Press Releases

Synopsys Announces Record Revenue for Fourth Quarter and Full Year Fiscal 2003
Company Also Issues Outlook for 2004
PRNewswire-FirstCall
MOUNTAIN VIEW, Calif.

Synopsys, Inc. (NASDAQ: SNPS), the world leader in semiconductor design software, today reported its results for the fourth quarter and fiscal year ended October 31, 2003. Per share data for the periods presented reflects the Company's 2:1 stock split completed during the quarter.

For the fourth quarter of fiscal 2003, Synopsys reported revenue of $316.5 million, a 2% increase over revenue of $309.3 million in the fourth quarter of fiscal 2002. Pro forma net income was $71.6 million, or $0.44 per share, in the quarter compared to pro forma net income of $73.7 million, or $0.48 per share, in the fourth quarter of fiscal 2002. For fiscal year 2003, Synopsys reported record annual revenue of $1.18 billion and pro forma net income of $252.1 million, or $1.59 per share, compared to pro forma net income of $155.7 million, or $1.11 per share, in fiscal 2002. Pro forma net income and net income on a generally accepted accounting principles ("GAAP") basis are reconciled under "GAAP Reconciliation" below.

On a GAAP basis, fourth quarter of fiscal 2003 net income was $44.6 million, or $0.27 per share, compared to a net loss of ($97.8) million, or ($0.65) per share, for fourth quarter fiscal 2002. Fourth quarter 2003 results include a charge of $14.9 million relating to the Company's decision to realign its workforce for fiscal 2004. For the fiscal year ended October 31, 2003, GAAP net income was $149.7 million, or $0.95 per share, compared to a net loss of ($200.0) million or ($1.50) per share, respectively, for fiscal year ended October 31, 2002. The difference in GAAP results for the fiscal 2002 and fiscal 2003 is primarily due to charges and expenses relating to the Avant! acquisition recorded in fiscal 2002.

"2003 was a milestone year for Synopsys," said Aart de Geus, chairman and CEO of Synopsys. "We were able to grow bookings in a very tough economic environment and became the world's largest EDA company. We are committed to driving growth in the future."

Financial Outlook

Synopsys also announced its operating model targets for the first quarter of fiscal 2004 and full-year fiscal 2004. These targets are forward-looking and 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.

  First quarter of fiscal 2004 targets:

  -- Revenue:  $275 - $290 million;
  -- Pro forma expenses: $205 million - $211 million
  -- Other income and expense: ($1.0) - $2.0 million
  -- Fully diluted outstanding shares: 159 million - 167 million
  -- GAAP tax rate applied to pro forma and net income calculation: 31%
  -- Pro forma earnings:  $0.28 - $0.32 per share
  -- Upfront licenses as a percentage of product bookings: 28% - 33%

  Fiscal Year 2004 targets:

  -- Orders: $1.425 - $1.475 billion
  -- Revenue:  $1.200 - $1.250 billion
  -- Pro forma earnings: $1.50- $1.60 per share
  -- Upfront licenses as a percentage of product bookings:  20% - 25%

  Effectiveness of Guidance

The targets set forth above represent the Company's expectations only as of the date of this release. Although this release will remain available on the Company's website, its continued availability does not indicate that the Company is reaffirming or confirming its continued validity. The Company will not report on its progress during the first quarter of fiscal 2004 or comment to analysts or investors on, or otherwise update, such targets until it releases its quarterly results in February 2004.

GAAP Reconciliation

Pro forma net income is a non-GAAP financial measure under Section 244.101 of Regulation G. This measure consists of GAAP net income excluding, as applicable, amortization of intangible assets and deferred compensation, in- process research and development charges, integration and other acquisition- related expenses, and in Q4 of fiscal year 2003, charges relating to the Company's workforce realignment. Intangible assets consist primarily of purchased technology, contract rights intangible, customer-installed base/relationships, trademarks and tradenames, covenants not to compete and customer backlog. Pro forma net income is reduced by the amount of additional taxes that the Company would accrue if it used pro forma results instead of GAAP results to calculate the Company's tax liability.

