===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------------------------------------
AMENDMENT NO. 3 TO
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED OCTOBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-45138
SYNOPSYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 56-1546236
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
700 EAST MIDDLEFIELD ROAD, MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(650) 584-5000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
----------------
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] Yes [X] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
[ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter: $1,699,717,300.
On March 7, 2003 approximately 74,816,630 shares of the registrant's
Common stock, $0.01 par value, were outstanding.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 7, 2003, was approximately $1,959,688,700.
DOCUMENTS INCORPORATED BY REFERENCE
Explanatory Note
This Amendment No. 3 to the Registrant's Annual Report on Form 10-K for the
year ended October 31, 2002 is being filed in order to submit the signed Report
of KPMG LLP, Independent Auditors. The Registrant received such signed Report on
January 29, 2003, prior to the initial filing of the Annual Report on Form 10-K
for the year ended October 31, 2002. The signature of KPMG LLP was omitted from
this initial filing in error.
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1
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF KPMG LLP, INDEPENDENT AUDITORS
To The Board of Directors and
Shareholders of Synopsys, Inc.:
We have audited the accompanying consolidated balance sheets of Synopsys,
Inc. and subsidiaries as of October 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income and cash flows for each of the years in the three-year period ended
October 31, 2002. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Synopsys,
Inc. and subsidiaries as of October 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
\s\KPMG LLP
Mountain View, California
November 20, 2002, except as to Note 13,
which is as of January 13, 2003
2
SYNOPSYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
ASSETS
OCTOBER 31,
----------------------------------
2002 2001
---------------- -----------------
Current assets:
Cash and cash equivalents....................................... $ 312,580 $ 271,696
Short-term investments.......................................... 102,153 204,740
---------------- -----------------
Cash, cash equivalents and short-term investments............ 414,733 476,436
Accounts receivable, net of allowances of $11,565 and
$11,027, respectively........................................ 207,206 146,294
Deferred taxes ................................................. 282,867 149,239
Prepaid expenses and other...................................... 24,509 19,413
---------------- -----------------
Total current assets.................................... 929,315 791,382
Property and equipment, net....................................... 185,040 192,304
Long-term investments............................................. 39,386 61,699
Goodwill, net..................................................... 434,554 35,077
Intangible assets, net............................................ 355,334 3,197
Long-term deferred taxes and other assets......................... 35,085 45,248
---------------- -----------------
Total assets............................................ $ 1,978,714 $ 1,128,907
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................ $ 246,789 $ 135,272
Current portion of long-term debt............................... 1,423 535
Accrued income taxes............................................ 169,912 110,561
Deferred revenue................................................ 359,245 290,052
---------------- -----------------
Total current liabilities............................... 777,369 536,420
Deferred compensation and other long-term liabilities............. 36,387 17,124
Long-term deferred revenue........................................ 51,477 89,707
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares
authorized; no shares outstanding............................ -- --
Common stock, $.01 par value; 400,000 shares
authorized; 73,562 and 59,428 shares outstanding, respectively 735 595
Additional paid-in capital...................................... 1,039,386 575,403
Retained earnings............................................... 198,863 436,662
Treasury stock, at cost......................................... (116,499) (531,117)
Deferred stock compensation..................................... (8,858) --
Accumulated other comprehensive (loss) income................... (146) 4,113
---------------- -----------------
Total stockholders' equity.............................. 1,113,481 485,656
---------------- -----------------
Total liabilities and stockholders' equity.............. $ 1,978,714 $ 1,128,907
================ =================
See accompanying notes to consolidated financial statements.
