Press Releases

Synopsys Posts Financial Results for First Quarter of Fiscal 2005
PRNewswire-FirstCall
MOUNTAIN VIEW, Calif.

Synopsys, Inc. (NASDAQ: SNPS), a world leader in semiconductor design software, today reported results for the first quarter ended January 31, 2005.

For the quarter, Synopsys reported revenue of $241.3 million, a 15% decrease compared to revenue of $285.3 million for the first quarter of fiscal 2004, but in line with the Company's targets. The decrease was expected, and is due primarily to a lower percentage of upfront license revenue, driven by the shift in the fourth quarter of fiscal 2004 in Synopsys' license mix away from software licenses on which revenue is recognized when the product is shipped toward licenses on which revenue is recognized over the term of the license.

GAAP Results

On a generally accepted accounting principles (GAAP) basis, for the first quarter of fiscal 2005, net loss was ($14.6) million, or ($0.10) per share, compared to net income of $32.2 million, or $0.19 per share, for the first quarter of fiscal 2004.

Non-GAAP Results

On a non-GAAP basis, for the first quarter of fiscal 2005, net income was $14.4 million, or $0.10 per share, compared to non-GAAP net income of $54.3 million, or $0.33 per share, for the first quarter of fiscal 2004.

The year-over-year decrease in GAAP and Non-GAAP net income was due primarily to lower revenue due to the license mix shift, increased compensation costs as a result of additional headcount added in fiscal 2004 primarily due to acquisitions, and, in the case of GAAP net income, in-process research and development charges related to the first quarter acquisition of ISE Integrated Systems Engineering AG.

Other income for the first quarter of fiscal 2005 was approximately $4.7 million, higher than expected due primarily to a one-time recognition of $3.9 million of cumulative and current quarter gains on the Company's yen-dollar hedges, based on a reevaluation of the application of SFAS 133 on the Company's hedging activity.

A description of the items excluded from non-GAAP results and a reconciliation of GAAP and non-GAAP results are contained in the section entitled "GAAP Reconciliation" below, and the Unaudited Condensed Consolidated Statements of Income included in this press release.

"Q1 was a very good quarter. I am excited to see the pieces coming together on a vision we have been pursuing for several years," said Aart de Geus, chairman and chief executive officer. "Across the board, our latest technology advances are showing success and the anticipation of new technology in 2005 is contributing to the momentum we see. We are also expanding our addressable market beyond the traditional bounds of EDA and adding significantly to Synopsys' competitive differentiation."

Fiscal 2005 Financial Targets

Synopsys also announced its operating model targets for the second quarter and full fiscal year 2005. These targets are 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 2005 Targets

   *    Revenue:  $238 million - $248 million
   *    Non-GAAP expenses:  $222 million - $232 million
   *    GAAP expenses: $258 million - $268 million
   *    Other income and expense:  $(2) million - $2 million
   *    Fully diluted outstanding shares:  142 million - 150 million
   *    Tax rate applied in net income calculations:  28%
   *    Non-GAAP earnings:  $0.06 - $0.10 per share
   *    GAAP earnings: $(0.12) - $(0.08) per share
   *    Revenue from backlog:  > 90% of revenue

   Fiscal Year 2005 Targets

   *    Revenue:  $940 million - $980 million
   *    Fully diluted outstanding shares:  142 million - 150 million
   *    Tax rate applied in net income calculations:  31%
   *    Non-GAAP earnings:  $0.26 - $0.36 per share
   *    GAAP earnings: $(0.29) - $(0.19) per share

These targets supersede all fiscal 2005 financial targets previously given by Synopsys. The full-year fiscal 2005 GAAP earnings targets above do not include the impact of new accounting rules requiring the expensing of stock options which take effect during Synopsys' fourth quarter of fiscal 2005.

GAAP Reconciliation

Non-GAAP net income consists of GAAP net income excluding, to the extent incurred in a particular quarter or fiscal year, amortization of intangible assets and deferred stock compensation, in-process research and development charges, integration and other acquisition-related expenses and facilities and workforce realignment charges. Intangible assets consist primarily of purchased technology, contract rights intangible, customer-installed base/relationships, trademarks and tradenames, covenants not to compete, customer backlog and other intangibles. Non-GAAP net income is reduced by the amount of additional taxes that Synopsys would accrue if it used non-GAAP results instead of GAAP results to calculate Synopsys' tax liability.

