Press Releases

Synopsys Posts Financial Results for Second Quarter Fiscal Year 2007
PRNewswire-FirstCall
MOUNTAIN VIEW, Calif.
(NASDAQ:SNPS)

MOUNTAIN VIEW, Calif., May 23 /PRNewswire-FirstCall/ -- Synopsys, Inc. (NASDAQ: SNPS), a world leader in semiconductor design software, today reported results for its second quarter ended April 30, 2007.

For the second quarter, Synopsys reported revenue of $292.9 million, a 7 percent increase compared to $274.8 million for the second quarter of fiscal 2006.

"In the second quarter we again executed very well, with strong revenue and earnings growth and solid cash flow," said Aart de Geus, chairman and CEO of Synopsys. "As a result of this performance and continuing technology momentum, we are well-positioned to finish the year stronger than initially planned."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the second quarter of fiscal 2007 was $41.3 million, or $0.28 per share, compared to $5.4 million, or $0.04 per share, for the second quarter of fiscal 2006. This increase was driven primarily by an increase in revenue and a decrease in operating expense compared to the year-ago quarter, as well as a $12.5 million litigation settlement received from Magma Design Automation, recorded in other income, net.

Non-GAAP Results

On a non-GAAP basis, net income for the second quarter of fiscal 2007 was $53.2 million, or $0.35 per share, compared to non-GAAP net income of $24.5 million, or $0.17 per share, for the second quarter of fiscal 2006.

Non-GAAP net income consists of GAAP net income excluding employee 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 infrequent or non-recurring. In Q2 of fiscal 2007 non-GAAP income also excludes the one-time litigation settlement payment referenced above. See "GAAP Reconciliation" below.

Financial Targets

Synopsys also provided its operating model targets for the third quarter and full fiscal year 2007. 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.

  Third Quarter of Fiscal 2007 Targets:
  -- Revenue: $295 million - $305 million
  -- GAAP expenses: $268 million - $284 million
  -- Non-GAAP expenses: $243 million - $253 million
  -- Other income and expense: $3 million - $6 million
  -- Tax rate applied in non-GAAP net income calculations: 26 - 27 percent
  -- Fully diluted outstanding shares: 146 million - 151 million
  -- GAAP earnings per share: $0.13 - $0.20
  -- Non-GAAP earnings per share: $0.28 - $0.31
  -- Revenue from backlog: more than 90 percent

  Full-Year Fiscal Year 2007 Targets
  -- Revenue: $1.190 billion - $1.205 billion
  -- Tax rate applied in non-GAAP net income calculations: 25 - 26 percent
  -- Fully diluted outstanding shares: 146 million - 151 million
  -- GAAP earnings per share: $0.78 - $0.89
  -- Non-GAAP earnings per share: $1.27 - $1.33
  -- Cash flow from operations: greater than $275 million

  GAAP Reconciliation

Synopsys' management evaluates and makes 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 infrequent items are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while employee stock- based compensation expense calculated in accordance with FAS 123® and change in the fair value of the Company's non-qualified deferred compensation plan obligations constitute ongoing and recurring expenses of the Company, such expenses are excluded from non-GAAP results because they are not expenses that require cash settlement by the Company and because such expenses are not used by management to assess the core performance of the Company's business operations. Therefore, management excludes such costs, to the extent incurred in a particular quarter, from the following GAAP financial measures included in this earnings release: 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 performance. For example, since the Company does not acquire businesses on a predictable cycle, management would have difficulty evaluating the Company's performance 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, 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 Second Quarter Results

The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for the second quarter 2007.

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

  Income Statement Reconciliation       Three Months Ended  Six Months Ended
                                              April 30,         April 30,
                                           2007     2006     2007     2006
  GAAP net income                        $41,265   $5,375  $64,622   $7,072
  Adjustments:
   Amortization of intangible assets      11,854   13,626   25,206   29,626
   Share-based compensation               14,349   13,839   30,564   32,331
   In-process research and development        --       --       --      800
   Litigation settlement                 (12,500)      --  (12,500)      --
   Facilities realignment charge            (645)      --     (645)      --
   Tax effect                             (1,162)  (8,313) (10,082) (18,863)
  Non-GAAP net income                    $53,161  $24,527  $97,165  $50,966