3
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31,
----------------------------------------------
2002 2001 2000
-------------- --------------- ---------------
Revenue:
Product...................................... $ 245,193 $ 163,924 $ 434,077
Service...................................... 287,747 341,833 340,796
Ratable license.............................. 373,594 174,593 8,905
-------------- --------------- ---------------
Total revenue........................ 906,534 680,350 783,778
Cost of revenue:
Product...................................... 15,319 20,479 35,085
Service...................................... 78,167 79,747 80,442
Ratable license.............................. 45,737 29,896 8,947
Amortization of intangible assets and deferred
stock compensation........................... 33,936 -- --
-------------- --------------- ---------------
Total cost of revenue................ 173,159 130,122 124,474
-------------- --------------- ---------------
Gross margin................................... 733,375 550,228 659,304
Operating expenses:
Research and development..................... 225,545 189,831 189,280
Sales and marketing.......................... 264,809 273,954 288,762
General and administrative................... 78,461 69,682 59,248
Integration.................................. 128,528 -- --
In-process research and development.......... 87,700 -- 1,750
Amortization of intangible assets and deferred
stock compensation........................... 28,649 17,012 15,129
-------------- --------------- ---------------
Total operating expenses............. 813,692 550,479 554,169
-------------- --------------- ---------------
Operating (loss) income........................ (80,317) (251) 105,135
Other (expense) income, net.................... (208,623) 83,784 40,803
-------------- --------------- ---------------
(Loss) income before provision for
income taxes................................. (288,940) 83,533 145,938
(Benefit) provision for income taxes........... (88,947) 26,731 48,160
-------------- --------------- ---------------
Net (loss) income.............................. $ (199,993) $ 56,802 $ 97,778
============== =============== ===============
Basic earnings per share:
Net (loss) income per share.................. $ (2.99) $ 0.94 $ 1.43
Weighted average common shares............... 66,808 60,601 68,510
============== =============== ===============
Diluted earnings per share:
Net (loss) income per share.................. $ (2.99) $ 0.88 $ 1.38
Weighted average common shares and
dilutive stock options outstanding....... 66,808 64,659 70,998
============== =============== ===============
See accompanying notes to consolidated financial statements.
4
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
------------------------------------------------------------
BALANCE AT OCTOBER 31, 1999............ 70,750 $708 $542,052 $349,192 $ (28,589)
Comprehensive Income:
Net income........................... -- -- -- 97,778 --
Other comprehensive income (loss), net
of tax:
Unrealized gain on investments..... -- -- -- -- --
Reclassification adjustment on
unrealized gains on investments.. -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- --
Other comprehensive income.........
Comprehensive income...................
Acquisition of treasury stock.......... (9,932) (99) 99 -- (397,466)
Stock options assumed in connection with
acquisition........................ -- -- 1,187 -- --
Stock issued under stock option and stock
purchase plans..................... 2,059 20 4,514 (41,551) 96,562
Tax benefits associated with exercise of
stock options...................... -- -- 10,864 -- --
------------------------------------------------------------
BALANCE AT OCTOBER 31, 2000............ 62,877 629 558,716 405,419 (329,493)
Comprehensive Income:
Net income........................... -- -- -- 56,802 --
Other comprehensive income (loss), net
of tax:
Unrealized loss on investments. -- -- -- -- --
Reclassification adjustment on
unrealized gains on investments. -- -- -- -- --
Foreign currency translation
adjustment...................... -- -- -- -- --
Other comprehensive loss...........
Comprehensive income...................