Synopsys' management evaluates and makes operating decisions primarily based on the bookings and revenues of its core software and services business operations and the direct, ongoing and recurring costs of those operations such as cost of revenues and research and development, sales and marketing and general and administrative expenses. Management does not believe amortization of intangible assets and deferred stock compensation, in-process research and development charges, integration and other acquisition-related expenses and facilities and workforce realignment charges are ordinary, ongoing and recurring operating charges for Synopsys' core software and services business operations. Therefore, management calculates the non-GAAP financial measures used in this earnings release excluding these charges and uses these non-GAAP financial measures to enable it to analyze further and more consistently the period-to-period financial performance of its core business operations. 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 earnings per share and non-GAAP expenses for the first quarter of fiscal 2005. A reconciliation of non-GAAP to GAAP net income for the first quarter is included in the Unaudited Condensed Consolidated Statements of Income contained elsewhere in this release.

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

                                                    Three Months Ended
                                                         January 31,
                                                   2005              2004
  GAAP earnings (loss) per share                  $(0.10)            $0.19
  Adjustments:
   Amortization of intangible assets and
    deferred stock compensation                     0.25              0.21
   In-process research and development              0.04                --
   Realignment charges, net of those
    settled at a lower cost than estimated            --             (0.01)
   Facilities realignment charges                     --              0.01
   Tax effect                                      (0.09)            (0.07)
  Non-GAAP earnings per share                      $0.10             $0.33

  Shares used in calculation                     146,060           165,864


                                                          Three Months Ended
                                                           January 31, 2005

  GAAP expenses                                                $265,657
  Adjustments:
   Amortization of intangible assets and deferred
    stock compensation                                          (36,951)
   In process research and development                           (5,700)
  Non-GAAP expenses                                            $223,006


  Reconciliation of Estimated 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 Target Second Quarter and
                         Fiscal Year 2005 Targets
                  (in thousands, except per share data)

                                                   Range for Three Months
                                                    Ending April 30, 2005
                                                   Low               High
  Target GAAP expenses                          $258,000          $268,000
  Adjustment:
   Estimated impact of amortization of intangible
    assets and deferred stock compensation       (36,000)          (36,000)
  Target Non-GAAP expenses                      $222,000          $232,000


                                                   Range for Three Months
                                                    Ending April 30, 2005
                                                   Low               High
  Target GAAP loss per share                      $(0.12)           $(0.08)
  Adjustment:
   Estimated impact of amortization of intangible
    assets and deferred stock compensation per
    share, net of tax effect                        0.18              0.18
  Target Non-GAAP earnings per share               $0.06             $0.10

  Shares used in calculation (midpoint
   of target range)                              146,000           146,000


                                                     Range for Fiscal Year
                                                     Ending October 31, 2005
                                                    Low               High
  Target GAAP earnings per share                  $(0.29)           $(0.19)
  Adjustment:
   In-process research and development              0.03              0.03
   Estimated impact of amortization of intangible
    assets and deferred stock compensation per
    share, net of tax effect                        0.52              0.52
  Target Non-GAAP earnings per share               $0.26             $0.36

  Shares used in calculation (midpoint
   of target range)                              146,000           146,000


  Additional Financial Information Available on Synopsys Website

In connection with this earnings release, Synopsys is making available to investors supplemental financial information, which can be found on Synopsys' website at http://www.synopsys.com/corporate/invest/finsupp/q105.pdf . Synopsys currently intends to provide this information on a quarterly basis.

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 1-800-553-5260 (612-332-0228 for international callers), access code 769579, 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 of the announcement of Synopsys' results for the second quarter of fiscal 2005 in May 2005. In addition, Synopsys will post copies of the prepared remarks of Aart de Geus, Chairman and Chief Executive Officer, and Steve Shevick, Chief Financial Officer, on its website at http://www.synopsys.com/corporate/invest/invest.html 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 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 2005, 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 2005 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release until it releases such results in May 2005. Furthermore, 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 required by law.

Availability of Final Financial Statements

Synopsys will include final financial statements for the first quarter of fiscal 2005 in its Quarterly Report on Form 10-Q to be filed in March 2005.

About Synopsys

Synopsys, Inc. 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 (SoCs). 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 "Fiscal 2005 Financial Targets," and "GAAP Reconciliation -- Reconciliation of Estimated Target Operating Results" 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 the risk of:

   *    continued weakness or continued budgetary caution in the
        semiconductor or electronic systems industries;
   *    lower-than-expected research and development spending by
        semiconductor and electronic systems companies;
   *    lower-than-anticipated purchases or delays in purchases of software
        or consulting services by Synopsys' customers, including delays in
        the renewal, or non-renewal, of Synopsys' license arrangements with
        major customers;
   *    unexpected changes in the mix of time-based licenses and upfront
        licenses;
   *    lower-than-expected bookings of licenses on which revenue is
        recognized upfront;
   *    lower-than-anticipated new IC design starts;
   *    competition in the market for Synopsys' products and services;
   *    failure to continue to improve Synopsys' existing products;
   *    failure to successfully develop additional intellectual property
        blocks for Synopsys' IP business or to develop and integrate its
        design for manufacturing products;
   *    difficulties in the ongoing integration of the products and
        operations of acquired companies or assets into Synopsys' products
        and operations; and
   *    continued downward pressure on maintenance orders, adversely
        affecting Synopsys' future level of service revenue.

