Press Releases

Synopsys Posts Financial Results for Third 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 third quarter ended July 31, 2004.

For the third quarter of fiscal 2004, Synopsys reported revenue of $281.7 million, a 6% decrease compared to revenue of $300.4 million for the third quarter of fiscal 2003. For the nine-month period ended July 31, 2004, revenue was $861.5 million compared to revenue of $860.5 million for the same period in 2003.

GAAP Results

On a generally accepted accounting principles (GAAP) basis, for the third quarter of fiscal 2004, net income was $41.8 million, or $0.26 per share, compared to net income of $48.5 million, or $0.30 per share, for the third quarter of fiscal 2003. GAAP net income for the nine-month period ended July 31, 2004 was $102.7 million, or $0.63 per share, compared to $105.1 million, or $0.67 per share, for the same period in fiscal 2003.

Non-GAAP Results

On a non-GAAP basis, net income was $53.2 million, or $0.33 per share, for the third quarter of fiscal 2004 compared to non-GAAP net income of $66.9 million, or $0.41 per share, for the third quarter of fiscal 2003. Non-GAAP net income for the nine-month period ended July 31, 2004 was $164.6 million, or $1.01 per share, compared to $180.5 million, or $1.15 per share, for the same period in fiscal 2003.

A description of the items excluded from non-GAAP results and a reconciliation of GAAP and non-GAAP results are contained in the section entitled "GAAP Reconciliation" below. Per share data for the periods presented reflects Synopsys' two-for-one stock split completed on September 23, 2003.

Third Quarter Business Environment

"Clearly, our third quarter was tough, mainly due to lower-than-expected bookings for upfront licenses, with several contracts being pushed out very late in the quarter," said Aart de Geus, chairman and chief executive officer. "In July, customers became markedly more cautious about extending existing commitments and spending cash, particularly impacting our upfront bookings, which under our model require front-loaded payment terms. Recent announcements in the industry of lower earnings and reduced forecasts suggest continued caution on customer spending. This caution, and the fact that we anticipate 2005 will be a relatively low renewal year for Synopsys, will reduce our bookings expectations for fiscal 2005.

"Against this backdrop, with new technology rolling out this year and accelerating in 2005, and with the advantage of a strong existing backlog, we have decided to move Synopsys immediately towards a maximally subscription- based license model," continued Dr. de Geus. "We believe this further transition offers the best opportunity to preserve the value of our new technology, aggressively pursue competitive displacements, decrease end-of- quarter uncertainty, and more flexibly offer customers complete, differentiated solutions to match their current needs. Moving away from upfront licenses will in the near-term lower our fourth quarter, fiscal 2004 and fiscal 2005 revenue expectations, but we believe it is the right action to put Synopsys on the strongest long-term footing."

2004 Financial Targets

Synopsys also announced its operating model targets for the fourth quarter of fiscal 2004 and revised targets for the full fiscal year. These targets reflect Synopsys' expectations of a shift in the mix of license revenues during the fourth quarter.

  Fourth Quarter of Fiscal 2004 Targets:

   *    Revenue:  $220 million - $240 million
   *    Non-GAAP expenses:  $222 million - $232 million
   *    Other income and expense:  ($1.5) million - $1.5 million
   *    Fully diluted outstanding shares:  150 million - 158 million
   *    Tax rate applied in net income calculations:  31%
   *    Non-GAAP earnings:  $0.00 - $0.04 per share
   *    Revenue from backlog:  over 90% of revenue target

  Revised Fiscal 2004 Targets:

   *    Revenue:  $1.08 billion - $1.1 billion
   *    Non-GAAP expenses:  $846 million - $856 million
   *    Fully diluted outstanding shares:  158 million - 162 million
   *    Non-GAAP earnings:  $1.01 - $1.05 per share

Synopsys' orders for the year are expected to be below its previous target of $1.4 billion. Synopsys is not providing a new total orders target for fiscal 2004 or an updated target for upfront orders as a percentage of product orders for the year. Both of these metrics will be materially affected, more so than in other quarters, by the timing of completion of certain agreements currently being negotiated. Synopsys intends to report on its orders results for the year when it reports its fourth quarter results.

