   (midpoint of target range)                    148,000           148,000


  Earnings Call Open to Investors

Synopsys will hold a conference call for financial analysts and investors today at 2:00 p.m., Pacific Time. A live webcast of the call will be available at Synopsys' corporate website at http://www.synopsys.com/corporate/invest/invest.html. A recording of the call will be available by calling 1-800-475-6701 (320-365-3844 for international callers), access code 862702, beginning at 5:30 p.m. Pacific Time today. A webcast replay will also be available at http://www.synopsys.com/corporate/invest/invest.html from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the second quarter of fiscal 2007 in May 2007. In addition, Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and chief executive officer, and Brian Beattie, chief financial officer, on its website following the call.

Effectiveness of Information

The targets included in this release, the statements made during the earnings conference call and the information contained in the financial supplement represent Synopsys' expectations and beliefs as of the date of this release only. Although this press release, copies of the prepared remarks of the chief executive officer and chief financial officer made during the call and the financial supplement will remain available on Synopsys' website through the date of the second quarter earnings call in May 2007, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity. Synopsys does not currently intend to report on its progress during the second quarter of fiscal 2007 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release until it releases such results in May 2007.

Availability of Final Financial Statements

Synopsys will include final financial statements for the first quarter of fiscal 2007 in its Quarterly Report on Form 10-Q to be filed in March 2007.

About Synopsys

Synopsys, Inc. (NASDAQ: SNPS) is a world leader in electronic design automation (EDA) software for semiconductor design. The company delivers technology-leading semiconductor design and verification platforms and IC manufacturing software products to the global electronics market, enabling the development and production of complex systems-on-chips. Synopsys also provides intellectual property and design services to simplify the design process and accelerate time-to-market for its customers. Synopsys is headquartered in Mountain View, California and has offices in more than 60 locations throughout North America, Europe, Japan and Asia. Visit Synopsys online at http://www.synopsys.com/.

Forward-Looking Statements

The statements made in this press release regarding projected financial results in the sections entitled "Financial Targets," and "Reconciliation of Target Operating Results" and certain statements made in the earnings conference call are forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those described by these statements due to a number of uncertainties, including, but not limited to:

  -- weakness or continued budgetary caution in the semiconductor or
     electronics industries;
  -- lower-than-expected research and development spending by semiconductor
     and electronic systems companies;
  -- competition in the market for Synopsys' products and services;
  -- lower-than-anticipated new IC design starts;
  -- lower-than-anticipated purchases or delays in purchases of software or
     consulting services by Synopsys' customers;
  -- failure of customers to pay license fees as scheduled;
  -- unexpected changes in the mix of time-based licenses and upfront
     licenses;
  -- failure of our cost control efforts, including our recent efforts to
     outsource certain internal functions, to result in the anticipated
     savings;
  -- failure to successfully develop additional intellectual property blocks
     for its IP business or to develop and integrate its design for
     manufacturing products; and
  -- difficulties in the integration of the products and operations of
     acquired companies or assets into Synopsys' products and operations.

In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the fiscal quarter ending April 30, 2007 and actual earnings per share and operating cash flow on a GAAP basis for fiscal year 2007 could differ materially from the targets stated under "Financial Targets" above for a number of reasons, including (i) a determination by Synopsys that any portion of its goodwill or intangible assets have become impaired, (ii) application of the actual consolidated GAAP tax rate for such periods, (iii) integration and other acquisition-related expenses, amortization of additional intangible assets associated with future acquisitions, if any, (iv) changes in the anticipated amount of employee stock-based compensation recognized on the Company's financial statements, (v) actual change in the fair value of the Company's non-qualified deferred compensation plan obligations, (vi) increases or decreases to estimated capital expenditures, and (vii) and charges driven by adoption of Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," which we are required to adopt during fiscal year 2007. Furthermore, Synopsys' actual tax rates applied to non-GAAP net income for the second quarter and full-year fiscal 2007 could differ from the targets given in this press release as a result of a number of factors, including the actual geographic mix of revenue during the quarter. Finally, Synopsys' targets for outstanding shares in the second quarter and full-year fiscal 2007 could differ from the targets given in this press release as a result of higher than expected employee stock plan issuances, acquisitions and the extent of the Company's stock repurchase activity.

Synopsys is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this earnings release, the conference call or the financial supplement whether as a result of new information, future events or otherwise, unless otherwise required by law.

NOTE: Synopsys is a registered trademark of Synopsys, Inc. Any other trademarks mentioned in this release are the intellectual property of their respective owners.

