Synopsys Posts Financial Results for Fourth Quarter and Fiscal Year 2006
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Synopsys Posts Financial Results for Fourth Quarter and Fiscal Year 2006

MOUNTAIN VIEW, Calif., Nov. 29 /PRNewswire-FirstCall/ -- Synopsys, Inc. (NASDAQ: SNPS), a world leader in semiconductor design software, today reported results for its fourth quarter and fiscal year ended October 31, 2006.

For the fourth quarter, Synopsys reported revenue of $283.4 million, an 11 percent increase compared to $254.8 million for the fourth quarter of fiscal 2005. Revenue for fiscal year 2006 was $1.096 billion, an increase of 10.4 percent from the $991.9 million in fiscal 2005.

"In 2006 we delivered strong revenue and earnings growth, solid cash flow and business that was notably above plan. As a result of our technology leadership we are seeing increased momentum in customer adoptions and new products," said Aart de Geus, chairman and CEO of Synopsys. "For fiscal 2007 we are committed to reaching a 20 percent-plus operating margin by the second half of the year. Beyond 2007, we expect to drive revenue growth and expense control to achieve our next target operating margin in the mid to high 20s."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the fourth quarter of fiscal 2006 was $9.6 million, or $0.07 per share, compared to net loss of ($13.5) million, or ($0.09) per share, for the fourth quarter of fiscal 2005. GAAP net income for the current period includes employee stock-based compensation expense of $15.1 million due to the adoption of Statement of Financial Accounting Standards 123( R ) (FAS 123( R )) in fiscal 2006.

GAAP net income for the fiscal year ended October 31, 2006 was $24.3 million, or $0.17 per share, compared to net loss of ($15.5) million, or ($0.11) per share, for fiscal 2005. GAAP net income for fiscal year 2006 includes employee stock-based compensation expense of $63.0 million due to the adoption of FAS 123( R ) in fiscal 2006.

Net income prior to fiscal 2006 did not include employee stock-based compensation expense related to FAS 123( R ).

Non-GAAP Results

On a non-GAAP basis, net income for the fourth quarter of fiscal 2006 was $30.1 million, or $0.21 per share, compared to non-GAAP net income of $15.3 million, or $0.10 per share, for the fourth quarter of fiscal 2005.

Non-GAAP net income for the fiscal year ended October 31, 2006 was $111.2 million, or $0.77 per share, compared to $58.1 million, or $0.40 per share, for fiscal year 2005.

Non-GAAP net income consists of GAAP net income excluding employee stock- based compensation expense calculated in accordance with FAS 123( R ) 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. See "GAAP Reconciliation" below.

Financial Targets

Synopsys also announced its operating model targets for the first quarter and full fiscal year 2007. These targets constitute forward-looking information and are based on current expectations. They do not include any potential impact due to adoption of Staff Accounting Bulletin No. 108, which we will be required to adopt during 2007. For a discussion of factors that could cause actual results to differ materially from these targets, see "Forward-Looking Statements" below.

    First Quarter of Fiscal 2007 Targets:

    -- Revenue: $292 million - $300 million
    -- GAAP expenses: $267 million - $283 million
    -- Non-GAAP expenses: $241 million - $251 million
    -- Other income and expense: $0 million - $4 million
    -- Fully diluted outstanding shares: 141 million - 147 million
    -- Tax rate applied in non-GAAP net income calculations: 28 - 29 percent
    -- GAAP earnings per share: $0.10 - $0.15
    -- Non-GAAP earnings per share: $0.26 - $0.28
    -- Revenue from backlog: more than 90 percent

    Note: Q107 includes an extra fiscal week that occurs every seven years.