Acquisition of treasury stock.......... (6,617) (66) 66 -- (331,882)
Stock issued under stock option and stock
purchase plans..................... 3,168 32 628 (25,559) 130,258
Tax benefits associated with exercise of
stock options...................... -- -- 15,993 -- --
------------------------------------------------------------
BALANCE AT OCTOBER 31, 2001............ 59,428 $595 $575,403 $436,662 $(531,117)
5
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME - CONTINUED
(IN THOUSANDS)
ACCUMULATED
OTHER
DEFERRED COMPREHENSIVE COMPREHENSIVE
COMPENSATION INCOME (LOSS) INCOME (LOSS) TOTAL
------------- -------------- ---------------- -----------
BALANCE AT OCTOBER 31, 1999............ -- $9,234 $872,597
Comprehensive Income:
Net income........................... -- 97,778 -- 97,778
Other comprehensive income (loss), net
of tax:
Unrealized gain on investments....... -- 50,689
Reclassification adjustment on
unrealized gains on investments.... -- (8,934)
Foreign currency translation
adjustment......................... -- (3,431)
--------------
Other comprehensive income......... 38,324 38,324 38,324
--------------
Comprehensive income................... $ 136,102
==============
Acquisition of treasury stock.......... -- -- (397,466)
Stock options assumed in connection with
acquisition.......................... -- -- 1,187
Stock issued under stock option and stock
purchase plans....................... -- -- 59,545
Tax benefits associated with exercise of
stock options.......................... -- -- 10,864
-------------- --------------------------
BALANCE AT OCTOBER 31, 2000............ -- 47,558 682,829
Comprehensive Income:
Net income...................... .... -- 56,802 -- 56,802
Other comprehensive income (loss), net
of tax:
Unrealized loss on investments....... -- (4,063)
Reclassification adjustment on
unrealized gains on investments.... -- (33,713)
Foreign currency translation
adjustment......................... -- (5,669)
---------------
Other comprehensive loss........... (43,445) (43,445) (43,445)
---------------
Comprehensive income................... $13,357
===============
Acquisition of treasury stock.......... -- -- (331,882)
Stock issued under stock option and stock
purchase plans....................... -- -- 105,359
Tax benefits associated with exercise of
stock options........................ -- -- 15,993
-------------- ----------------------------
BALANCE AT OCTOBER 31, 2001............ $ -- $ 4,113 $485,656
6
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME - CONTINUED
(IN THOUSANDS)
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
---------------------- ------------ ---------- -----------
BALANCE FORWARD: $ 59,428 $ 595 $575,403 $ 436,662 $ (531,117)
BALANCE AT OCTOBER 31, 2001............
Comprehensive Income (Loss):
Net loss............................. -- -- -- (199,993) --
Other comprehensive income (loss), net
of tax:
Unrealized loss on investments..... -- -- -- -- --
Unrealized gain on currency contracts -- -- -- -- --
Reclassification adjustment on
unrealized gains on investments.. -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- --
Other comprehensive loss...........
Comprehensive loss.....................
Acquisition of Avant! Corporation...... 14,530 145 435,066 -- 431,312
Amortization of deferred stock
compensation related to acquisitions -- -- (83) -- --
Acquisition of treasury stock.......... (3,884) (39) 39 -- (171,678)
Stock options assumed in connection with
acquisition of inSilicon and Co-Design -- -- 5,929 -- --
Stock issued under stock option and stock
purchase plans...................... 3,488 34 3,572 (37,806) 154,984
Tax benefits associated with exercise of
stock options....................... -- -- 19,460 -- --
--------------------- ------------------------ -----------
BALANCE AT OCTOBER 31, 2002............ $ 73,562 $ 735 $ 1,039,386 $ 198,863 $(116,499)
===================== ======================== ===========
See accompanying notes to the consolidated financial statements.
