Press Releases

Synopsys Posts Financial Results for First Quarter of Fiscal 2006
PRNewswire-FirstCall
MOUNTAIN VIEW, Calif.

Synopsys, Inc. (NASDAQ: SNPS), a world leader in semiconductor design software, today reported results for its first fiscal quarter ended January 31, 2006.

For the first quarter, Synopsys reported revenue of $260.2 million, an 8 percent increase compared to $241.3 million for the first quarter of fiscal 2005.

"Synopsys has delivered another quarter of very solid results," said Aart de Geus, chairman and CEO of Synopsys. "We again executed well against our financial goals, and continue to win business based on our strong technology momentum."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the first quarter of fiscal 2006 was $1.7 million, or $0.01 per share, compared to a net loss of ($14.3) million, or ($0.10) per share, for the first quarter of fiscal 2005. GAAP net income for the current period includes a stock-based compensation expense of $18.4 million due to the implementation of Statement of Financial Accounting Standards 123® (FAS 123®). Net income prior to fiscal 2006 did not include stock-based compensation expense related to FAS 123®.

Non-GAAP Results

On a non-GAAP basis, net income for the first quarter of fiscal 2006 was $26.4 million, or $0.18 per share, compared to non-GAAP net income of $14.7 million, or $0.10 per share, for the first quarter of fiscal 2005.

Non-GAAP net income consists of GAAP net income excluding stock-based compensation expense calculated in accordance with FAS 123® 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 extraordinary. See "GAAP Reconciliation - Reconciliation of First Quarter 2006 Results" below.

Financial Targets

Synopsys also announced its operating model targets for the second quarter and full fiscal year 2006. 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 2006 Targets:
  *  Revenue:  $262 million - $270 million
  *  GAAP expenses:  $263 million - $276 million
  *  Non-GAAP expenses:  $233 million - $243 million
  *  Other income and expense:  $0 million - $4 million
  *  Fully diluted outstanding shares:  144 million - 150 million
  *  Tax rate applied in non-GAAP net income calculations:  31 percent
  *  GAAP (loss) earnings:  $(0.02) - $0.03 per share
  *  Non-GAAP earnings:  $0.13 - $0.17 per share
  *  Revenue from backlog:  more than 90 percent

  Full-Year Fiscal Year 2006 Targets
  *  Revenue:  $1,055 million - $1,085 million
  *  Fully diluted outstanding shares:  144 million - 150 million
  *  Tax rate applied in non-GAAP net income calculations:  31 percent
  *  GAAP earnings:  $0.05 - $0.17 per share
  *  Non-GAAP earnings:  $0.65 - $0.73 per share
  *  GAAP cash flow from operations:  greater than $175 million
  *  Revenue from backlog:  more than 85 percent

  GAAP Reconciliation

Synopsys' management evaluates and makes operating 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 extraordinary items are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while stock-based compensation expense calculated in accordance with FAS 123® constitutes an ongoing and recurring expense of the Company, such expense is excluded from non-GAAP results because it is not an expense that typically requires or will require cash settlement by the Company and because such expense is not used by management to assess the core profitability of the Company's business operations. Therefore, management adjusts the following GAAP financial measures included in this earnings release to exclude such costs, to the extent incurred in a particular quarter: 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 of business, 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 earnings per share and non-GAAP expenses for the first quarter fiscal 2006.

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

  Income Statement Reconciliation                    Three Months Ended
  (in thousands)                                         January 31,
                                                   2006               2005

  GAAP net income (loss)                          $1,697           $(14,325)
  Adjustments:
     Amortization of intangible assets            15,999             36,951
     Stock-based compensation (1)                 18,430                 --
     In-process research and development             800              5,700
     Tax effect                                  (10,530)           (13,638)
  Non-GAAP net income                            $26,396            $14,688

  (1) Stock-based compensation results from the Company's implementation of
      FAS 123® during the first quarter of fiscal 2006.