In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the fiscal quarter ending April 30, 2005 and earnings per share on a GAAP basis for full fiscal year 2005 could differ materially from the targets stated under "Fiscal 2005 Financial Targets" above for a number of reasons, including (i) a determination by Synopsys that any portion of its intangible assets have become impaired, (ii) changes in deferred stock compensation expenses caused by employee terminations, and (iii) integration and other acquisition-related expenses, amortization of additional intangible assets and deferred stock compensation associated with future acquisitions, if any.

For further discussion of these and other factors that may cause results to differ from those projected in this release, readers are referred to the reports which Synopsys has filed with the Securities and Exchange Commission, and which are available at www.sec.gov, specifically contained in Part II, Item 7 of Synopsys' Annual Report on Form 10-K for the fiscal year ended October 31, 2004 filed with the SEC on January 12, 2005 entitled "Factors That May Affect Future Results." Synopsys is under no obligation to (and expressly disclaims any such obligation to) update or alter these forward-looking statements whether as a result of new information, future events or otherwise.

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

        Unaudited Condensed Consolidated Statements of Income (1)
                  (in thousands, except per share data)

                                       Three Months Ended January 31, 2005
                                           GAAP    Adjustments   Non-GAAP
  Revenue:
    Time-based license                    $186,284         --    $186,284
    Upfront license                         10,798         --      10,798
    Service                                 44,222         --      44,222
        Total revenue                      241,304         --     241,304
  Cost of revenue:
    License                                 24,847         --      24,847
    Maintenance and services                17,029         --      17,029
    Amortization of intangible assets
      and deferred stock compensation       28,099    (28,099)         --
       Total cost of revenue                69,975    (28,099)     41,876
  Gross margin                             171,329     28,099     199,428
  Operating expenses:
    Research and development                72,917         --      72,917
    Sales and marketing                     83,990         --      83,990
    General and administrative              24,223         --      24,223
    In-process research and development      5,700     (5,700)         --
    Amortization of intangible assets
      and deferred stock compensation        8,852     (8,852)         --
       Total operating expenses            195,682    (14,552)    181,130
  Operating income (loss)                  (24,353)    42,651      18,298
  Other income (expense), net                4,720         --       4,720
  Income (loss) before provision
   (benefit) for income taxes              (19,633)    42,651      23,018
  Provision (benefit) for income taxes      (5,081)    13,710       8,629
  Net income (loss)                       $(14,552)   $28,941     $14,389
  Basic earnings (loss) per share:
    Net income (loss) per share             $(0.10)                 $0.10
    Weighted-average common shares         146,060                146,060
  Diluted earnings (loss) per share:
    Net income (loss) per share             $(0.10)                 $0.10
    Weighted-average common shares
     and dilutive stock options
     outstanding                           146,060                146,998


                                        Three Months Ended January 31, 2004
                                           GAAP    Adjustments   Non-GAAP
  Revenue:
    Time-based license                    $170,598         --    $170,598
    Upfront license                         59,490         --      59,490
    Service                                 55,176         --      55,176
        Total revenue                      285,264         --     285,264
  Cost of revenue:
    License                                 20,331        197      20,528
    Maintenance and services                15,551         --      15,551
    Amortization of intangible assets
     and deferred stock compensation        25,240    (25,240)         --
       Total cost of revenue                61,122    (25,043)     36,079
  Gross margin                             224,142     25,043     249,185
  Operating expenses:
    Research and development                70,337        483      70,820
    Sales and marketing                     70,746        371      71,117
    General and administrative              29,137     (1,682)     27,455
    In-process research and development         --         --          --
    Amortization of intangible assets
     and deferred stock compensation         9,244     (9,244)         --
       Total operating expenses            179,464    (10,072)    169,392
  Operating income (loss)                   44,678     35,115      79,793
  Other income (expense), net               (1,069)        --      (1,069)
  Income (loss) before provision
   (benefit) for income taxes               43,609     35,115      78,724
  Provision (benefit) for income taxes      11,457     12,947      24,404
  Net income (loss)                        $32,152    $22,168     $54,320
  Basic earnings (loss) per share:
    Net income (loss) per share              $0.21                  $0.35
    Weighted-average common shares         156,316                156,316
  Diluted earnings (loss) per share:
    Net income (loss) per share              $0.19                  $0.33
    Weighted-average common shares
     and dilutive stock options
     outstanding                           165,864                165,864

   (1)  Synopsys' first quarter ends on the Saturday nearest to January 31.
        For presentation purposes, the unaudited condensed consolidated
        financial statements refer to a calendar month end.