7
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME - CONTINUED
(IN THOUSANDS)
ACCUMULATED
OTHER
DEFERRED COMPREHENSIVE COMPREHENSIVE
COMPENSATION INCOME (LOSS) INCOME (LOSS) TOTAL
BALANCE FORWARD: -------------- -------------- ---------------- ----------
BALANCE AT OCTOBER 31, 2001............ $ -- $ 4,113 $ 485,656
Comprehensive Income (Loss):
Net loss............................. -- (199,993) -- (199,993)
Other comprehensive income (loss), net
of tax:
Unrealized loss on investments..... -- (143)
Unrealized gain on currency contracts -- 6,482
Reclassification adjustment on
unrealized gains on investments.. -- (5,842)
Foreign currency translation
adjustment....................... -- (4,756)
---------------
Other comprehensive loss........... (4,259) (4,259) (4,259)
---------------
Comprehensive loss..................... $ (204,252)
===============
Acquisition of Avant! Corporation...... (8,102) -- 858,421
Amortization of deferred stock
compensation related to acquisitions 1,605 -- 1,522
Acquisition of treasury stock.......... -- -- (171,678)
Stock options assumed in connection with
acquisition of inSilicon and Co-Design (2,361) -- 3,568
Stock issued under stock option and stock
purchase plans...................... -- -- 120,784
Tax benefits associated with exercise of
stock options....................... -- -- 19,460
--------------- ----------------------------
BALANCE AT OCTOBER 31, 2002............ $ (8,858) $ (146) $1,113,481
=============== ============================
8
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED OCTOBER 31,
----------------------------------------------
2002 2001 2000
-------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................ $ (199,993) $ 56,802 $ 97,778
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Amortization and depreciation............. 116,100 65,162 63,770
Provision for doubtful accounts and sales
returns................................. 7,042 5,759 3,528
Write-down of long term investments....... 11,326 5,848 --
Write-down of land and property........... 14,712 -- --
Gain on sale of long-term investments..... (21,299) (57,080) (11,455)
Write-down of goodwill and intangible assets 3,785 2,200 --
Deferred taxes............................ (128,167) (58,831) (64,137)
Deferred rent............................. 2,804 -- --
In-process research and development....... 87,700 -- 1,750
Non-cash gain on sale of silicon libraries -- (10,580) --
Non-cash compensation expense............. 1,761 -- --
Tax benefit associated with stock options. 19,460 15,993 10,864
Net changes in operating assets and
liabilities:
Accounts receivable..................... 5,275 (5,190) (19,186)
Prepaid expenses and other current assets 2,930 (231) 4,316
Other assets............................ (14,814) (1,754) (8,787)
Accounts payable and accrued liabilities (77,546) (8,072) 39,180
Accrued income taxes.................... (20,974) 54,563 5,980
Deferred revenue........................ 5,993 229,160 23,190
Deferred compensation................... 2,856 1,771 5,092
-------------- --------------- ---------------
Net cash (used in) provided by operating
activities............................ (181,049) 295,520 151,883
-------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
short-term investments.................... 876,298 2,003,589 2,782,613
Purchases of short-term investments.......... (769,102) (1,927,784) (2,667,112)
Proceeds from sales of long-term investments. 56,033 77,777 24,336
Purchases of long-term investments........... (5,472) (12,076) (13,998)
Proceeds from sale of silicon libraries
business.................................. -- 4,122 --
Purchases of property and equipment.......... (48,755) (82,490) (68,500)
Cash acquired in acquisitions (net of cash
paid)..................................... 168,311 -- (14,474)
Intangible assets, net....................... -- (313) 3,697
Capitalization of software development costs. (1,592) (1,000) (1,000)
-------------- --------------- ---------------
Net cash provided by investing activities.... 275,721 61,825 45,562
-------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..... -- -- 727
Principal payments on debt obligations....... -- (6,162) (13,507)
Proceeds from sale of common stock........... 119,868 105,359 59,545
Purchases of treasury stock.................. (171,677) (331,882) (397,466)
-------------- --------------- ---------------
Net cash used in financing activities........ (51,809) (232,685) (350,701)
Effect of exchange rate changes on cash...... (1,979) (5,669) (3,433)
-------------- --------------- ---------------
Net increase (decrease) in cash and cash 40,884 118,991 (156,689)
equivalents...............................
Cash and cash equivalents, beginning of year. 271,696 152,705 309,394
-------------- --------------- ---------------
Cash and cash equivalents, end of year....... $ 312,580 $ 271,696 $ 152,705
============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Income taxes......................... $ 70,750 $ 25,262 $ 91,927
Non-cash transactions:
Issuance of stock and options in
exchange for net assets of Avant!... $ 858,421 $ -- $ --
Issuance of notes payable in Co-Design
acquisition......................... $ 4,770 $ -- $ --
See accompanying notes to consolidated financial statements.