Company management evalutes and makes operating decisions based on the performance of its core software and services business operations and the direct, ongoing and recurring costs of those operations such as bookings, revenues, 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 compensation, in-progress research and development charges, integration and other acquisition-related expenses and workforce realignment charges are ordinary, ongoing and recurring operating charges for the Company's 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 better and more consistently the period-to-period financial performance of its core business operations. Management believes that though it is important for investors to understand GAAP measures, providing investors with these non-GAAP measures provides investors additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations.

The following table reconciles the specific items excluded from GAAP in the calculation of pro forma net income for the periods shown below:

  Income Statement Reconciliation    Three Months Ended  Twelve Months Ended
                                           October 31,        October 31,
  (in thousands, except per share
   data)                                  2003      2002     2003      2002

  Net income on a GAAP basis            44,575   (97,836) 149,724  (199,993)
  Amortization of intangible assets
   and deferred compensation            32,836    31,999  128,174    62,585
  In-process research and development       --     5,200   19,850    87,700
  Integration costs                         --    11,262      --    128,528
  Insurance premium                         --   240,781      --    240,781
  Work force realignment charges        14,856        --   14,856        --
  Collection of Avant! acquired
   accounts receivable originally
       assumed uncollectible                --        --   (3,000)       --
  Pre-merger liabilities resolved at a
   lower cost than estimated            (4,714)       --   (5,330)       --
  Tax effect                           (15,956) (117,733) (52,135) (163,858)
  Net income on a pro forma basis       71,597    73,673  252,139   155,743

  Income Statement Reconciliation Per
   Share
  Diluted earnings per share on a GAAP
   basis                                  0.27     (0.65)    0.95     (1.50)
  Amortization of intangible assets
   and deferred
    compensation per share                0.20      0.21     0.81      0.47
  In-process research and development
   per share                                --      0.03     0.13      0.66
  Integration costs per share               --      0.08       --      0.96
  Insurance premium per share               --      1.61       --      1.80
  Work force realignment charges per
   share                                  0.09        --     0.09        --
  Collection of Avant! acquired
   accounts receivable
   originally assumed uncollectible
   per share                                --        --    (0.02)       --
  Pre-merger liabilities resolved at a
   lower cost than
   estimated per share                   (0.03)       --    (0.03)       --
  Tax effect per share and effect of
   dilutive shares                       (0.09)    (0.80)   (0.34)    (1.28)
  Earnings per share on a pro forma
   basis                                  0.44      0.48     1.59      1.11

The specific items excluded from GAAP in calculating the first quarter and full year fiscal 2004 targets are shown below:

  Target Operating Expenses Reconciliation       Range for Three Months
                                                 Ending January 31, 2004
  (in thousands, except per share data)            Low               High
  Total target expenses on a GAAP basis          239,000           248,000
  Estimated amortization of intangible
     assets and deferred compensation             31,000            33,000
  Estimated work force realignment
   charges                                         3,000             4,000
  Target expenses on an pro forma basis          205,000           211,000


                                           Low      High     Low     High
  Target earnings per share on a GAAP
   basis                                  $0.15    $0.18    $1.10    $1.18
  Estimated amortization of intangible
   assets and
     deferred compensation per share,
      net of tax effect                   $0.12    $0.12    $0.39    $0.40
  Estimated work force realignment
   charges per share, net of tax effect   $0.01    $0.02    $0.01    $0.02
  Target earnings per share on a pro
   forma basis                            $0.28    $0.32    $1.50    $1.60

The Company will include final financial statements for the fourth quarter and full year fiscal 2003 with its Annual Report on Form 10-K to be filed in January 2004.

Additional Financial Information Available on Synopsys Website

In connection with the issuance of 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/supldis_q403.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 1-800-475-6701 (320-365-3844 for international callers), access code 705786, 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 the Company's results for the first quarter of fiscal 2004 in February 2004. Finally, Synopsys will post copies of the prepared remarks of Aart de Geus, Chairman and Chief Executive Officer of Synopsys, and Steve Shevick, Chief Financial Officer, on its website at http://www.synopsys.com/corporate/invest/invest.html following the call.