    Full-Year Fiscal Year 2007 Targets

    -- Revenue: $1.180 billion - $1.205 billion
    -- Fully diluted outstanding shares: 142 million - 148 million
    -- Tax rate applied in non-GAAP net income calculations: 28 - 29 percent
    -- GAAP earnings per share: $0.60 - $0.73
    -- Non-GAAP earnings per share: $1.20 - $1.28
    -- 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( R ) and change in the fair value of the Company's non-qualified deferred plan 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 profitability 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 profitability. For example, since the Company does not acquire businesses on a predictable cycle, management would have difficulty evaluating the Company's profitability as measured by gross margin, operating margin, income before taxes and net income on a period-to-period basis unless it excluded acquisition-related charges. Similarly, the Company does not undertake significant restructuring or realignments on a regular basis, and, as a result, excludes associated charges in order to enable better and more consistent evaluations of the Company's operating expenses before and after such actions are taken. Management also uses these measures to help it make budgeting decisions, for example, as between product development expenses (which affect cost of revenue and gross margin) and research and development, sales and marketing and general and administrative expenses (which affect operating expenses and operating margin). Finally, the availability of such information helps management track performance to both internal and externally communicated financial targets and to its competitors' operating results.

Management recognizes that the use of these non-GAAP measures has certain limitations, including the fact that management must exercise judgment in determining whether certain types of charges, such as those relating to workforce reductions executed in the ordinary course, 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 Fourth Quarter and Full-Fiscal Year End 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 fourth quarter and fiscal year 2006.


  GAAP to Non-GAAP Reconciliation of Fourth Quarter and Fiscal Year Results
                   (in thousands, except per share amounts)

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

    GAAP net income (loss) (2)       $9,631      $(13,475)  $24,253  $(15,478)
    Adjustments:
      Amortization of intangible
       assets                        13,463        16,639    56,443   113,398
      Stock-based compensation (1)   15,106         4,386    63,038     6,176
      In-process research and
       development                       --            --       800     5,700
      Litigation settlement              --            --        --   (33,000)
      Tax effect                     (8,068)        7,752   (33,290)  (18,738)
    Non-GAAP net income (2)         $30,132       $15,302  $111,244   $58,058

    (1) Stock-based compensation results from the Company's adoption of
        FAS 123( R ) during fiscal 2006.

    (2) Expenses related to the change in the fair value of the non-qualified
        deferred compensation plan obligation had no effect on net income.

    Earnings Per Share Reconciliation
                                      Three Months Ended   Twelve Months Ended
                                          October 31,          October 31,
                                       2006          2005      2006      2005

    GAAP earnings (loss) per
     share (2)                        $0.07        $(0.09)    $0.17    $(0.11)
    Adjustments:
      Amortization of intangible
       assets                          0.09          0.11      0.39      0.78
      Stock-based compensation (1)     0.11          0.03      0.43      0.05
      In-process research and
       development                       --            --      0.01      0.04
      Litigation settlement              --            --        --     (0.23)
      Tax effect                      (0.06)         0.05     (0.23)    (0.13)
    Non-GAAP earnings per share (2)   $0.21         $0.10     $0.77     $0.40

    Shares used in calculation      141,954       146,681   144,728   146,258

    (1) Stock-based compensation results from the Company's adoption of
        FAS 123( R ) during fiscal 2006.

    (2) Expenses related to the change in the fair value of the non-qualified
        deferred compensation plan obligation had no effect on earnings per
        share.


    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 First Quarter Fiscal Year 2007 Targets
                    (in thousands, except per share data)

                                                    Range for Three Months
                                                    Ending January 31, 2007
                                                    Low               High

    Target GAAP expenses (2) (3)                  $267,000          $283,000
    Adjustment:
      Estimated impact of amortization of
       intangible assets                           (12,000)          (14,000)
      Estimated impact of stock compensation
       expense (1)                                 (14,000)          (18,000)
    Target non-GAAP expenses (2) (3)              $241,000          $251,000

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

    (2) Expenses related to the change in the fair value of the non-qualified
        deferred compensation plan obligation are dependent upon future market
        fluctuations and, as such, cannot be estimated in advance.

    (3) Targets do not include any potential impact of SAB 108 adoption.