  Earnings Per Share Reconciliation                  Three Months Ended
                                                         January 31,
                                                   2006               2005

  GAAP earnings (loss) per share                   $0.01             $(0.10)
  Adjustments:
     Amortization of intangible assets              0.11               0.25
     Stock-based compensation (1)                   0.13                 --
     In-process research and development            0.01               0.04
     Tax effect                                    (0.08)             (0.09)
  Non-GAAP earnings per share                      $0.18              $0.10

  Shares used in calculation                     146,969            146,060

  (1) Stock-based compensation results from the Company's implementation of
      FAS 123® during the first quarter of fiscal 2006.


  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
                         Fiscal Year 2006 Targets
                 (in thousands, except per share amounts)

                                                   Range for Three Months
                                                    Ending April 30, 2006
                                                    Low              High

  Target GAAP expenses                          $263,000          $276,000
  Adjustment:
     Estimated impact of amortization of
      intangible assets                          (13,000)          (14,000)
     Estimated impact of stock-based
      compensation (1)                           (17,000)          (19,000)
  Target non-GAAP expenses                      $233,000          $243,000

  (1) Stock-based compensation results from the Company's implementation of
      FAS 123® during the first quarter of fiscal 2006.


                                                   Range for Three Months
                                                    Ending April 30, 2006
                                                    Low              High

  Target GAAP earnings (loss) per share           $(0.02)            $0.03
  Adjustment:
     Estimated impact of amortization of
      intangible assets                             0.10              0.09
     Estimated impact of stock-based
      compensation (1)                              0.13              0.12
     Net non-GAAP tax effect                       (0.08)            (0.07)
  Target non-GAAP earnings per share               $0.13             $0.17

  Shares used in non-GAAP calculation
   (midpoint of target range)                    147,000           147,000

  (1) Stock-based compensation results from the Company's implementation of
      FAS 123® during the first quarter of fiscal 2006.


    GAAP to Non-GAAP Reconciliation of Target Fiscal Year 2006 Targets

                                                    Range for Fiscal Year
                                                   Ending October 31, 2006
                                                    Low               High

  Target GAAP earnings per share                   $0.05             $0.17
  Adjustment:
     Estimated impact of amortization of
      intangible assets                             0.39              0.38
     Estimated impact of stock-based
      compensation (1)                              0.47              0.44
     Net non-GAAP tax effect                       (0.26)            (0.26)
  Target non-GAAP earnings per share               $0.65              0.73

  Shares used in non-GAAP calculation
   (midpoint of target range)                    147,000           147,000

  (1) Stock-based compensation results from the Company's implementation of
      FAS 123® during the first quarter of fiscal 2006.


  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/q106.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 816786, 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 to the time Synopsys announces its results for the second quarter of fiscal 2006 in May 2006. 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 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 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 2006, 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 2006 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release until it releases such results in May 2006.

Availability of Final Financial Statements

Synopsys will include final financial statements for the first quarter of fiscal 2006 in its Quarterly Report on Form 10-Q to be filed in March 2006.

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 "GAAP Reconciliation - Reconciliation of Estimated 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, 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;
  *  failure of our cost control efforts to result in the anticipated
     savings;
  *  failure to continue to improve Synopsys' existing products;
  *  failure to successfully develop additional intellectual property blocks
     for its IP business or to develop and integrate its design for
     manufacturing products;
  *  difficulties in the integration of the products and operations of
     acquired companies or assets into Synopsys' products and operations;
  *  downward pressure on maintenance orders, adversely affecting Synopsys'
     future level of service revenue; and
  *  changes in the anticipated amount of stock-based compensation
     recognized on the Company's financial statements.

In addition, Synopsys' actual operating expenses and earnings per share on a GAAP basis for the fiscal quarter ending April 30, 2006 and actual earnings per share and operating cash flow on a GAAP basis for fiscal year 2006 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 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) increases or decreases in stock-based compensation expense caused by employee termination or otherwise, and (vi) increases or decreases to estimated capital expenditures.