                              SYNOPSYS, INC.
           Unaudited Condensed Consolidated Balance Sheets (1)
                              (in thousands)

                                               January 31,      October 31,
                                                  2005              2004
  ASSETS:
  Current assets:
    Cash and cash equivalents                   $376,367          $346,709
    Short-term investments                       206,136           232,320
    Total cash, cash equivalents and
     short-term investments                      582,503           579,029
    Accounts receivable, net of allowances of
     $7,185 and $8,295, respectively             108,028           132,258
    Deferred income taxes                        127,629           125,601
    Income taxes receivable                       46,522            46,583
    Prepaid expenses and other current assets     27,710            29,562
            Total current assets                 892,392           913,033
  Property and equipment, net                    173,532           178,155
  Long-term investments                           11,472            12,831
  Goodwill                                       667,880           593,706
  Intangible assets, net                         187,940           198,069
  Other assets                                   210,473           196,393
             Total assets                     $2,143,689        $2,092,187

  LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
    Accounts payable and accrued liabilities    $166,250          $184,146
    Current portion of long-term debt                282                --
    Accrued income taxes                         196,517           188,096
    Deferred revenue                             482,192           368,913
             Total current liabilities           845,241           741,155
  Deferred compensation and other liabilities     58,534            51,794
  Long-term deferred revenue                      31,016            34,189
  Stockholders' equity:
    Common stock,  $0.01 par value per share;
     400,000 shares authorized; 145,206 and
     147,378 shares outstanding, respectively      1,451             1,474
    Additional paid-in capital                 1,241,531         1,240,568
    Retained earnings                            186,719           202,146
    Treasury stock, at cost; 11,931 and
     9,759 shares, respectively                 (212,778)         (175,762)
    Deferred stock compensation                   (1,975)           (2,732)
    Accumulated other comprehensive loss          (6,050)             (645)
           Total stockholders' equity          1,208,898         1,265,049
           Total liabilities and
            stockholders' equity              $2,143,689        $2,092,187

   (1)  Synopsys' first quarter and  fiscal year end on the Saturday nearest
        to January 31 and October 31, respectively. For presentation
        pruposes, the unaudited condensed consolidated financial statements
        refer to a calendar month end.


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

                                              Three Months Ended January 31,
                                                   2005              2004
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                             $(14,552)          $32,152
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
   Amortization and depreciation                  50,482            48,230
   In-process research and development             5,700                --
   Deferred taxes                                 (7,723)               --
   Write-down of long-term assets                  1,568             1,401
   Provision for doubtful accounts                  (720)            2,000
   Net change in unrecognized gains and losses on
    foreign exchange contracts                    (3,789)           (3,633)
   Loss (gain) on sale of short- and long-term
    investments                                       30               (37)
   Net changes in operating assets and liabilities:
    Accounts receivable                           31,480             4,595
    Income taxes receivable                           61               653
    Prepaid expenses and other current assets      2,544           (10,117)
    Other assets                                  (6,051)           (9,502)
    Accounts payable and accrued liabilities     (32,909)          (54,736)
    Accrued income taxes                           2,062           (22,220)
    Deferred revenue                             107,129            13,615
    Deferred compensation                          6,763             8,918
   Net cash provided by operating activities     142,075            11,319

  CASH FLOWS FROM INVESTING ACTIVITIES:
   Cash paid for acquisitions, net of
    cash received                                (91,293)               --
   Proceeds from sales and maturities of
    short-term investments                        97,114           124,474
   Purchases of short-term investments           (71,538)         (155,529)
   Purchases of long-term investments                 --            (1,000)
   Purchases of property and equipment, net       (6,330)          (14,980)
   Capitalization of software development costs     (738)             (685)
   Net cash used in investing activities         (72,785)          (47,720)

  CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuances of common stock                       2,268            86,135
   Purchases of treasury stock                   (40,160)         (160,937)
   Net cash provided by (used in)
    financing activities                         (37,892)          (74,802)
  Effect of exchange rate changes on cash         (1,740)             (377)
  Net increase (decrease) in cash and
   cash equivalents                               29,658          (111,580)
  Cash and cash equivalents, beginning
   of period                                     346,709           524,308
  Cash and cash equivalents, end of period      $376,367          $412,728

   (1)  Synopsys' first quarter ends on the Saturday nearest to January 31.
        For presentation purposes, the unaudited condensed consolidated
        financial statements refer to a calendar month end.

SOURCE: Synopsys, Inc.

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

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