Preliminary Fiscal 2005 Financial Targets

Synopsys' preliminary operating model targets for fiscal 2005 are as follows:

   *    Orders:  approximately $900 million
   *    Revenue:  approximately $940 million
   *    Non-GAAP earnings:  $0.28 - $0.38 per share

The fourth quarter, full-year fiscal 2004 and preliminary fiscal 2005 financial targets constitute forward-looking information based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see the section entitled "Forward- Looking Statements" below.

GAAP Reconciliation

Non-GAAP net income consists of GAAP net income excluding, to the extent incurred in a particular quarter, amortization of intangible assets and deferred stock compensation, in-process research and development charges, integration and other acquisition-related expenses and facilities and workforce realignment charges. Intangible assets consist primarily of purchased technology, contract rights intangible, customer-installed base/relationships, trademarks and tradenames, covenants not to compete 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 facilities and workforce realignment charges are ordinary, ongoing and recurring operating charges for Synopsys' core software and services business operations. Therefore, management calculates the non-GAAP financial measures used in this earnings release excluding these charges and uses these non-GAAP financial measures to enable it to analyze further and more consistently the period-to-period financial performance of its core business operations. Management believes that, although it is important for investors to understand GAAP measures, providing investors with these non-GAAP measures gives them additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations.

Reconciliation of Third 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  Nine Months Ended
  (in thousands)                            July 31,           July 31,
                                         2004     2003      2004      2003

  GAAP net income                      $41,828  $48,475  $102,719  $105,149
  Amortization of intangible assets
   and deferred stock compensation      34,092   33,077   102,927    95,338
  Merger termination fee                    --       --    10,000        --
  In process research and development       --    1,600        --    19,850
  Realignment charges, net of those
   settled at a lower cost than
   estimated                                --       --       513        --
  Collection of acquired accounts
   receivable originally assumed
   uncollectable                            --   (3,000)       --    (3,000)
  Pre-merger liabilities settled at a
   lower cost than estimated                --     (616)       --      (616)
  Tax effect                           (22,692) (12,652)  (51,525)  (36,179)
  Non-GAAP net income                  $53,228  $66,884  $164,634  $180,542


  Income Statement Reconciliation Per Share
  (in thousands,                       Three Months Ended  Nine Months Ended
   except per share data)                     July 31,          July 31,
                                           2004     2003     2004     2003

  GAAP earnings per share                  $0.26    $0.30    $0.63     0.67
  Amortization of intangible assets and
   deferred stock compensation              0.21     0.20     0.63     0.61
  Merger termination fee                      --       --     0.06       --
  In process research and development         --     0.01       --     0.13
  Realignment charges, net of those
   settled at a lower cost than estimated     --       --       --       --
  Collection of acquired accounts
   receivable originally assumed
   uncollectable                              --    (0.02)      --    (0.02)
  Pre-merger liabilities settled at a
   lower cost than estimated                  --       --       --       --
  Tax effect                               (0.14)   (0.08)   (0.31)   (0.24)
  Non-GAAP earnings per share              $0.33    $0.41    $1.01    $1.15

  Shares used in calculation             160,346  162,696  162,638  156,320


  Reconciliation of Estimated 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:

  Non-GAAP Target Expenses Reconciliation        Range for Three Months
  (in thousands)                                 Ending October 31, 2004
                                                  Low               High

  GAAP target expenses                          $256,000          $268,000
  Impact of amortization of intangible
   assets and deferred stock compensation        (34,000)          (35,000)
  Impact of known facility realignment charges        --            (1,000)
  Non-GAAP target expenses                      $222,000          $232,000


  Non-GAAP Target Expenses Reconciliation        Range for Fiscal Year
  (in thousands)                                 Ending October 31, 2004
                                                  Low               High