  Earnings Per Share Reconciliation    Three Months Ended  Six Months Ended
                                              April 30,          April 30,
                                            2007     2006     2007     2006
  GAAP earnings per share                  $0.28    $0.04    $0.43    $0.05
  Adjustments:
   Amortization of intangible assets        0.08     0.09     0.17     0.20
   Share-based compensation                 0.10     0.09     0.21     0.22
   In-process research and development        --       --       --     0.01
   Litigation settlement                   (0.08)      --    (0.08)      --
   Facilities realignment charge           (0.01)      --    (0.01)      --
   Tax effect                              (0.02)   (0.05)   (0.07)   (0.13)
  Non-GAAP earnings per share              $0.35    $0.17    $0.65    $0.35

  Shares used in calculation             149,783  146,010  148,782  146,491



  Reconciliation of 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 Third Quarter Fiscal Year 2007 Targets
             (unaudited, in thousands, except per share amounts)

                                                  Range for Three Months
                                                    Ending July 31, 2007
                                                  Low               High
  Target GAAP expenses                          $268,000          $284,000
  Adjustment:
   Estimated impact of amortization of
    intangible assets                            (11,000)          (13,000)
   Estimated impact of share-based
    compensation                                 (14,000)          (18,000)
  Target non-GAAP expenses                      $243,000          $253,000



                                                   Range for Three Months
                                                    Ending July 31, 2007
                                                    Low               High
  Target GAAP earnings per share                   $0.13             $0.20
  Adjustment:
   Estimated impact of amortization of
    intangible assets                               0.09              0.07
   Estimated impact of share-based
    compensation                                    0.12              0.09
   Net non-GAAP tax effect                         (0.06)            (0.05)
  Target non-GAAP earnings per share               $0.28             $0.31

  Shares used in non-GAAP calculation
   (midpoint of target range)                    148,500           148,500



         GAAP to Non-GAAP Reconciliation of Fiscal Year 2007 Targets

                                                    Range for Fiscal Year
                                                   Ending October 31, 2007
                                                    Low               High
  Target GAAP earnings per share                   $0.78             $0.89
  Adjustment:
   Estimated impact of amortization of
    intangible assets                               0.33              0.32
   Estimated impact of share-based
    compensation                                    0.48              0.45
   Litigation settlement                           (0.09)            (0.09)
   Net non-GAAP tax effect                         (0.23)            (0.24)
  Target non-GAAP earnings per share               $1.27             $1.33

  Shares used in non-GAAP calculation
   (midpoint of target range)                    148,500           148,500

  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 (1-320-365-3844 for international callers), access code 872635, 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 Synopsys announces its results for the third quarter of fiscal 2007 in August 2007. 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 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 third quarter earnings call in August 2007, 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 third quarter of fiscal 2007 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release.

Availability of Final Financial Statements

Synopsys will include final financial statements for the second quarter of fiscal 2007 in its Quarterly Report on Form 10-Q to be filed in June 2007.

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 "Reconciliation of 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;
  -- failure of customers to pay license fees as scheduled;
  -- unexpected changes in the mix of time-based licenses and upfront
     licenses;
  -- failure of Synopsys' cost control efforts, including recent efforts to
     outsource certain internal functions, to result in the anticipated
     savings;
  -- failure to successfully develop additional intellectual property blocks
     or to develop and integrate Synopsys' design for manufacturing
     products; and
  -- difficulties in the integration of the products and operations of
     acquired companies or assets into Synopsys' products and operations.

In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the fiscal quarter ending July 31, 2007 and actual earnings per share and operating cash flow on a GAAP basis for fiscal year 2007 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 goodwill or intangible assets have become impaired, (ii) application of the actual consolidated GAAP tax rate for such periods, (iii) integration and other acquisition-related expenses including amortization of additional intangible assets associated with future acquisitions, if any, (iv) changes in the anticipated amount of employee stock-based compensation recognized on the Company's financial statements, (v) actual change in the fair value of the Company's non-qualified deferred compensation plan obligations, (vi) increases or decreases to estimated capital expenditures, and (vii) charges driven by adoption of Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," which Synopsys is required to adopt during fiscal year 2007. Furthermore, Synopsys' actual tax rates applied to non-GAAP net income for the third quarter and full-year fiscal 2007 could differ from the targets given in this press release as a result of a number of factors, including the actual geographic mix of revenue during the quarter. Finally, Synopsys' targets for outstanding shares in the third quarter and full-year fiscal 2007 could differ from the targets given in this press release as a result of higher than expected employee stock plan issuances, acquisitions and the extent of the Company's stock repurchase activity.

