Press Releases

Synopsys Posts Financial Results for Second Quarter of Fiscal 2004
PRNewswire-FirstCall
MOUNTAIN VIEW, Calif.

Synopsys, Inc. (NASDAQ: SNPS), the world leader in semiconductor design software, today reported results for its second quarter ended April 30, 2004.

For the second quarter of fiscal 2004, Synopsys reported revenue of $294.6 million, a 1% increase over revenue of $292.0 million for the second quarter of fiscal 2003. For the six-month period ended April 30, 2004, revenue was $579.9 million, an increase of 4% over revenue of $560.2 million for the same period in 2003.

GAAP Results

On a generally accepted accounting principles (GAAP) basis, for the second quarter of fiscal 2004, net income was $28.7 million, or $0.18 per share, compared to net income of $22.3 million, or $0.15 per share, for the second quarter of fiscal 2003. GAAP net income for the six-month period ended April 30, 2004 was $60.9 million, or $0.37 per share, compared to $56.7 million, or $0.37 per share, for the same period in 2003.

Non-GAAP Results

On a non-GAAP basis, net income was $57.1 million, or $0.35 per share, for the second quarter of fiscal 2004 compared to non-GAAP net income of $61.2 million, or $0.40 per share, for the second quarter of fiscal 2003. Non-GAAP net income for the six-month period ended April 30, 2004 was $111.4 million, or $0.68 per share, compared to $113.7 million, or $0.74 per share, for the same period in 2003.

Per share data for the periods presented reflects the Company's two-for- one stock split completed on September 23, 2003. GAAP and non-GAAP net income are reconciled under "GAAP Reconciliation" below.

"Recently, the overall spending environment for our solutions has firmed up," said Aart de Geus, Chairman and Chief Executive Officer of Synopsys. "Customers are moving more aggressively to smaller geometries and we are unveiling some remarkable new technology that cements our position as the industry leader. These trends should bode well for us for the remainder of the year."

Financial Outlook

Synopsys also announced its operating model targets for the third quarter of fiscal 2004 and revised targets for the full year. The following 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.

  Third Quarter of Fiscal 2004 Targets:

  -- Revenue:  $300 million - $320 million
  -- Non-GAAP expenses: $220 million - $230 million
  -- Non-GAAP other income and expense: ($2.0) million - $1.0 million
  -- Fully diluted outstanding shares: 158 million - 166 million
  -- Tax rate applied in net income calculations: 31%
  -- Non-GAAP earnings:  $0.35 - $0.40 per share
  -- Upfront licenses as a percentage of product bookings: 30%, plus or
     minus 5%

  Fiscal Year 2004 targets:

  -- Orders: $1.4 billion
  -- Revenue:  $1.20 billion - $1.23 billion
  -- Non-GAAP earnings: $1.37 - $1.47 per share
  -- Upfront licenses as a percentage of product bookings:  30%, plus or
     minus 5%

  Effectiveness of Guidance

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

GAAP Reconciliation

Non-GAAP net income consists of GAAP net income excluding, as applicable, amortization of intangible assets and deferred stock compensation, in-process research and development charges, integration and other acquisition-related expenses (including, in the second quarter of fiscal 2004, the $10.0 million fee paid to Monolithic System Technology, Inc. (MoSys) in connection with the termination of the acquisition agreement between Synopsys and MoSys in April 2004), facilities realignment charges and continuing amounts relating to Synopsys' workforce realignment announced in the fourth quarter of fiscal 2003. Intangible assets consist primarily of purchased technology, contract rights intangible, customer-installed base/relationships, trademarks and tradenames, covenants not to compete and customer backlog. 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 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 better 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 investors additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations.