                                                     Range for Three Months
                                                     Ending January 31, 2007

                                                      Low              High

    Target GAAP earnings (loss) per share (2) (3)    $0.10             $0.15
    Adjustment:
      Estimated impact of amortization of
       intangible assets                              0.10              0.08
      Estimated impact of stock-based
       compensation (1)                               0.12              0.10
      Net non-GAAP tax effect                        (0.06)            (0.05)
    Target non-GAAP earnings per share (2) (3)       $0.26             $0.28

    Shares used in non-GAAP calculation
     (midpoint of target range)                    144,000           144,000

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

    (2) Expenses related to the change in the fair value of the non-qualified
        deferred compensation plan obligation will have no effect on earnings
        per share.

    (3) Targets do not include any potential impact of SAB 108 adoption.


         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 (2) (3)           $0.60             $0.73
    Adjustment:
      Estimated impact of amortization of
       intangible assets                              0.33              0.32
      Estimated impact of stock-based
       compensation (1)                               0.46              0.43
      Net non-GAAP tax effect                        (0.19)            (0.20)
    Target non-GAAP earnings per share (2) (3)       $1.20             $1.28

    Shares used in non-GAAP calculation
     (midpoint of target range)                    145,000           145,000

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

    (2) Expenses related to the change in the fair value of the non-qualified
        deferred compensation plan obligation have no effect on earnings per
        share.

    (3) Targets do not include any potential impact of SAB 108 adoption.


    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.html .  A recording of the call will
be available by calling 1-800-475-6701 (320-365-3844 for international
callers), access code 847573, beginning at 5:30 p.m. Pacific Time today.  A
webcast replay will also be available at

http://www.synopsys.com/corporate/invest.html from approximately 5:30 p.m.
Pacific Time today through the time Synopsys announces its results for the
first quarter of fiscal 2007 in February 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 first quarter earnings call in February 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 first quarter of fiscal 2007 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release until it releases such results in February 2007.

Availability of Final Financial Statements

Synopsys will include final financial statements for the fourth quarter and full year fiscal 2006 in its Annual Report on Form 10-K to be filed in January 2007.

About Synopsys

Synopsys, Inc. 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, including delays in the
       renewal, or non-renewal, of Synopsys' license arrangements with major
       customers;
    -- failure of customers to pay license fees as scheduled;
    -- unexpected changes in the mix of time-based licenses and upfront
       licenses; lower-than-expected bookings of licenses on which revenue is
       recognized upfront;
    -- failure of our cost control efforts, including our recent efforts to
       outsource certain internal functions, to result in the anticipated
       savings;
    -- failure to successfully develop additional intellectual property blocks
       for its IP business or to develop and integrate its design for
       manufacturing products;
    -- difficulties in the integration of the products and operations of
       acquired companies or assets into Synopsys' products and operations;
    -- downward pressure on maintenance orders, adversely affecting Synopsys'
       future level of service revenue; and
    -- changes in the anticipated amount of employee stock-based compensation
       recognized on the Company's financial statements.

In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the fiscal quarter ending January 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, 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) and 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 we are required to adopt during fiscal year 2007. Furthermore, Synopsys' actual tax rates applied to non-GAAP net income for the first 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 first 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.


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

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

     EDITORIAL CONTACT:
     Yvette Huygen
     Synopsys, Inc.
     650-584-4547
     
Email Contact


                                SYNOPSYS, INC.
      Unaudited Condensed Consolidated Statements of Operations (1) (3)
                    (in thousands, except per share data)