9
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Synopsys, Inc. (Synopsys or the Company) is a leading supplier of EDA
software to the global electronics industry. The Company develops, markets, and
supports a wide range of integrated circuit (IC) design products that are used
by designers of advanced ICs, including system-on-a-chip ICs, and the electronic
systems (such as computers, cell phones, and internet routers) that use such
ICs, to automate significant portions of their design process. ICs are
distinguished by the speed at which they run, their area, the amount of power
they consume and their cost of production. Synopsys' products offer its
customers the opportunity to design ICs that are optimized for speed, area,
power consumption and production cost, while reducing overall design time. The
Company also provides consulting services to help its customers improve their IC
designs and, where requested, to assist them with their IC designs, as well as
training and support services.
CURRENT YEAR ACQUISITIONS. On June 6, 2002, the Company completed its
merger with Avant! Corporation (Avant!). Avant! was a leader in the development
of software used in the physical design and physical verification phases of chip
design. Under the terms of the merger agreement between Synopsys and Avant!,
Avant! merged with and into a wholly-owned subsidiary of Synopsys. The results
of operations of Avant! are included in the accompanying consolidated financial
statements for the period from June 6, 2002 through October 31, 2002.
On September 6, 2002, we completed our acquisition of Co-Design, a private
company which was developing simulation software used in the high level
verification stage of the chip design process, and a new design language that
permits designers to describe the behavior of their chips more efficiently than
current standard languages. The results of operations of Co-Design are included
in the accompanying consolidated financial statements for the period from
September 6, 2002 through October 31, 2002.
On September 20, 2002, we completed our acquisition of inSilicon, a company
that developed, marketed and licensed an extensive portfolio of complex
"intellectual property blocks", or pre-designed, pre-verified subportions of a
chip that can be used as building blocks for complex systems-on-a-chip, and
therefore, accelerate the development of such chips. The results of operations
of inSilicon are included in the accompanying consolidated financial statements
for the period from September 20, 2002 through October 31, 2002.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR END. The Company has a fiscal year that ends on the Saturday
nearest October 31. Fiscal 2002 and 2000 were 52-week years and fiscal 2001 was
a 53-week year. For presentation purposes, the consolidated financial statements
and notes refer to the calendar month end.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
10
USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
recorded in the financial statements and accompanying notes. Actual amounts
could differ from these estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. The Company classifies
investments with original maturities of three months or less when acquired as
cash equivalents. All of the Company's cash equivalents and short-term
investments are classified as available-for-sale and are reported at fair value,
with unrealized gains and losses included in stockholders' equity as a component
of accumulated other comprehensive income, net of tax. The fair value of
short-term investments is determined based on quoted market prices. The cost of
securities sold is based on the specific identification method and realized
gains and losses are included in other income, net. The Company has cash
equivalents and investments with various high quality institutions and, by
policy, limits the amount of credit exposure to any one institution.
CONCENTRATION OF CREDIT RISK. The Company sells its products worldwide
primarily to customers in the semiconductor industry. The Company performs
on-going credit evaluations of its customers' financial condition and generally
does not require collateral. The Company maintains reserves for potential credit
losses, and such losses have been within management's expectations and have not
been material in any year.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The fair value of the Company's cash,
accounts receivable, long-term investments, forward contracts relating to
certain investments in equity securities, accounts payable, long-term debt and
foreign currency contracts, approximates the carrying amount, which is the
amount for which the instrument could be exchanged in a current transaction
between willing parties.
FOREIGN CURRENCY TRANSLATION. The functional currency of each of the
Company's foreign subsidiaries is the foreign subsidiary's local currency.
Assets and liabilities of the Company's foreign operations are translated into
U.S. dollars at exchange rates in effect at the balance sheet date. Income and
expense items are translated at average exchange rates for the period.