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.

Synopsys is a registered trademark of Synopsys, Inc. Any other trademarks mentioned in this release are the property of their respective owners.

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

                     Three Months Ended April 30, Six Months Ended April 30,

                              2007      2006             2007      2006
  Revenue:
    Time-based license     $243,096  $209,417         $494,702  $420,527
    Upfront license          14,624    25,959           28,127    34,326
    Maintenance and service  35,208    39,403           70,309    80,115
        Total revenue       292,928   274,779          593,138   534,968
  Cost of revenue:
    License                  34,657    32,582           70,177    62,639
    Maintenance and service  15,550    16,904           31,696    33,477
    Amortization of intangible
     assets                   5,210     6,495           11,919    15,154
       Total cost of
        revenue              55,417    55,981          113,792   111,270
  Gross margin              237,511   218,798          479,346   423,698
  Operating expenses:
    Research and
     development             91,956    92,750          187,840   181,139
    Sales and marketing      79,012    86,618          168,820   164,289
    General and
     administrative          22,551    27,108           52,228    58,153
    In-process research and
     development                 --        --               --       800
    Amortization of intangible
     assets                   6,644     7,131            13,288   14,472
       Total operating
        expenses            200,163   213,607           422,176  418,853
  Operating income           37,348     5,191            57,170    4,845
  Other income, net          19,668     3,952            27,602    7,324
  Income before income
   taxes                     57,016     9,143            84,772   12,169
  Income tax provision       15,751     3,768            20,150    5,097
  Net income                $41,265    $5,375           $64,622   $7,072

  Net income per share:
    Basic                     $0.29     $0.04             $0.45    $0.05
    Diluted                   $0.28     $0.04             $0.43    $0.05

  Shares used in computing per share
   amounts:
    Basic                   144,370   143,352           143,527  144,172
    Diluted                 149,783   146,010           148,782  146,491

  (1) Synopsys' second quarter ends on May 5, 2007 and April 29, 2006,
      respectively.  For presentation purposes, the Unaudited Condensed
      Consolidated Statements of Operations refer to a calendar month end.



                                SYNOPSYS, INC.
           Unaudited Condensed Consolidated Balance Sheets (1) (2)
                   (in thousands, except par value amounts)

                                           April 30, 2007   October 31, 2006
  ASSETS:
  Current assets:
    Cash and cash equivalents                   $461,074           $330,759
    Short-term investments                       306,463            241,963
    Total cash, cash equivalents and
     short-term investments                      767,537            572,722
    Accounts receivable, net                     166,850            122,584
    Deferred income taxes                        112,189            112,342
    Income taxes receivable                       41,539             42,538
    Prepaid expenses and other current
     assets                                       32,982             44,304
            Total current assets               1,121,097            894,490
  Property and equipment, net                    141,044            140,660
  Long-term investments                            4,125              4,877
  Goodwill                                       736,799            735,643
  Intangible assets, net                          81,130            106,144
  Long-term deferred income taxes                191,551            206,254
  Other assets                                    75,258             69,754
             Total assets                     $2,351,004         $2,157,822

  LIABILITIES AND STOCKHOLDERS'
   EQUITY:
  Current liabilities:
    Accounts payable and accrued
     liabilities                                $173,156           $234,149
    Accrued income taxes                         184,284            191,349
    Deferred revenue                             540,003            445,598
             Total current liabilities           897,443            871,096
  Deferred compensation and other
   liabilities                                    73,476             69,889
  Long-term deferred revenue                      66,461             53,670
             Total liabilities                 1,037,380            994,655
  Stockholders' equity:
    Preferred stock, $0.01 par value:
     2,000 shares authorized; none
     outstanding                                      --                 --
    Common stock, $0.01 par value:
     400,000 shares authorized;
     144,737 and 140,568 shares
     outstanding, respectively                     1,447              1,406
    Capital in excess of par value             1,347,232          1,316,252
    Retained earnings                            226,606            170,743
    Treasury stock, at cost: 12,485
     and 16,619 shares, respectively            (255,831)          (312,753)
    Accumulated other comprehensive
     loss                                         (5,830)           (12,481)
             Total stockholders'
              equity                           1,313,624          1,163,167
             Total liabilities and
              stockholders' equity            $2,351,004         $2,157,822