                                         Three Months Ended October 31, 2006
                                                     Adjustments
                                             GAAP        (2)       Non-GAAP
    Revenue:
      Time-based license                    $229,553        $--    $229,553
      Upfront license                         14,306         --      14,306
      Maintenance and service                 39,525         --      39,525
          Total revenue                      283,384         --     283,384
    Cost of revenue:
      License                                 33,748     (1,704)     32,044
      Maintenance and service                 16,292       (806)     15,486
      Amortization of intangible assets        6,772     (6,772)         --
         Total cost of revenue                56,812     (9,282)     47,530
    Gross margin                             226,572      9,282     235,854
    Operating expenses:
      Research and development                95,518     (7,845)     87,673
      Sales and marketing                     84,901     (4,020)     80,881
      General and administrative              28,840     (2,533)     26,307
      In-process research and development         --         --          --
      Amortization of intangible assets        6,691     (6,691)         --
         Total operating expenses            215,950    (21,089)    194,861
    Operating income (loss)                   10,622     30,371      40,993
    Other income, net                          4,542     (1,802)      2,740
    Income (loss) before income taxes         15,164     28,569      43,733
    Income tax provision (benefit)             5,533      8,068      13,601
    Net income (loss)                         $9,631    $20,501     $30,132

    Net income (loss) per share:
      Basic                                    $0.07                  $0.21
      Diluted                                  $0.07                  $0.21

    Shares used in computing per share
     amounts:
      Basic                                  140,415                140,415
      Diluted                                141,954                141,954


                                         Three Months Ended October 31, 2005
                                                     Adjustments
                                             GAAP        (2)       Non-GAAP
    Revenue:
      Time-based license                    $192,916         --    $192,916
      Upfront license                         16,314         --      16,314
      Maintenance and service                 45,608         --      45,608
          Total revenue                      254,838         --     254,838
    Cost of revenue:
      License                                 28,716       (471)     28,245
      Maintenance and service                 17,445       (262)     17,183
      Amortization of intangible assets        9,251     (9,251)         --
         Total cost of revenue                55,412     (9,984)     45,428
    Gross margin                             199,426      9,984     209,410
    Operating expenses:
      Research and development                83,282     (2,657)     80,625
      Sales and marketing                     84,180     (1,682)     82,498
      General and administrative              28,618     (1,364)     27,254
      In-process research and development         --         --          --
      Amortization of intangible assets        7,388     (7,388)         --
         Total operating expenses            203,468    (13,091)    190,377
    Operating income (loss)                   (4,042)    23,075      19,033
    Other income, net                          4,829     (2,050)      2,779
    Income (loss) before income taxes            787     21,025      21,812
    Income tax provision (benefit)            14,262     (7,752)      6,510
    Net income (loss)                       $(13,475)   $28,777     $15,302

    Net income (loss) per share:
      Basic                                   $(0.09)                 $0.11
      Diluted                                 $(0.09)                 $0.10

    Shares used in computing per share
     amounts:
      Basic                                  145,190                145,190
      Diluted                                145,190                146,681

    (1) Synopsys' fiscal year and fourth quarter end on the Saturday nearest
        to October 31.  For presentation purposes, the Unaudited Condensed
        Consolidated Statements of Operations refer to a calendar month end.

    (2) Adjustments consist of stock-based compensation and related tax effect
        under FAS 123( R ), changes in fair value of non-qualified deferred
        compensation plan obligation and to the extent incurred amortization
        of intangible assets, in-process research and development charges,
        integration and other significant items, which in the opinion of
        management are extraordinary.  Pre-tax income for the three months
        ended October 31, 2006 included total stock-based compensation of
        $15.1 million as follows: cost of revenue $2.3 million; research &
        development $6.7 million; sales & marketing $3.8 million; general &
        administrative $2.3 million.  For the three month period ended
        October 31, 2005, approximately $4.4 million of stock-based
        compensation was recorded in accordance with APB 25.  During the
        quarter ended October 31, 2006, the change in the fair value of the
        non-qualified plan obligation was a increase of $1.8 million.  This
        resulted in increased compensation expense of $1.8 million
        ($0.2 million cost of revenue, $1.2 million research & development,
        $0.2 million sales & marketing, $0.2 million general &
        administrative), and a corresponding increase to other income, net.
        During the quarter ended October 31, 2005, the change in the fair
        value of the non-qualified plan obligation was an increase of
        $2.0 million. This resulted in increased compensation expense of
        $2.0 million ($0.1 million cost of revenue, $1.0 million research and
        development, $0.6 million sales and marketing, $0.3 million general
        and administrative) and a corresponding increase to other income, net.
        There was no net effect on income before taxes or net income for each
        of the respective quarters.