Reconciliation of Second Quarter Results

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

   Income Statement Reconciliation     Three Months Ended  Six Months Ended
   (in thousands)                          April 30,          April 30,
                                        2004     2003      2004      2003

  GAAP net income                      $28,739  $22,289   $60,891   $56,674
  Amortization of intangible assets
   and deferred stock compensation      34,351   33,478    68,835    62,261
  Merger termination fee                10,000       --    10,000        --
  In process research and development       --   18,250        --    18,250
  Work force realignment charges
   at a lower cost than estimated         (641)      --    (1,782)       --
  Facilities realignment charges           523       --     2,295        --
  Tax effect                           (15,886) (12,826)  (28,833)  (23,527)
  Non-GAAP net income                  $57,086  $61,191  $111,406  $113,658


   Income Statement Reconciliation Per
   Share                                Three Months Ended  Six Months Ended
   (in thousands, except per share data)     April 30,         April 30,
                                           2004     2003     2004     2003

  GAAP earnings per share                  $0.18    $0.15    $0.37    $0.37
  Amortization of intangible assets and
   deferred stock compensation              0.21     0.22     0.42     0.41
  Merger termination fee                    0.06       --     0.06       --
  In process research and development         --     0.12       --     0.12
  Work force realignment charges
   at a lower cost than estimated             --       --    (0.01)      --
  Facilities realignment charges              --       --     0.01       --
  Tax effect                               (0.10)   (0.09)   (0.17)   (0.16)
  Non-GAAP earnings per share              $0.35    $0.40    $0.68    $0.74

  Shares used in calculation             161,840  153,034  163,779  153,102


  Reconciliation of Target Operating Results

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

   Information regarding Target Expenses          Range for Three Months
   (in thousands)                                  Ending July 31, 2004
                                                  Low               High

  Non-GAAP target expenses                      $220,000          $230,000
  Impact of amortization of intangible
   assets and deferred stock compensation         34,000            35,000
  Impact of facility realignment
   charges                                            --             1,000
  GAAP target expenses                          $254,000          $266,000


   Information regarding Target Earnings
   Per Share                                       Range for Three Months
                                                     Ending July 31, 2004
                                                    Low               High

  Non-GAAP target earnings per share               $0.35             $0.40
  Impact of amortization of intangible
   assets and deferred stock compensation
   per share, net of tax effect                    (0.15)            (0.15)
  Impact of facility realignment
   charges per share, net of tax effect               --                --
  GAAP target earnings per share                   $0.20             $0.25


   Information regarding Target Earnings
   Per Share                                       Range for Fiscal Year
                                                  Ending October 31, 2004
                                                    Low              High

  Non-GAAP target earnings per share               $1.37             $1.47
  Impact of amortization of intangible
   assets and deferred stock compensation
   per share, net of tax effect                    (0.59)            (0.58)
  Impact of facility realignment
   charges per share, net of tax effect            (0.02)            (0.01)
  GAAP target earnings per share                   $0.76             $0.88

Synopsys will include final financial statements for the second quarter of fiscal 2004 in its Quarterly Report on Form 10-Q to be filed in June 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/q204.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 1-888-276-9995 (612-332-0335 for international callers), access code 730804, 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 third quarter of fiscal 2004 in August 2004. Finally, 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.

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 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 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. Actual results could differ materially from those described by these statements due to a number of factors, including but not limited to:

  -- 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;
  -- 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 its 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, including Numerical Technologies,
     Inc., Accelerant Networks, iRoC Technologies, and Analog Design
     Automation, into Synopsys' products and operations;
  -- unexpected changes in the mix of time-based licenses and upfront
     licenses;
  -- adverse variations from currently projected customer payment terms;
  -- downward pressure on maintenance orders, adversely affecting Synopsys'
     future level of service revenue; and
  -- an adverse outcome in the litigation between Synopsys and MoSys.