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 (SEC), and which are available at www.sec.gov, particularly the information contained in the section of Part II, Item 7 of Synopsys' Annual Report on Form 10-K for the fiscal year ended October 31, 2005 filed with the SEC on January 12, 2006 entitled "Factors That May Affect Future Results." 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


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

                        Three Months Ended         Three Months Ended
                         January 31, 2006           January 31, 2005
                            Adjust-    Non-             Adjust-     Non-
                    GAAP    ments(2)   GAAP     GAAP    ments(2)    GAAP
  Revenue:
    Time-based
     license     $211,110       --  $211,110  $186,284       --  $186,284
    Upfront
     license        8,367       --     8,367    10,798       --    10,798
    Maintenance
     and Service   40,712       --    40,712    44,222       --    44,222
      Total
       revenue    260,189       --   260,189   241,304       --   241,304
  Cost of revenue:
    License        29,989   (1,619)   28,370    24,847       --    24,847
    Maintenance
     and service   16,573     (856)   15,717    17,029       --    17,029
    Amortization
     of intangible
     assets         8,659   (8,659)       --    28,099  (28,099)       --
      Total cost
       of revenue  55,221  (11,134)   44,087    69,975  (28,099)   41,876
    Gross margin  204,968   11,134   216,102   171,329   28,099   199,428
  Operating expenses:
    Research and
     development   87,604   (8,149)   79,455    72,917       --    72,917
    Sales and
     marketing     77,189   (4,709)   72,480    83,990       --    83,990
    General and
     admin-
     istrative     29,804   (3,097)   26,707    24,223       --    24,223
    In-process
     research and
     development      800     (800)       --     5,700   (5,700)       --
    Amortization
     of intangible
     assets         7,340   (7,340)       --     8,852   (8,852)       --
      Total
       operating
       expenses   202,737  (24,095)  178,642   195,682  (14,552)  181,130
    Operating
     income (loss)  2,231   35,229    37,460  (24,353)   42,651    18,298
    Other income,
     net              795       --       795     5,199       --     5,199
  Income (loss)
   before provision
   (benefit) for
   income taxes     3,026   35,229    38,255  (19,154)   42,651    23,497
  Provision
   (benefit) for
   income taxes     1,329   10,530    11,859   (4,829)   13,638     8,809
  Net income
   (loss)          $1,697  $24,699   $26,396 $(14,325)  $29,013   $14,688

  Net income (loss) per share:
     Basic          $0.01              $0.18   $(0.10)              $0.10
     Diluted        $0.01              $0.18   $(0.10)              $0.10

  Shared used in computing per share amounts:
     Basic        144,989            144,989   146,060            146,060
     Diluted      146,969            146,969   146,060            146,998


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

  (2) Adjustments consist of stock-based compensation and related tax effect
      under FAS 123® 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 first fiscal quarter of 2006
      includes total stock-based compensation of $18.4 million as follows:
      cost of revenue $2.5 million; research & development $8.1 million;
      sales & marketing $4.7 million; general & administrative $3.1 million.
      As of January 31, 2005 no stock-based compensation was recorded under
      FAS 123®.


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

                                             January 31,     October 31,
                                               2006 (2)         2005
  ASSETS:
  Current assets:
    Cash and cash equivalents                 $314,498        $404,436
    Short-term investments                     199,787         182,070
    Total cash, cash equivalents and
     short-term investments                    514,285         586,506
    Accounts receivable, net                    83,997         100,178
    Deferred income taxes                      197,110         195,501
    Income taxes receivable                     48,224          48,370
    Prepaid expenses and other current
     assets                                     24,808          16,924
            Total current assets               868,424         947,479
  Property and equipment, net                  165,116         170,195
  Long-term investments                          8,322           8,092
  Goodwill, net                                744,114         728,979
  Intangible assets, net                       135,570         142,519
  Long-term deferred income taxes               83,232          82,384
  Other assets                                  65,253          61,828
             Total assets                   $2,070,031      $2,141,476

  LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
    Accounts payable and accrued
     liabilities                              $146,477        $231,359
    Accrued income taxes                       171,775         169,632
    Deferred revenue                           475,962         415,689
             Total current liabilities         794,214         816,680
  Deferred compensation and other
   liabilities                                  68,360          63,841
  Long-term deferred revenue                    37,600          42,019
  Stockholders' equity:
    Preferred stock, $0.01 par value;
     2,000 shares authorized; none
     outstanding                                    --              --
    Common stock,  $0.01 par value per
     share; 400,000 shares authorized;
     142,680 and 145,897 shares outstanding,
     respectively                                1,427           1,459
    Capital in excess of par value           1,280,329       1,263,952
    Retained earnings                          171,559         171,108
    Treasury stock, at cost; 14,477 and
     11,259 shares, respectively              (268,800)       (199,482)
    Deferred stock compensation                     --          (2,100)
    Accumulated other comprehensive loss       (14,658)        (16,001)
           Total stockholders' equity        1,169,857       1,218,936
           Total liabilities and
            stockholders' equity            $2,070,031      $2,141,476

  (1) The Company's first quarter and fiscal year ends on the Saturday
      nearest to January 31 and October 31, respectively.  For presentation
      purposes, the Unaudited Condensed Consolidated Balance Sheets refer to
      a calendar month end.

  (2) During the quarter, Synopsys completed the acquisition of HPL
      Technologies, Inc., and has performed a preliminary valuation of the
      tangible and identifiable intangible assets and liabilities. The
      Company expects to complete the valuation during its second fiscal
      quarter.


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

                                              Three Months Ended January 31,
                                                2006                2005
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                               $1,697          $(14,552)
  Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
     Amortization and depreciation                29,729            50,482
     Stock-based compensation                     18,430                --
     In-process research and development             800             5,700
     Deferred income taxes                           (52)           (7,723)
     Write-down of long-term assets                   --             1,568
     Provision for (reduction to) doubtful
      accounts                                        --              (720)
     Net change in unrecognized gains and
      losses on foreign exchange contracts           272            (3,789)
     Gain (loss) on sale of short and long-term
      investments                                     14                30

     Net changes in operating assets and
      liabilities net of acquired assets
      and liabilities:
         Accounts receivable                      17,203            31,480
         Income taxes receivable                      --                61
         Prepaid expenses and other current
          assets                                  (7,607)            2,544
         Other assets                             (3,425)           (6,051)
         Accounts payable and accrued
          liabilities                            (93,130)          (32,909)
         Accrued income taxes                     (2,775)            2,062
         Deferred revenue                         54,745           107,129
         Deferred compensation and other
          liabilities                              3,900             6,763
     Net cash provided by operating
      activities                                  19,801           142,075

  CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid for acquisitions, net of
      cash received                              (11,894)          (91,293)
     Proceeds from sales and maturities of
      short-term investments                      84,671            97,114
     Purchases of short-term investments        (102,453)          (71,538)
     Purchases of long-term investments           (1,539)               --
     Purchases of property and equipment          (7,539)           (6,330)
     Capitalization of software
      development costs                             (762)             (738)
     Net cash used in investing activities       (39,516)          (72,785)

  CASH FLOWS FROM FINANCING ACTIVITIES:
     Issuances of common stock                    10,433             2,268
     Purchases of treasury stock                 (80,982)          (40,160)
     Net cash used in financing activities       (70,549)          (37,892)
     Effect of exchange rate changes on
      cash and cash equivalents                      326            (1,740)
     Net (decrease) increase in cash and
      cash equivalents                           (89,938)           29,658
     Cash and cash equivalents, beginning
      of period                                  404,436           346,709
     Cash and cash equivalents, end of
      period                                    $314,498          $376,367

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

SOURCE: Synopsys, Inc.

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

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