    (3) In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
        "Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements," ("SAB 108"). SAB
        108 addresses the process and diversity in practice of quantifying
        misstatements and provides interpretive guidance on the consideration
        of the effects of prior year errors. We will be required to adopt the
        provisions of  SAB 108 in fiscal 2007. We are currently evaluating the
        requirements of SAB 108 and have not yet determined the impact of
        adoption on our financial statements.


                                SYNOPSYS, INC.
      Unaudited Condensed Consolidated Statements of Operations (1) (3)
                   (in thousands, except per share amounts)

                                          Twelve Months Ended October 31, 2006
                                                      Adjustments
                                             GAAP         (2)       Non-GAAP
    Revenue:
      Time-based license                     $874,862         --     $874,862
      Upfront license                          63,050         --       63,050
      Maintenance and Service                 157,648         --      157,648
          Total revenue                     1,095,560         --    1,095,560
    Cost of revenue:
      License                                 129,052     (6,404)     122,648
      Maintenance and service                  65,970     (3,168)      62,802
      Amortization of intangible assets        28,505    (28,505)          --
         Total cost of revenue                223,527    (38,077)     185,450
    Gross margin                              872,033     38,077      910,110
    Operating expenses:
      Research and development                370,629    (31,031)     339,598
      Sales and marketing                     330,361    (17,545)     312,816
      General and administrative              113,685    (10,346)     103,339
      In-process research and development         800       (800)          --
      Amortization of intangible assets        27,938    (27,938)          --
         Total operating expenses             843,413    (87,660)     755,753
    Operating income (loss)                    28,620    125,737      154,357
    Other income, net                          14,287     (5,456)       8,831
    Income (loss) before income taxes          42,907    120,281      163,188
    Income tax provision (benefit)             18,654     33,290       51,944
    Net income (loss)                         $24,253    $86,992     $111,244

    Net income (loss) per share:
      Basic                                     $0.17                   $0.78
      Diluted                                   $0.17                   $0.77

    Shares used in computing per share
     amounts:
      Basic                                   142,830                 142,830
      Diluted                                 144,728                 144,728


                                         Twelve Months Ended October 31, 2005
                                                     Adjustments
                                             GAAP        (2)       Non-GAAP
    Revenue:
      Time-based license                    $743,723         --    $743,723
      Upfront license                         60,466         --      60,466
      Maintenance and Service                187,742         --     187,742
          Total revenue                      991,931         --     991,931
    Cost of revenue:
      License                                102,327       (784)    101,543
      Maintenance and service                 70,780       (342)     70,438
      Amortization of intangible assets       81,529    (81,529)         --
         Total cost of revenue               254,636    (82,655)    171,981
    Gross margin                             737,295     82,655     819,950
    Operating expenses:
      Research and development               320,940     (5,501)    315,439
      Sales and marketing                    333,642     (3,254)    330,388
      General and administrative             104,989     (2,106)    102,883
      In-process research and development      5,700     (5,700)         --
      Amortization of intangible assets       31,869    (31,869)         --
         Total operating expenses            797,140    (48,430)    748,710
    Operating income (loss)                  (59,845)   131,085      71,240
    Other income, net                         52,056    (38,811)     13,245
    Income (loss) before income taxes         (7,789)    92,274      84,485
    Income tax provision (benefit)             7,689     18,738      26,427
    Net income (loss)                       $(15,478)    73,536     $58,058

    Net income (loss) per share:
      Basic                                   $(0.11)                 $0.40
      Diluted                                 $(0.11)                 $0.40

    Shares used in computing per share
     amounts:
      Basic                                  144,970                144,970
      Diluted                                144,970                146,258

    (1) Synopsys' fiscal year and fourth quarter end on the Saturday nearest
        to October 31.  For presentation purposes, the Unaudited Condensed
        Consolidated Statements of Operations refer to a calendar month end.