In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the third quarter of fiscal 2004 and actual earnings per share on a GAAP basis for the full-year fiscal 2004 could differ materially from the targets stated under "Financial Outlook" above for a number of reasons, including a determination by Synopsys that any portion of its intangible assets have become impaired, changes in deferred stock compensation expenses caused by employee terminations, and integration and other acquisition-related expenses, amortization of additional intangible assets and deferred stock compensation associated with additional 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 Part I, Item 2 of Synopsys' Quarterly Report on Form 10-Q for the first quarter of fiscal 2004 filed with the SEC on March 15, 2004 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 April 30, 2004 (2)
                                                                   Non-GAAP
                                       GAAP Basis   Adjustments     Basis
  Revenue:
    Upfront license                       $75,812         --       $75,812
    Time-based license                    162,946         --       162,946
    Service                                55,846         --        55,846
        Total revenue                     294,604         --       294,604
  Cost of revenue:
    Upfront license                         6,770         --         6,770
    Time-based license                     10,872         --        10,872
    Service                                21,541        111        21,652
    Amortization of intangible assets
      and deferred stock compensation      25,715    (25,715)           --
       Total cost of revenue               64,898    (25,604)       39,294
  Gross margin                            229,706     25,604       255,310
  Operating expenses:
    Research and development               70,136        271        70,407
    Sales and marketing                    74,885        209        75,094
    General and administrative             38,474    (10,473)       28,001
    In-process research and development        --         --            --
    Amortization of intangible assets
      and deferred stock compensation       8,636     (8,636)           --
       Total operating expenses           192,131    (18,629)      173,502
  Operating income                         37,575     44,233        81,808
  Other income, net                           925         --           925
  Income before provision for
    income taxes                           38,500     44,233        82,733
  Provision for income taxes                9,761     15,886        25,647
  Net income                              $28,739    $28,347       $57,086
  Basic earnings per share:
    Net income per share                    $0.19                    $0.37
    Weighted-average common shares        154,806                  154,806
  Diluted earnings per share:
    Net income per share                    $0.18                    $0.35
    Weighted-average common shares
    and equivalents                       161,840                  161,840


                                       Three Months Ended April 30, 2003 (2)
                                                                  Non-GAAP
                                       GAAP Basis    Adjustments    Basis
  Revenue:
    Upfront license                       $82,000            --    $82,000
    Time-based license                    148,061            --    148,061
    Service                                61,967            --     61,967
        Total revenue                     292,028            --    292,028
  Cost of revenue:
    Upfront license                         3,845            --      3,845
    Time-based license                     13,472            --     13,472
    Service                                17,750            --     17,750
    Amortization of intangible assets
      and deferred stock compensation      24,309       (24,309)        --
       Total cost of revenue               59,376       (24,309)    35,067
  Gross margin                            232,652        24,309    256,961
  Operating expenses:
    Research and development               68,612            --     68,612
    Sales and marketing                    80,970            --     80,970
    General and administrative             24,240            --     24,240
    In-process research and development    18,250       (18,250)        --
    Amortization of intangible assets
      and deferred stock compensation       9,169        (9,169)        --
       Total operating expenses           201,241       (27,419)   173,822
  Operating income                         31,411        51,728     83,139
  Other income, net                         7,515            --      7,515
  Income before provision for
    income taxes                           38,926        51,728     90,654
  Provision for income taxes               16,637        12,826     29,463
  Net income                              $22,289       $38,902    $61,191
  Basic earnings per share:
    Net income per share                    $0.15                    $0.41
    Weighted-average common shares        148,702                  148,702
  Diluted earnings per share:
    Net income per share                    $0.15                    $0.40
    Weighted-average common shares
    and equivalents                       153,034                  153,034

   (1)  The Company's fiscal year and second quarter ends on the Saturday
        nearest to October 31 and April 30, respectively. 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 the Company's two-for-one stock split completed
        on September 23, 2003.