   INVESTOR CONTACT:
   Lisa L. Ewbank
   Synopsys, Inc.
   650-584-1901

   EDITORIAL CONTACT:
   Yvette Huygen
   Synopsys, Inc.
   650-584-4547
   yvetteh@synopsys.com


                              SYNOPSYS, INC.
      Unaudited Condensed Consolidated Statements of Operations (1)
                 (in thousands, except per share amounts)

                                        Three Months Ended January 31, 2007

                                            GAAP   Adjustments(2) Non-GAAP
  Revenue:
    Time-based license                    $251,606       $-      $251,606
    Upfront license                         13,503        -        13,503
    Maintenance and service                 35,101        -        35,101
        Total revenue                      300,210        -       300,210
  Cost of revenue:
    License                                 35,520     (2,023)     33,497
    Maintenance and service                 16,146       (832)     15,314
    Amortization of intangible assets        6,709     (6,709)        -
       Total cost of revenue                58,375     (9,564)     48,811
  Gross margin                             241,835      9,564     251,399
  Operating expenses:
    Research and development                95,884     (6,767)     89,117
    Sales and marketing                     89,808     (6,556)     83,252
    General and administrative              29,677     (3,747)     25,930
    In-process research and development        -          -           -
    Amortization of intangible assets        6,644     (6,644)        -
       Total operating expenses            222,013    (23,714)    198,299
  Operating income                          19,822     33,278      53,100
  Other income, net                          7,934     (3,710)      4,224
  Income before income taxes                27,756     29,568      57,324
  Income tax provision                       4,399      8,920      13,319
  Net income                               $23,357    $20,648     $44,005

  Net income per share:
    Basic                                    $0.16                  $0.31
    Diluted                                  $0.16                  $0.30

  Shares used in computing per share
   amounts:
    Basic                                  142,772                142,772
    Diluted                                148,113                148,113


                                       Three Months Ended January 31, 2006

                                            GAAP   Adjustments(2) Non-GAAP
  Revenue:
    Time-based license                    $211,110       $-      $211,110
    Upfront license                          8,367        -         8,367
    Maintenance and service                 40,712        -        40,712
        Total revenue                      260,189        -       260,189
  Cost of revenue:
    License                                 30,057     (1,687)     28,370
    Maintenance and service                 16,573       (856)     15,717
    Amortization of intangible assets        8,659     (8,659)        -
       Total cost of revenue                55,289    (11,202)     44,087
  Gross margin                             204,900     11,202     216,102
  Operating expenses:
    Research and development                88,389     (8,934)     79,455
    Sales and marketing                     77,671     (5,191)     72,480
    General and administrative              31,045     (3,401)     27,644
    In-process research and development        800       (800)        -
    Amortization of intangible assets        7,341     (7,341)        -
       Total operating expenses            205,246    (25,667)    179,579
  Operating income                            (346)    36,869      36,523
  Other income, net                          3,372     (1,577)      1,795
  Income before income taxes                 3,026     35,292      38,318
  Income tax provision                       1,329     10,550      11,879
  Net income                                $1,697    $24,742     $26,439

  Net income per share:
    Basic                                    $0.01                  $0.18
    Diluted                                  $0.01                  $0.18

  Shares used in computing per share
   amounts:
    Basic                                  144,989                144,989
    Diluted                                146,969                146,969

  (1) Synopsys' first quarter ends on the Saturday nearest to January 31
      (i.e. February 3).  For presentation purposes, the Unaudited Condensed
      Consolidated Statements of Operations refer to a calendar month end.

  (2) Adjustments consist of share-based compensation and related tax effect
      under FAS 123( R ), changes in fair value of non-qualified deferred
      compensation plan obligation and to the extent incurred amortization
      of intangible assets, in-process research and development charges,
      integration and other significant items, which in the opinion of
      management are extraordinary.  Pre-tax income for the three months
      ended January 31, 2007 included total share-based compensation of
      $16.2 million as follows: cost of revenue $2.6 million; research &
      development $4.7 million; sales & marketing $5.7 million; general &
      administrative $3.2 million.  For the three months period ended
      January 31, 2006, approximately $18.4 million of share-based
      compensation was recorded. During the quarter ended January 31, 2007,
      the change in the fair value of the non-qualified plan obligation was
      a increase of $3.7 million.  This resulted in increased compensation
      expense of $3.7 million ($0.2 million cost of revenue, $2.0 million
      research & development, $0.9 million sales & marketing, $0.6 million
      general & administrative), and a corresponding increase to other
      income, net. During the quarter ended January 31, 2006, the change in
      the fair value of the non-qualified plan obligation was an increase of
      $1.6 million. There was no net effect on income before taxes or net
      income for each of the respective quarters.