About Synopsys

Synopsys, Inc. is the world leader in electronic design automation (EDA) software for semiconductor design. The Company delivers technology-leading semiconductor design and verification platforms to the global electronics market, enabling the development 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 more than 60 offices located throughout North America, Europe, Japan and Asia. Visit Synopsys online at http://www.synopsys.com/.

Forward-Looking Statements

The sections of this earnings release entitled "Financial Outlook" and "GAAP Reconciliation" contain forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those described by these statements due to a number of factors, including but not limited to:

  -- continued or increased weakness in the semiconductor or electronic
     systems industries;
  -- lower-than-expected research and development spending by semiconductor
     and electronic systems companies;
  -- lower-than-anticipated purchases of software or consulting services by
     the Company's customers;
  -- difficulties in the ongoing integration of the products and operations
     of acquired companies into Synopsys' products and operations;
  -- failure to timely complete scheduled new product development or product
     update releases incorporating new functionality;
  -- changes in the expected mix of time-based licenses and upfront
     licenses;
  -- variations from currently projected customer payment terms;
  -- continued downward pressure on maintenance orders, adversely affecting
     the Company's future level of services revenue;
  -- increasing competition in the market for the Company's products and
     services;
  -- fluctuations in foreign currency exchange rates; and
  -- the effect of international political conflicts or hostilities on
     customer purchases.

In addition, the Company's actual expenses and earnings per share on a GAAP basis for the fiscal quarter ending January 31, 2004 and earnings per share for the fiscal year ending October 31, 2004 could differ materially from the targets stated under "Financial Outlook" above for a number of reasons, including a determination by the Company that any portion of its intangible assets have become impaired, changes in deferred compensation expenses caused by employee terminations, changes to the size or scope of the work force realignment described above, and integrated and other acquisition-related expenses, amortization of additional intangible assets and deferred 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 documents Synopsys has filed with the Securities and Exchange Commission, specifically the section contained in Synopsys' quarterly report on Form 10-Q filed with the SEC on September 15, 2003 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.
 Pro Forma Unaudited Condensed Consolidated Statements of Operations (1)
      Impact of Pro Forma Adjustments on Reported Net Income (Loss)


                                      Three Months Ended October 31, 2003(2)
                                            GAAP    Adjustments   Pro Forma
  Revenue:
    Product                                $87,051          --     $87,051
    Service                                 61,543          --      61,543
    Ratable license                        167,859          --     167,859
        Total revenue                      316,453          --     316,453
  Cost of revenue:
    Product                                  4,816          --       4,816
    Service                                 21,252      (2,620)     18,632
    Ratable license                         13,465          --      13,465
    Amortization of intangible assets
      and deferred stock compensation       23,897     (23,897)         --
       Total cost of revenue                63,430     (26,517)     36,913
  Gross margin                             253,023      26,517     279,540
  Operating expenses:
    Research and development                79,283      (6,172)     73,111
    Sales and marketing                     80,295      (4,637)     75,658
    General and administrative              23,467       3,287      26,754
    In-process research and development         --          --          --
    Amortization of intangible assets
      and deferred stock compensation        8,939      (8,939)         --
     Integration                                --          --          --
       Total operating expenses            191,984     (16,461)    175,523
  Operating income (loss)                   61,039      42,978     104,017
  Other income (expense), net                2,052          --       2,052
  Income before provision (benefit)
    for income taxes                        63,091      42,978     106,069
  Provision (benefit) for income taxes      18,516      15,956      34,472
  Net income (loss)                        $44,575     $27,022     $71,597
  Basic earnings per share:
    Net income (loss)                        $0.29                   $0.46
    Weighted average common shares         155,018                 155,018
  Diluted earnings per share:
    Net income (loss)                        $0.27                   $0.44
    Weighted average common shares
    and equivalents                        164,381                 164,381