  GAAP target expenses                         $993,000         $1,006,000
  Merger termination fee                        (10,000)           (10,000)
  Estimated impact of amortization of
   intangible assets and deferred stock
   compensation                                (137,000)          (138,000)
  Estimated impact of known facility
   realignment charges                               --             (2,000)
  Non-GAAP target expenses                     $846,000           $856,000


  Information regarding Target Earnings Per Share
  (in thousands, except per share data)          Range for Three Months
                                                 Ending October 31, 2004
                                                  Low               High

  GAAP target earnings per share                  $(0.15)           $(0.12)
  Impact of amortization of intangible
   assets and deferred
  stock compensation per share, net of
   tax effect                                       0.15              0.16
  Impact of facility realignment charges per
   share, net of tax effect                           --                --
  Non-GAAP target earnings per share                  --             $0.04

  Shares used in calculation (midpoint
   of target range)                              154,000           154,000


  Information regarding Target Earnings Per Share
  (in thousands, except per share data)          Range for Fiscal Year
                                                 Ending October 31, 2004
                                                  Low               High

  GAAP target earnings per share                   $0.41             $0.43
  Impact of amortization of intangible assets
   and deferred stock compensation per share,
   net of tax effect                                0.59              0.60
  Impact of facility realignment charges per
   share, net of tax effect                         0.01              0.02
  Non-GAAP target earnings per share               $1.01             $1.05

  Shares used in calculation (midpoint
   of target range)                              160,000           160,000


  Information regarding Target Earnings Per Share
  (in thousands, except per share data)          Range for Fiscal Year
                                                 Ending October 31, 2005
                                                  Low               High

  Preliminary GAAP target earnings per share      $(0.16)           $(0.07)
  Impact of amortization of intangible assets
   and deferred stock compensation per share,
   net of tax effect                                0.44              0.45
  Preliminary non-GAAP target earnings per share   $0.28             $0.38

  Shares used in calculation                     154,000           154,000

  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/q304.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 1-800-288-8976 (612-332-0226 for international callers), access code 741248, 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 fourth quarter of fiscal 2004 in December 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.

Effectiveness of Information

The targets included in this release, the statements made during the earnings conference call and the information contained in the financial supplement represent Synopsys' expectations and beliefs as of the date of this release only. Although this release, copies of the prepared remarks of the CEO and CFO made during the call and the financial supplement will remain available on Synopsys' website through the date of the fourth quarter earnings call in December 2004, 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 fourth quarter of fiscal 2004 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release until it releases such results in December 2004. Furthermore, Synopsys is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this earnings release, the conference call or the financial supplement whether as a result of new information, future events or otherwise unless required by law.

Availability of Final Financial Statements

Synopsys will include final financial statements for the third quarter of fiscal 2004 in its Quarterly Report on Form 10-Q to be filed in September 2004.

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 statements made in this press release regarding projected or expected future events or financial results in the sections entitled "Third Quarter Business Environment", "Fiscal 2004 Financial Targets", "Preliminary Fiscal 2005 Financial Targets" and "GAAP Reconciliation" are forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those described by these statements due to a number of uncertainties, including but not limited to the risk of:

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

In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the fourth quarter of fiscal 2004 and actual earnings per share on a GAAP basis for the full fiscal years 2004 and 2005 could differ materially from the targets stated under "Fiscal 2004 Financial Targets" and "Preliminary Fiscal 2005 Financial Targets" above for a number of reasons, including (i) a determination by Synopsys that any portion of its intangible assets have become impaired, (ii) changes in deferred stock compensation expenses caused by employee terminations, and (iii) integration and other acquisition-related expenses, amortization of additional intangible assets and deferred stock compensation associated with future acquisitions, if any.

For further discussion of these and other factors that may cause results to differ from those projected in this release, readers are referred to the reports Synopsys has filed with the Securities and Exchange Commission, and available at www.sec.gov, specifically the section contained in Part I, Item 2 of Synopsys' Quarterly Report on Form 10-Q for the second quarter of fiscal 2004 filed with the Commission on June 10, 2004 entitled "Factors That May Affect Future Results."