                              SYNOPSYS, INC.
         Unaudited Condensed Consolidated Balance Sheets (1) (2)
                 (in thousands, except par value amounts)

                                          January 31, 2007  October 31, 2006
  ASSETS:
  Current assets:
    Cash and cash equivalents                   $377,156           $330,759
    Short-term investments                       302,549            241,963
    Total cash, cash equivalents and
     short-term investments                      679,705            572,722
    Accounts receivable, net                     141,081            122,584
    Deferred income taxes                        111,399            112,342
    Income taxes receivable                       41,487             42,538
    Prepaid expenses and other current assets     50,319             44,304
            Total current assets               1,023,991            894,490
  Property and equipment, net                    139,585            140,660
  Long-term investments                            4,957              4,877
  Goodwill                                       735,132            735,643
  Intangible assets, net                          92,899            106,144
  Long-term deferred income taxes                204,979            206,254
  Other assets                                    74,221             69,754
             Total assets                     $2,275,764         $2,157,822

  LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
    Accounts payable and accrued liabilities    $168,107           $234,149
    Accrued income taxes                         183,929            191,349
    Deferred revenue                             522,922            445,598
             Total current liabilities           874,958            871,096
  Deferred compensation and other liabilities     72,249             69,889
  Long-term deferred revenue                      60,697             53,670
             Total liabilities                 1,007,904            994,655
  Stockholders' equity:
    Preferred stock, $0.01 par value: 2,000
     shares authorized; none outstanding             -                  -
    Common stock,  $0.01 par value: 400,000
     shares authorized; 144,294 and 140,568
     shares outstanding, respectively              1,443              1,406
    Capital in excess of par value             1,332,930          1,316,252
    Retained earnings                            192,838            170,743
    Treasury stock, at cost: 12,912
     and 16,619 shares, respectively            (248,304)          (312,753)
    Accumulated other comprehensive loss         (11,047)           (12,481)
             Total stockholders' equity        1,267,860          1,163,167
             Total liabilities and
              stockholders' equity            $2,275,764         $2,157,822

  (1) Synopsys' first quarter ends on the Saturday nearest to January 31
      (i.e. February 3).  For presentation purposes, the Unaudited Condensed
      Consolidated Balance Sheets refer to a calendar month end.

  (2) The prior year tax provision and related balance sheet accounts
      (long-term deferred income taxes, capital in excess of par value and
      retained earnings accounts) have been revised to reflect immaterial
      adjustments originating in years prior to fiscal 2006.


                              SYNOPSYS, INC.
    Unaudited Condensed Consolidated Statements of Cash Flows (1) (2)
                              (in thousands)

                                              Three Months Ended January 31,
                                                  2007              2006
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                     $23,357            $1,697
  Adjustments to reconcile net income to net
   cash provided by operating activities:
   Amortization and depreciation                  26,966            29,729
   Share-based compensation                       16,215            18,430
   Provision for doubtful accounts                  (130)              -
   Amortization of premium (discount) on
    short-term investments                           213               (92)
   (Gain) loss on sale of short-term investment       (3)               14
   Deferred income taxes                             804               (52)
   Net change in deferred gains and
    losses on cash flow hedges                     1,306              (567)
   In-process research and development               -                 800
   Net changes in operating assets and liabilities,
    net of acquired assets and liabilities:
    Accounts receivable                          (18,354)           17,203
    Prepaid expenses and other current assets     (5,840)           (6,768)
    Other assets                                     217            (3,425)
    Accounts payable and accrued liabilities     (66,075)          (93,130)
    Accrued income taxes                          (6,206)           (2,775)
    Deferred revenue                              84,351            54,745
    Deferred compensation and other liabilities     (756)            3,900
   Net cash provided by operating activities      56,065            19,709

  CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sales and maturities of
    short-term investments                        65,129            88,706
   Purchases of short-term investments          (126,161)         (106,396)
   Purchases of long-term investments                -              (1,539)
   Purchases of property and equipment           (11,510)           (7,539)
   Cash paid for acquisitions, net of
    cash received                                    -             (11,894)
   Capitalization of software development costs     (783)             (762)
   Net cash used in investing activities         (73,325)          (39,424)

  CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuances of common stock                      81,583            10,433
   Purchases of treasury stock                   (18,070)          (80,982)
   Net cash provided by (used in)
    financing activities                          63,513           (70,549)
  Effect of exchange rate changes on
   cash and cash equivalents                         144               326
  Net change in cash and cash equivalents         46,397           (89,938)
  Cash and cash equivalents, beginning
   of period                                     330,759           404,436
  Cash and cash equivalents, end of period      $377,156          $314,498

  (1) Synopsys' first quarter ends on the Saturday nearest to January 31
      (i.e. February 3).  For presentation purposes, the Unaudited Condensed
      Consolidated Balance Sheets refer to a calendar month end.

  (2) The prior year tax provision and related balance sheet accounts
      (long-term deferred income taxes, capital in excess of par value and
      retained earnings accounts) have been revised to reflect immaterial
      adjustments originating in years prior to fiscal 2006.

SOURCE: Synopsys, Inc.

CONTACT: INVESTOR CONTACT: Lisa L. Ewbank, +1-650-584-1901, or EDITORIAL
CONTACT: Yvette Huygen, +1-650-584-4547, or yvetteh@synopsys.com, both of
Synopsys, Inc.

Web site: http://www.synopsys.com/