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


                                     Six Months Ended April 30, 2004 (2)
                                                                 Non-GAAP
                                       GAAP Basis   Adjustments   Basis
  Revenue:
    Upfront license                      $135,302        --     $135,302
    Time-based license                    333,544        --      333,544
    Service                               111,022        --      111,022
        Total revenue                     579,868        --      579,868
  Cost of revenue:
    Upfront license                        14,196       197       14,393
    Time-based license                     15,755        --       15,755
    Service                                45,114       111       45,225
    Amortization of intangible assets
      and deferred stock compensation      50,955   (50,955)          --
       Total cost of revenue              126,020   (50,647)      75,373
  Gross margin                            453,848    50,647      504,495
  Operating expenses:
    Research and development              140,473       754      141,227
    Sales and marketing                   145,631       580      146,211
    General and administrative             67,611   (12,155)      55,456
    In-process research and development        --        --           --
    Amortization of intangible assets
      and deferred stock compensation      17,880   (17,880)          --
       Total operating expenses           371,595   (28,701)     342,894
  Operating income                         82,253    79,348      161,601
  Other (expense) income, net                (144)       --         (144)
  Income before provision for
    income taxes                           82,109    79,348      161,457
  Provision for income taxes               21,218    28,833       50,051
  Net income                              $60,891   $50,515     $111,406
  Basic earnings per share:
    Net income per share                    $0.39                  $0.72
    Weighted-average common shares        155,556                155,556
  Diluted earnings per share:
    Net income per share                    $0.37                  $0.68
    Weighted-average common shares
    and equivalents                       163,779                163,779


                                        Six Months Ended April 30, 2003 (2)
                                                                 Non-GAAP
                                       GAAP Basis   Adjustments   Basis
  Revenue:
    Upfront license                      $136,520          --   $136,520
    Time-based license                    289,290          --    289,290
    Service                               134,354          --    134,354
        Total revenue                     560,164          --    560,164
  Cost of revenue:
    Upfront license                         7,598          --      7,598
    Time-based license                     26,258          --     26,258
    Service                                39,770          --     39,770
    Amortization of intangible assets
      and deferred stock compensation      45,102     (45,102)        --
       Total cost of revenue              118,728     (45,102)    73,626
  Gross margin                            441,436      45,102    486,538
  Operating expenses:
    Research and development              135,881          --    135,881
    Sales and marketing                   152,208          --    152,208
    General and administrative             46,791          --     46,791
    In-process research and development    18,250     (18,250)        --
    Amortization of intangible assets
      and deferred stock compensation      17,159     (17,159)        --
       Total operating expenses           370,289     (35,409)   334,880
  Operating income                         71,147      80,511    151,658
  Other (expense) income, net              16,725          --     16,725
  Income before provision for
    income taxes                           87,872      80,511    168,383
  Provision for income taxes               31,198      23,527     54,725
  Net income                              $56,674     $56,984   $113,658
  Basic earnings per share:
    Net income per share                    $0.38                  $0.77
    Weighted-average common shares        148,440                148,440
  Diluted earnings per share:
    Net income per share                    $0.37                  $0.74
    Weighted-average common shares
    and equivalents                       153,102                153,102

   (1)  The Company's fiscal year and second quarter ends on the Saturday
        nearest to October 31 and April 30, respectively. 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 the Company's two-for-one stock split completed
        on September 23, 2003.


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


                                           April 30, 2004   October 31, 2003
  ASSETS:
  Current assets:
    Cash and cash equivalents                   $456,123          $524,308
    Short-term investments                       156,891           174,049
      Total cash, cash equivalents and
       short-term investments                    613,014           698,357
    Accounts receivable, net of
     allowances of $9,991 and $8,295,
     respectively                                220,854           200,998
    Deferred income taxes                        249,766           248,425
    Income taxes receivable                       49,328            72,124
    Prepaid expenses and other current
     assets                                       33,336            19,302
            Total current assets               1,166,298         1,239,206
  Property and equipment, net                    182,041           184,313
  Long-term investments                            7,730             8,595
  Goodwill                                       568,535           550,732
  Intangible assets, net                         246,955           285,583
  Other assets                                    66,914            38,924
             Total assets                     $2,238,473        $2,307,353

  LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
    Accounts payable and accrued
     liabilities                                $157,733          $204,226
    Accrued income taxes                         181,669           201,855
    Deferred revenue                             430,302           398,878
             Total current liabilities           769,704           804,959
  Deferred compensation and other
   liabilities                                    51,302            47,390
  Long-term deferred revenue                      21,581            21,594
  Stockholders' equity (2):
    Common stock, $0.01 par value per share;
     400,000 shares authorized; 155,247 and
     155,837 shares outstanding, respectively      1,552             1,560
    Additional paid-in capital                 1,236,738         1,198,421
    Retained earnings                            226,403           251,979
    Treasury stock, at cost; 1,882 and
     662 shares, respectively                    (67,117)          (20,733)
    Deferred stock compensation                   (4,738)           (7,170)
    Accumulated other comprehensive
     income                                        3,048             9,353
           Total stockholders' equity          1,395,886         1,433,410
           Total liabilities and
            stockholders' equity              $2,238,473        $2,307,353

   (1)  The Company's fiscal year and second quarter ends on the Saturday
        nearest to October 31 and April 30, respectively. For presentation
        purposes, the unaudited condensed consolidated financial statements
        refer to a calendar month end.

   (2)  All common share data for all periods presented are adjusted to
        reflect the Company's two-for-one stock split completed on September
        23, 2003.


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


                                                Six Months Ended April 30,
                                                   2004             2003
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                     $60,891           $56,674
  Adjustments to reconcile net income
   to net cash provided by operating
   activities:
   Amortization and depreciation                  96,272            90,875
   In-process research and development                --            18,250
   Write-down of long-term investments             1,901             2,065
   Tax benefit associated with stock
    options                                           --             3,226
   Deferred rent                                     (71)            1,351
   Provision for doubtful accounts and
    sales returns                                  2,000             2,423
   Net change in unrecognized gains and
    losses on foreign exchange contracts          (5,963)           13,683
   Gain on sale of short- and long-term
    investments                                     (756)          (12,470)
   Net changes in operating assets and
    liabilities:
    Accounts receivable                          (21,731)          (41,565)
    Income taxes receivable                       22,796             2,038
    Prepaid expenses and other current
     assets                                      (14,034)            1,094
    Other assets                                 (11,219)            3,259
    Accounts payable and accrued
     liabilities                                 (50,294)          (65,433)
    Accrued income taxes                         (20,186)            5,077
    Deferred revenue                              31,269            62,893
    Deferred compensation                         10,842             4,623
   Net cash provided by operating
    activities                                   101,717           148,063
  CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sales and maturities of
    short-term investments                       533,313           113,799
   Purchases of short-term investments          (516,099)         (134,246)
   Proceeds from sale of long-term
    investments                                      300            18,231
   Purchases of long-term investments             (1,254)             (800)
   Purchases of property and equipment           (24,129)          (19,705)
   Cash paid for acquisitions, net of
    cash received                                (38,815)         (162,461)
   Capitalization of software
    development costs                             (1,371)           (1,308)
   Net cash used in investing activities         (48,055)         (186,490)
  CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from credit facility                 200,000                --
   Payments on credit facility                  (200,000)               --
   Issuances of common stock                     117,996            63,419
   Purchases of treasury stock                  (238,338)          (67,795)
     Net cash used in financing activities      (120,342)           (4,376)
  Effect of exchange rate changes on
   cash                                           (1,505)             (955)
  Net decrease in cash and cash
   equivalents                                   (68,185)          (43,758)
  Cash and cash equivalents, beginning
   of period                                     524,308           312,580
  Cash and cash equivalents, end of
   period                                       $456,123          $268,822

   (1)  The Company's fiscal year and second quarter ends on the Saturday
        nearest to October 31 and April 30, respectively. For presentation
        purposes, the unaudited condensed consolidated financial statements
        refer to a calendar month end.

SOURCE: Synopsys, Inc.

CONTACT: investors, Jessica Kourakos, +1-650-584-1901, or editorial,
Yvette Huygen, +1-650-584-4547, both of Synopsys, Inc.

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