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 July 31, 2004 (2)
                                                                   Non-GAAP
                                        GAAP Basis  Adjustments     Basis
  Revenue:
    Upfront license                       $62,352         --       $62,352
    Time-based license                    164,398         --       164,398
    Service                                54,931         --        54,931
        Total revenue                     281,681         --       281,681
  Cost of revenue:
    Upfront license                         3,277         --         3,277
    Time-based license                     15,550         --        15,550
    Service                                19,929         --        19,929
    Amortization of intangible assets
      and deferred stock compensation      25,562    (25,562)           --
       Total cost of revenue               64,318    (25,562)       38,756
  Gross margin                            217,363     25,562       242,925
  Operating expenses:
    Research and development               68,471         --        68,471
    Sales and marketing                    70,395         --        70,395
    General and administrative             28,194         --        28,194
    In-process research and development        --         --            --
    Amortization of intangible assets
      and deferred stock compensation       8,530     (8,530)           --
       Total operating expenses           175,590     (8,530)      167,060
  Operating income                         41,773     34,092        75,865
  Other income, net                         1,277         --         1,277
  Income before provision for
    income taxes                           43,050     34,092        77,142
  Provision for income taxes                1,222     22,692        23,914
  Net income                              $41,828    $11,400       $53,228
  Basic earnings per share:
    Net income per share                    $0.27                    $0.34
    Weighted-average common shares        155,199                  155,199
  Diluted earnings per share:
    Net income per share                    $0.26                    $0.33
    Weighted-average common shares
    and equivalents                       160,346                  160,346


                                        Three Months Ended July 31, 2003 (2)
                                                                   Non-GAAP
                                        GAAP Basis  Adjustments     Basis
  Revenue:
    Upfront license                       $74,709            --    $74,709
    Time-based license                    160,875            --    160,875
    Service                                64,782            --     64,782
        Total revenue                     300,366            --    300,366
  Cost of revenue:
    Upfront license                         3,536            --      3,536
    Time-based license                     13,792            --     13,792
    Service                                16,974            --     16,974
    Amortization of intangible assets
      and deferred stock compensation      23,856       (23,856)        --
       Total cost of revenue               58,158       (23,856)    34,302
  Gross margin                            242,208        23,856    266,064
  Operating expenses:
    Research and development               70,716            --     70,716
    Sales and marketing                    78,189            --     78,189
    General and administrative             19,763         3,000     22,763
    In-process research and development     1,600        (1,600)        --
    Amortization of intangible assets
      and deferred stock compensation       9,221        (9,221)        --
       Total operating expenses           179,489        (7,821)   171,668
  Operating income                         62,719        31,677     94,396
  Other income, net                         5,307          (616)     4,691
  Income before provision for
    income taxes                           68,026        31,061     99,087
  Provision for income taxes               19,551        12,652     32,203
  Net income                              $48,475       $18,409    $66,884
  Basic earnings per share:
    Net income per share                    $0.32                    $0.44
    Weighted-average common shares        153,240                  153,240
  Diluted earnings per share:
    Net income per share                    $0.30                    $0.41
    Weighted-average common shares
    and equivalents                       162,696                  162,696

   (1)  Synopsys' fiscal year and third quarter ends on the Saturday nearest
        to October 31 and July 31, 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 Synopsys' 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)