    (2) Adjustments consist of stock-based compensation and related tax effect
        under FAS 123( R ), changes in fair value of non-qualified deferred
        compensation plan obligation and to the extent incurred amortization
        of intangible assets, in-process research and development charges,
        integration and other significant items, which in the opinion of
        management are extraordinary.  Pre-tax income for the fiscal year
        ended October 31, 2006 included total stock-based compensation of
        $63.0 million as follows: cost of revenue $9.2 million; research &
        development $28.0 million; sales & marketing $16.3 million; general &
        administrative $9.5 million.  For the fiscal year ended October 31,
        2005, approximately $6.2 million of stock-based compensation was
        recorded in accordance with APB 25.  During the fiscal year ended
        October 31, 2006, the change in the fair value of the non-qualified
        plan obligation was a increase of $5.4 million.  This resulted in
        increased compensation expense of $5.4 million ($0.3 million cost of
        revenue, $3.0 million research & development, $1.3 million sales &
        marketing, $0.8 million general & administrative), and a corresponding
        increase to other income, net. During the fiscal year ended
        October 31, 2005, the change in the fair value of the non-qualified
        plan obligation was an increase of $5.8 million. This resulted in
        increased compensation expense of $5.8 million ($0.2 million cost of
        revenue, $2.9 million research and development, $1.8 million sales and
        marketing, $0.9 million general and administrative) and a
        corresponding increase to other income, net.  There was no net effect
        on income before taxes or net income for each of the respective
        quarters.

    (3) In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
        "Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements," ("SAB 108").
        SAB 108 addresses the process and diversity in practice of quantifying
        misstatements and provides interpretive guidance on the consideration
        of the effects of prior year errors. We will be required to adopt the
        provisions of  SAB 108 in fiscal 2007. We are currently evaluating the
        requirements of SAB 108 and have not yet determined the impact of
        adoption on our financial statements.


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

                                                       October 31, October 31,
                                                           2006        2005
    ASSETS:
    Current assets:
      Cash and cash equivalents                          $330,759    $404,436
      Short-term investments                              241,963     182,070
      Total cash, cash equivalents and
       short-term investments                             572,722     586,506
      Accounts receivable, net                            122,584     100,178
      Deferred income taxes                               112,342     195,501
      Income taxes receivable                              42,538      48,370
      Prepaid expenses and other current assets            44,304      16,924
        Total current assets                              894,490     947,479
    Property and equipment, net                           140,660     170,195
    Long-term investments                                   4,877       8,092
    Goodwill                                              735,643     728,979
    Intangible assets, net                                106,144     142,519
    Long-term deferred income taxes                       214,629      82,384
    Other assets                                           69,754      61,828
        Total assets                                   $2,166,197  $2,141,476

    LIABILITIES AND STOCKHOLDERS' EQUITY:
    Current liabilities:
      Accounts payable and accrued liabilities           $234,961    $231,359
      Accrued income taxes                                191,102     169,632
      Deferred revenue                                    445,598     415,689
        Total current liabilities                         871,661     816,680
    Deferred compensation and other liabilities            69,889      63,841
    Long-term deferred revenue                             53,670      42,019
               Total liabilities                          995,220     922,540
    Stockholders' equity:
      Preferred stock,  $0.01 par value:
       2,000 shares authorized; none outstanding               --          --
      Common stock,  $0.01 par value:
       400,000 shares authorized; 140,568 and
       145,897 shares outstanding, respectively             1,406       1,459
      Capital in excess of par value                    1,316,321   1,263,327
      Retained earnings                                   178,484     171,108
      Treasury stock, at cost: 16,619
       and 11,259 shares, respectively                   (312,753)   (199,482)
      Deferred stock compensation                              --      (1,475)
      Accumulated other comprehensive loss                (12,481)    (16,001)
        Total stockholders' equity                      1,170,977   1,218,936
        Total liabilities and stockholders' equity     $2,166,197  $2,141,476

    (1) Synopsys' fiscal year and fourth quarter end on the Saturday nearest
        to October 31.  For presentation purposes, the Unaudited Condensed
        Consolidated Balance Sheets refer to a calendar month end.