                                     Three Months Ended October 31, 2002(2)
                                             GAAP    Adjustments  Pro Forma
  Revenue:
    Product                                $93,249          --    $93,249
    Service                                 78,965          --     78,965
    Ratable license                        137,042          --    137,042
        Total revenue                      309,256          --    309,256
  Cost of revenue:
    Product                                  3,632          --      3,632
    Service                                 20,273          --     20,273
    Ratable license                         11,416          --     11,416
    Amortization of intangible assets
      and deferred stock compensation       20,570     (20,570)        --
       Total cost of revenue                55,891     (20,570)    35,321
  Gross margin                             253,365      20,570    273,935
  Operating expenses:
    Research and development                68,609          --     68,609
    Sales and marketing                     72,687          --     72,687
    General and administrative              20,308          --     20,308
    In-process research and development      5,200      (5,200)        --
    Amortization of intangible assets
      and deferred stock compensation       11,429     (11,429)        --
     Integration                            11,262     (11,262)        --
       Total operating expenses            189,495     (27,891)   161,604
  Operating income (loss)                   63,870      48,461    112,331
  Other income (expense), net             (242,325)    240,781     (1,544)
  Income before provision (benefit)
    for income taxes                      (178,455)    289,242    110,787
  Provision (benefit) for income taxes     (80,619)    117,733     37,114
  Net income (loss)                       $(97,836)   $171,509    $73,673
  Basic earnings per share:
    Net income (loss)                       $(0.65)                 $0.49
    Weighted average common shares         149,640                149,640
  Diluted earnings per share:
    Net income (loss)                       $(0.65)                 $0.48
    Weighted average common shares
    and equivalents                        149,640                152,814

  (1)  The Company's fiscal year ends on the Saturday nearest to October 31.
       For presentation purposes, the unaudited condensed consolidated
       financial statements refer to a calendar month end.

  (2)  All common share and per share data for all periods presented are
       adjusted to reflect he Company's stock split completed on September
       23, 2003.


                              SYNOPSYS, INC.
 Pro Forma Unaudited Condensed Consolidated Statements of Operations (1)
      Impact of Pro Forma Adjustments on Reported Net Income (Loss)
                  (in thousands, except per share data)


                                     Twelve Months Ended October 31, 2003(2)
                                           GAAP    Adjustments   Pro Forma
  Revenue:
    Product                               $298,280         --    $298,280
    Service                                260,679         --     260,679
    Ratable license                        618,024         --     618,024
        Total revenue                    1,176,983         --   1,176,983
  Cost of revenue:
    Product                                 15,950         --      15,950
    Service                                 77,996     (2,620)     75,376
    Ratable license                         53,515         --      53,515
    Amortization of intangible assets
       and deferred stock compensation      92,856    (92,856)         --
       Total cost of revenue               240,317    (95,476)    144,841
  Gross margin                             936,666     95,476   1,032,142
  Operating expenses:
    Research and development               285,880     (6,172)    279,708
    Sales and marketing                    310,692     (4,637)    306,055
    General and administrative              90,021      6,287      96,308
    In-process research and development     19,850    (19,850)         --
    Amortization of intangible assets
       and deferred stock compensation      35,318    (35,318)         --
     Integration                                --         --          --
       Total operating expenses            741,761    (59,690)    682,071
  Operating income (loss)                  194,905    155,166     350,071
  Other income (expense), net               24,084       (616)     23,468
  Income before provision (benefit)
       for income taxes                    218,989    154,550     373,539
  Provision (benefit) for income taxes      69,265     52,135     121,400
  Net income (loss)                       $149,724   $102,415    $252,139
  Basic earnings per share:
    Net income (loss)                        $0.99                  $1.67
    Weighted average common shares         151,251                151,251
  Diluted earnings per share:
    Net income (loss)                        $0.95                  $1.59
    Weighted average common shares
    and equivalents                        158,326                158,326