                                        Nine Months Ended July 31, 2004 (2)
                                                                 Non-GAAP
                                        GAAP Basis  Adjustments   Basis
  Revenue:
    Upfront license                      $197,654        --     $197,654
    Time-based license                    497,942        --      497,942
    Service                               165,953        --      165,953
        Total revenue                     861,549        --      861,549
  Cost of revenue:
    Upfront license                        17,473       197       17,670
    Time-based license                     31,305        --       31,305
    Service                                65,043       111       65,154
    Amortization of intangible assets
      and deferred stock compensation      76,517   (76,517)          --
       Total cost of revenue              190,338   (76,209)     114,129
  Gross margin                            671,211    76,209      747,420
  Operating expenses:
    Research and development              208,944       754      209,698
    Sales and marketing                   216,026       580      216,606
    General and administrative             95,805   (12,155)      83,650
    In-process research and development        --        --           --
    Amortization of intangible assets
      and deferred stock compensation      26,410   (26,410)          --
       Total operating expenses           547,185   (37,231)     509,954
  Operating income                        124,026   113,440      237,466
  Other (expense) income, net               1,133        --        1,133
  Income before provision for
    income taxes                          125,159   113,440      238,599
  Provision for income taxes               22,440    51,525       73,965
  Net income                             $102,719   $61,915     $164,634
  Basic earnings per share:
    Net income per share                    $0.66                  $1.06
    Weighted-average common shares        155,437                155,437
  Diluted earnings per share:
    Net income per share                    $0.63                  $1.01
    Weighted-average common shares
    and equivalents                       162,638                162,638


                                        Nine Months Ended July 31, 2003 (2)
                                                                 Non-GAAP
                                        GAAP Basis  Adjustments   Basis
  Revenue:
    Upfront license                      $211,229          --   $211,229
    Time-based license                    450,165          --    450,165
    Service                               199,136          --    199,136
        Total revenue                     860,530          --    860,530
  Cost of revenue:
    Upfront license                        11,134          --     11,134
    Time-based license                     40,050          --     40,050
    Service                                56,744          --     56,744
    Amortization of intangible assets
      and deferred stock compensation      68,959     (68,959)        --
       Total cost of revenue              176,887     (68,959)   107,928
  Gross margin                            683,643      68,959    752,602
  Operating expenses:
    Research and development              206,597          --    206,597
    Sales and marketing                   230,397          --    230,397
    General and administrative             66,554       3,000     69,554
    In-process research and development    19,850     (19,850)        --
    Amortization of intangible assets
      and deferred stock compensation      26,379     (26,379)        --
       Total operating expenses           549,777     (43,229)   506,548
  Operating income                        133,866     112,188    246,054
  Other (expense) income, net              22,032        (616)    21,416
  Income before provision for
    income taxes                          155,898     111,572    267,470
  Provision for income taxes               50,749      36,179     86,928
  Net income                             $105,149     $75,393   $180,542
  Basic earnings per share:
    Net income per share                    $0.70                  $1.20
    Weighted-average common shares        150,008                150,008
  Diluted earnings per share:
    Net income per share                    $0.67                  $1.15
    Weighted-average common shares
    and equivalents                       156,320                156,320

   (1)  Synopsys' fiscal year and third quarter ends on the Saturday nearest
        to October 31 and July 31, 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 Synopsys' two-for-one stock split completed on
        September 23, 2003.


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

                                                July 31,        October 31,
                                                 2004              2003
  ASSETS:
  Current assets:
    Cash and cash equivalents                   $499,234          $524,308
    Short-term investments                       200,111           174,049
      Total cash, cash equivalents and
       short-term investments                    699,345           698,357
    Accounts receivable, net of allowances of
     $7,848 and $8,295, respectively             143,006           200,998
    Deferred income taxes                        243,106           248,425
    Income taxes receivable                       49,223            72,124
    Prepaid expenses and other current assets     30,081            19,302
            Total current assets               1,164,761         1,239,206
  Property and equipment, net                    180,081           184,313
  Long-term investments                           13,458             8,595
  Goodwill                                       570,047           550,732
  Intangible assets, net                         213,155           285,583
  Other assets                                    80,054            38,924
             Total assets                     $2,221,556        $2,307,353