Accumulated net translation adjustments are reported in stockholders' equity,
net of tax, as a component of accumulated other comprehensive income (loss). The
associated tax benefit for cumulative translation adjustments was $3.0 million,
$3.6 million and $2.2 million in fiscal 2002, 2001 and 2000, respectively.
Foreign exchange transaction gains and losses were not material for all periods
presented and are included in the results of operations.
FOREIGN CURRENCY CONTRACTS. The Company operates internationally and
therefore is exposed to potentially adverse movements in currency exchange
rates. The Company has entered into foreign currency forward contracts to reduce
its exposure to foreign currency rate changes on non-functional currency
denominated balance sheet positions. The objective of these contracts is to
neutralize the impact of foreign currency rate movements on the Company's
operating results.
The Company also uses forward foreign currency contracts to hedge certain
cash flow exposures resulting from the impact of currency exchange rate
fluctuations on forecasted receivables denominated in non-functional currencies.
These foreign currency contracts, carried at fair value, have a duration of
approximately 30 days. Such cash flow exposures result from portions of the
Company's forecasted accounts receivable generally associated with sales
contracts with extended payment terms and accounts payable denominated in
non-functional currencies. As of October 31, 2002, the unrealized gain of
approximately $10.0 million on these forward contracts is recorded in
stockholders' equity, net of tax, as a component of accumulated other
comprehensive income. The Company enters into these foreign exchange contracts
to hedge only (i) those currency exposures associated with certain assets and
liabilities denominated in nonfunctional currencies and (ii) forecasted accounts
receivable and accounts payable denominated in non-functional currencies in the
normal course of business, and accordingly, they are not speculative in nature.
11
Foreign currency forward contracts require the Company to exchange
currencies at rates agreed upon at the inception of the contracts. These
contracts reduce the exposure to fluctuations in exchange rates because the
gains and losses associated with non-functional currency balances and
transactions are generally offset with the gains and losses of the hedge
contracts. Because the impact of movements in currency exchange rates on forward
contracts offsets the related impact on the underlying items being hedged, these
financial instruments help alleviate the risk that might otherwise result from
changes in currency exchange rates.
The realized gain/loss on these contracts as they matured were not material
to the consolidated financial position, results of operations or cash flows for
the periods presented.
REVENUE RECOGNITION AND COST OF REVENUE. Revenue consists of fees for
perpetual and time-based licenses for the Company's software products,
post-contract customer support (PCS), customer training and consulting. The
Company classifies its revenues as product, service or ratable license. Product
revenue consists primarily of sales of perpetual licenses.
Service revenue consists of fees for consulting services, training, and PCS
associated with non-ratable time-based licenses or perpetual licenses. PCS sold
with perpetual licenses is generally renewable, after any bundled PCS period
expires, in one-year increments for a fixed percentage of the perpetual list
price or, for perpetual license arrangements in excess of $2 million, as a
percentage of the net license fee.
Ratable license revenue is all fees related to time-based licenses bundled
with PCS and sold as a single package (commonly referred to by the Company as a
Technology Subscription License or TSL), and time-based licenses in which the
Company did not bundle PCS but has granted extended payment terms or under which
the customer has a right to receive unspecified future products.
Cost of product revenue includes cost of production personnel, product
packaging, documentation, amortization of capitalized software development
costs, and costs of the Company's systems products. Cost of service revenue
includes personnel and the related costs associated with providing training,
consulting and PCS. Cost of ratable license revenue includes the cost of
products and services related to time-based licenses bundled with PCS and sold
as a single package and to time-based licenses that include extended payment
terms or unspecified future products. Cost of revenue also includes the
amortization of the contract rights intangible, core technology and deferred
stock compensation.
The Company recognizes revenue in accordance with SOP 97-2, SOFTWARE REVENUE
RECOGNITION, as amended by SOP 98-9 and SOP 98-4 and generally recognizes
revenue when all of the following criteria are met as set forth in paragraph 8
of SOP 97-2:
o Persuasive evidence of an arrangement exists,
o Delivery has occurred,
o The vendor's fee is fixed or determinable, and
o Collectibility is probable.