  (1)  Synopsys' second quarter ends on May 5, 2007 and April 29, 2006,
       respectively.  For presentation purposes, the Unaudited Condensed
       Consolidated Balance Sheets refer to a calendar month end.

  (2)  The prior year tax provision and related balance sheet accounts
       (long-term deferred income taxes, capital in excess of par value and
       retained earnings accounts) have been revised to reflect immaterial
       adjustments originating in years prior to fiscal 2006.



                              SYNOPSYS, INC.
     Unaudited Condensed Consolidated Statement of Cash Flows (1) (2)
                              (in thousands)

                                                 Six Months Ended April 30,
                                                   2007              2006
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                     $64,622            $7,072
  Adjustments to reconcile net income
   to net cash provided by operating
   activities:
    Amortization and depreciation                 52,676            57,974
    Share-based compensation                      30,565            32,333
    Provision for doubtful accounts                 (330)              375
    (Gain) loss on sale of short-term investment      (1)               20
    (Gain) on sale of land                        (4,284)               --
    Deferred income taxes                         10,677                70
    Write-down of long-term investments               --             1,336
    Net change in deferred gains and
     losses on cash flow hedges                    2,990              (475)
    In-process research and development               --               800
    Net changes in operating assets and
     liabilities, net of acquired assets
     and liabilities:
      Accounts receivable                        (43,935)          (37,501)
      Prepaid expenses and other current assets  (11,272)           (5,483)
      Other assets                                   487            (6,905)
      Accounts payable and accrued liabilities   (59,642)          (67,276)
      Accrued income taxes                        (4,592)           (4,374)
      Deferred revenue                           107,196            61,315
      Deferred compensation and other liabilities   (926)            7,397
    Net cash provided by operating activities    144,231            46,678

  CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from sales and maturities of
     short-term investments                      113,351           136,093
    Sale of land                                  26,298                --
    Purchases of short-term investments         (178,782)         (194,084)
    Purchases of long-term investments                --            (1,539)
    Purchases of property and equipment          (24,520)          (23,136)
    Cash paid for acquisitions, net of
     cash received                                    --           (11,894)
    Capitalization of software development costs  (1,592)           (1,523)
    Net cash used in investing activities        (65,245)          (96,083)

  CASH FLOWS FROM FINANCING ACTIVITIES:
    Issuances of common stock                    130,240            38,428
    Purchases of treasury stock                  (81,394)          (99,026)
    Net cash provided by (used in)
     financing activities                         48,846           (60,598)
  Effect of exchange rate changes on
   cash and cash equivalents                       2,483               498
  Net change in cash and cash equivalents        130,315          (109,505)
  Cash and cash equivalents, beginning
   of period                                     330,759           404,436
  Cash and cash equivalents, end of period      $461,074          $294,931

  (1)  Synopsys' second quarter ends on May 5, 2007 and April 29, 2006,
       respectively.  For presentation purposes, the Unaudited Condensed
       Consolidated Balance Sheets refer to a calendar month end.

  (2)  The prior year tax provision and related balance sheet accounts
       (long-term deferred income taxes, capital in excess of par value
       and retained earnings accounts) have been revised to reflect
       immaterial adjustments originating in years prior to fiscal 2006.

  INVESTOR CONTACT:
  Lisa L. Ewbank
  Synopsys, Inc.
  650-584-1901

  EDITORIAL CONTACT:
  Yvette Huygen
  Synopsys, Inc.
  650-584-4547
  yvetteh@synopsys.com

SOURCE: Synopsys, Inc.

CONTACT: Investor, Lisa L. Ewbank, +1-650-584-1901, or editorial, Yvette
Huygen, +1-650-584-4547, yvetteh@synopsys.com, both of Synopsys, Inc.

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