  LIABILITIES AND STOCKHOLDERS' EQUITY:
  Current liabilities:
    Accounts payable and accrued liabilities    $159,407          $204,226
    Accrued income taxes                         182,569           201,855
    Deferred revenue                             385,302           398,878
             Total current liabilities           727,278           804,959
  Deferred compensation and other liabilities     51,521            47,390
  Long-term deferred revenue                      29,215            21,594
  Stockholders' equity (2):
    Common stock,  $0.01 par value; 400,000
     shares authorized; 154,779 and 155,837
     shares outstanding, respectively              1,548             1,560
    Additional paid-in capital                 1,240,384         1,198,421
    Retained earnings                            249,844           251,979
    Treasury stock, at cost; 2,350 and
     662 shares, respectively                    (74,834)          (20,733)
    Deferred stock compensation                   (3,543)           (7,170)
    Accumulated other comprehensive income           143             9,353
           Total stockholders' equity          1,413,542         1,433,410
           Total liabilities and
            stockholders' equity              $2,221,556        $2,307,353

   (1)  Synopsys' fiscal year and third quarter ends on the Saturday nearest
        to October 31 and July 31, 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 Synopsys' two-for-one stock split completed on
        September 23, 2003.


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

                                     Three Months Ended  Nine Months Ended
                                          July 31,            July 31,
                                       2004      2003      2004      2003

  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                          $41,828   $48,475  $102,719  $105,149
  Adjustments to reconcile net
   income to net cash provided
     by operating activities:
  Amortization and depreciation        48,258    46,898   144,530   137,773
  Deferred taxes                           --        --        --        --
  In-process research and development      --     1,600        --    19,850
  Write-down of long-term investments      --     1,877     1,901     3,942
  Tax benefit associated with stock
   options                                 --        --        --     3,226
  Deferred rent                            71       209        --     1,560
  Provision for doubtful accounts
   and sales returns                   (2,000)   (4,000)       --    (1,577)
  Net change in unrecognized gains
   and losses on foreign exchange
   contracts                           (3,458)   (3,637)  (11,142)   15,640
  Gain on sale of short- and long-
   term investments                      (111)   (8,098)     (867)  (20,568)
  Net changes in operating assets
   and liabilities:
  Accounts receivable                  79,865    47,944    58,134     6,379
  Income taxes receivable                  (1)       --    22,795     2,038
  Prepaid expenses and other current
   assets                               3,255    (8,485)  (10,779)   (7,391)
  Other assets                         (2,230)   20,870   (13,449)   18,535
  Accounts payable and accrued
   liabilities                          1,252    10,545   (49,042)  (54,888)
  Accrued income taxes                    900    (2,921)  (19,286)    2,156
  Deferred revenue                    (37,366)  (29,393)   (6,097)   33,500
  Deferred compensation                   211     3,369    11,053     7,992
  Net cash provided by operating
   activities                         130,474   125,253   230,470   273,316

  CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sales and maturities
   of short-term investments          262,330    66,030   795,643   179,829
  Purchases of short-term
   investments                       (305,556)  (84,853) (821,655) (219,099)
  Proceeds from sale of long-term
   investments                            112    13,775       412    32,006
  Purchases of long-term investments   (4,890)       --    (6,144)     (800)
  Purchases of property and
   equipment, net                     (10,944)  (13,838)  (35,073)  (33,543)
  Cash paid for acquisitions, net of
   cash received                         (915)   (5,283)  (39,730) (167,744)
  Capitalization of software
   development costs                     (685)     (654)   (2,056)   (1,962)
  Net cash used in investing
   activities                         (60,548)  (24,823) (108,603) (211,313)

  CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from credit facility            --        --   200,000        --
  Payments on credit facility              --        --  (200,000)       --
  Issuances of common stock            23,896   216,269   141,892   279,688
  Purchases of treasury stock         (49,998) (158,855) (288,336) (226,650)
  Net cash used in financing
   activities                         (26,102)   57,414  (146,444)   53,038
  Effect of exchange rate changes on
   cash                                  (713)     (382)     (497)   (1,337)
  Net decrease in cash and cash
   equivalents                         43,111   157,462   (25,074)  113,704
  Cash and cash equivalents,
   beginning of period                456,123   268,822   524,308   312,580
  Cash and cash equivalents, end of
   period                            $499,234  $426,284  $499,234  $426,284

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

SOURCE: Synopsys, Inc.

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

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