                                     Twelve Months Ended October 31, 2002(2)
                                             GAAP     Adjustments  Pro Forma
  Revenue:
    Product                                $245,193          --    $245,193
    Service                                 287,747          --     287,747
    Ratable license                         373,594          --     373,594
        Total revenue                       906,534          --     906,534
  Cost of revenue:
    Product                                  15,319          --      15,319
    Service                                  78,167          --      78,167
    Ratable license                          45,737          --      45,737
    Amortization of intangible assets
       and deferred stock compensation       33,936     (33,936)         --
       Total cost of revenue                173,159     (33,936)    139,223
  Gross margin                              733,375      33,936     767,311
  Operating expenses:
    Research and development                225,545          --     225,545
    Sales and marketing                     264,809          --     264,809
    General and administrative               78,461          --      78,461
    In-process research and development      87,700     (87,700)         --
    Amortization of intangible assets
       and deferred stock compensation       28,649     (28,649)         --
     Integration                            128,528    (128,528)         --
       Total operating expenses             813,692    (244,877)    568,815
  Operating income (loss)                   (80,317)    278,813     198,496
  Other income (expense), net              (208,623)    240,781      32,158
  Income before provision (benefit)
       for income taxes                    (288,940)    519,594     230,654
  Provision (benefit) for income taxes      (88,947)    163,858      74,911
  Net income (loss)                       $(199,993)   $355,736    $155,743
  Basic earnings per share:
    Net income (loss)                        $(1.50)                  $1.17
    Weighted average common shares          133,616                 133,616
  Diluted earnings per share:
    Net income (loss)                        $(1.50)                  $1.11
    Weighted average common shares
    and equivalents                         133,616                 140,308

  (1)  The Company's fiscal year ends on the Saturday nearest to October 31.
       For presentation purposes, the unaudited condensed consolidated
       financial statements refer to a calendar month end.

  (2)  All common share and per share data for all periods presented are
       adjusted to reflect he Company's stock split completed on September
       23, 2003.


                              SYNOPSYS, INC.
           Unaudited Condensed Consolidated Balance Sheets (1)
                  (in thousands, except per share data)

                                              October 31,        October 31,
                                                  2003              2002
  ASSETS:
  Current assets:
    Cash and cash equivalents                   $524,308          $312,580
    Short-term investments                       174,049           102,153
      Cash, cash equivalents and short-
       term investments                          698,357           414,733
    Accounts receivable, net of
     allowances of $8,295 and $11,565,
     respectively                                200,998           207,206
    Deferred income taxes                        248,425           282,867
    Prepaid expenses and other                    91,426            24,509
            Total current assets               1,239,206           929,315
  Property and equipment, net                    184,313           185,040
  Long-term investments                            8,595            39,386
  Goodwill, net                                  550,732           434,554
  Intangible assets, net                         285,583           355,334
  Other assets                                    38,924            35,085
             Total assets                     $2,307,353        $1,978,714

  LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
    Accounts payable, accrued
     liabilities and current portion of
     long-term debt                             $204,226          $248,212
    Accrued income taxes                         201,855           169,912
    Deferred revenue                             398,878           359,245
             Total current liabilities           804,959           777,369
  Deferred compensation and other
   liabilities                                    47,390            36,387
  Long-term deferred revenue                      21,594            51,477
  Stockholders' equity
    Common stock,  $.01 par value;
     400,000 shares authorized;
     155,837 and 147,124 shares
     outstanding, respectively                       780               735
    Additional paid-in capital                 1,199,201         1,039,386
    Retained earnings                            251,979           198,863
    Treasury stock, at cost                      (20,733)         (116,499)
    Deferred stock compensation                   (7,170)           (8,858)
    Accumulated other comprehensive
     income (loss)                                 9,353              (146)
           Total stockholders' equity          1,433,410         1,113,481
           Total liabilities and
            stockholders' equity              $2,307,353        $1,978,714

  (1)  The Company's fiscal year ends on the Saturday nearest to October 31.
       For presentation purposes, the unaudited condensed consolidated
       financial statements refer to a calendar month end.

SOURCE: Synopsys, Inc.

CONTACT: INVESTOR CONTACT: Jessica Kourakos, +1-650-584-4289, or
EDITORIAL CONTACT: Craig Cochran, +1-650-584-4230, both of Synopsys, Inc.

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