    (2) In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
        "Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements," ("SAB 108").
        SAB 108 addresses the process and diversity in practice of quantifying
        misstatements and provides interpretive guidance on the consideration
        of the effects of prior year errors.  We will be required to adopt the
        provisions of  SAB 108 in fiscal 2007.  We are currently evaluating
        the requirements of SAB 108 and have not yet determined the impact of
        adoption on our financial statements.


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

                                               Twelve Months Ended October 31,
                                                    2006              2005
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                              $24,253          $(15,478)
    Adjustments to reconcile net income (loss)
     to net cash provided by operating activities:
     Amortization and depreciation                 114,490           168,881
     Stock-based compensation                       63,040             6,176
     Tax benefit associated with stock options          --             6,175
     In-process research and development               800             5,700
     Deferred income taxes                         (25,503)          (14,647)
     Write-down of long-term assets                  1,336             3,582
     (Recovery) of doubtful accounts                  (850)           (4,094)
     Net change in deferred gains and
      losses on cash flow hedges                    (2,003)          (15,982)
     (Gain) loss on sale of short investment           (17)              502
     Net changes in operating assets and liabilities,
      net of acquired assets and liabilities:
      Accounts receivable                          (19,153)           56,842
      Income taxes receivable                        3,749            (1,787)
      Prepaid expenses and other current assets     (2,483)           13,055
      Other assets                                     458           (11,616)
      Accounts payable and accrued liabilities     (11,175)           22,336
      Accrued income taxes                          18,565            (7,851)
      Deferred revenue                              39,613            45,125
      Deferred compensation and other liabilities      770            12,271
     Net cash provided by operating activities     205,890           269,190

    CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid for acquisitions, net of
      cash received                                (41,142)         (174,498)
     Proceeds from sales and maturities of
      short-term investments                       305,450           422,523
     Sale of long-term investments                     248                --
     Purchases of short-term investments          (365,261)         (372,984)
     Purchases of long-term investments             (1,665)               --
     Purchases of property and equipment           (48,461)          (43,563)
     Capitalization of software
      development costs                             (2,946)           (2,953)
     Net cash used in investing activities        (153,777)         (171,475)

    CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from credit facility                      --            75,000
     Payments on credit facility                        --           (75,000)
     Issuances of common stock                      69,566            48,615
     Purchases of treasury stock                  (199,992)          (88,386)
     Net cash used in financing activities        (130,426)          (39,771)
     Effect of exchange rate changes on
      cash and cash equivalents                      4,636              (217)
     Net (decrease) increase in cash and
      cash equivalents                             (73,677)           57,727
     Cash and cash equivalents, beginning
      of period                                    404,436           346,709
     Cash and cash equivalents, end of
      period                                      $330,759          $404,436

    (1) Synopsys' fiscal year and fourth quarter end on the Saturday nearest
        to October 31.  For presentation purposes, the Unaudited Condensed
        Consolidated Balance Sheets refer to a calendar month end.

    (2) In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
        "Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements," ("SAB 108").
        SAB 108 addresses the process and diversity in practice of quantifying
        misstatements and provides interpretive guidance on the consideration
        of the effects of prior year errors.  We will be required to adopt the
        provisions of SAB 108 in fiscal 2007.  We are currently evaluating the
        requirements of SAB 108 and have not yet determined the impact of
        adoption on our financial statements.

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