The Company defines each of the four criteria above as follows:
PERSUASIVE EVIDENCE OF AN ARRANGEMENT EXISTS. It is the Company's customary
practice to have a written contract, which is signed by both the customer
and Synopsys, or a purchase order from those customers that have previously
negotiated a standard end-user license arrangement or volume purchase
agreement, prior to recognizing revenue on an arrangement.
DELIVERY HAS OCCURRED. The Company's software may be either physically or
electronically delivered to its customers. For those products that are
delivered physically, the Company's standard transfer terms are FOB shipping
point. For an electronic delivery of software, delivery is considered to
have occurred when the customer has been provided with the access codes that
allow the customer to take immediate possession of the software on its
hardware.
If an arrangement includes undelivered products or services that are
essential to the functionality of the delivered product, delivery is not
considered to have occurred.
12
THE VENDOR'S FEE IS FIXED OR DETERMINABLE. The fee the Company's customers
pay for its products is negotiated at the outset of an arrangement, and is
generally based on the specific volume of product to be delivered. The
Company's license fees are not a function of variable-pricing mechanisms
such as the number of units distributed or copied by the customer, or the
expected number of users in an arrangement. Therefore, except in cases where
the Company grants extended payment terms to a specific customer, the
Company's fees are considered to be fixed or determinable at the inception
of the arrangements.
The Company's typical payment terms are such that a minimum of 75% of the
arrangement revenue is due within one year or less. Arrangements with
payment terms extending beyond the typical payment terms are not considered
to be fixed or determinable. Revenue from such arrangements is recognized at
the lesser of the aggregate of amounts due and payable or the amount of the
arrangement fee that would have been recognized if the fees had been fixed
or determinable.
COLLECTIBILITY IS PROBABLE. Collectibility is assessed on a
customer-by-customer basis. The Company typically sells to customers for
which there is a history of successful collection. New customers are
subjected to a credit review process that evaluates the customers' financial
positions and ultimately their ability to pay. New customers are typically
assigned a credit limit based on a formulated review of their financial
position. Such credit limits are only increased after a successful
collection history with the customer has been established. If it is
determined from the outset of an arrangement that collectibility is not
probable based upon the Company's credit review process, revenue is
recognized on a cash-collected basis.
MULTIPLE ELEMENT ARRANGEMENTS. The Company allocates revenue on software
arrangements involving multiple elements to each element based on the relative
fair values of the elements. The Company's determination of fair value of each
element in multiple element arrangements is based on vendor-specific objective
evidence (VSOE). The Company limits its assessment of VSOE for each element to
the price charged when the same element is sold separately.
The Company has analyzed all of the elements included in its
multiple-element arrangements and determined that it has sufficient VSOE to
allocate revenue to the PCS components of its perpetual license products and
consulting. Accordingly, assuming all other revenue recognition criteria are
met, revenue from perpetual licenses is recognized upon delivery using the
residual method in accordance with SOP 98-9 and revenue from PCS is recognized
ratably over the PCS term. The Company recognizes revenue from TSLs over the
term of the ratable license period, as the license and PCS portions of a TSL are
bundled and not sold separately. Revenue from contracts with extended payment
terms is recognized as the lesser of amounts due and payable or the amount of
the arrangement fee that would have been recognized if the fee were fixed or
determinable.
Certain of the Company's time-based licenses include the rights to
unspecified additional products. Revenue from contracts with the rights to
unspecified additional software products is recognized ratably over the contract
term. The Company recognizes revenue from time-based licenses that include both
unspecified additional software products and extended payment terms that are not
considered to be fixed or determinable in an amount that is the lesser of
amounts due and payable or the ratable portion of the entire fee.
13
CONSULTING SERVICES. The Company provides design methodology assistance,
specialized services relating to telecommunication systems design and
generalized turnkey design services. The Company's consulting services generally
are not essential to the functionality of the software. The Company's software
products are fully functional upon delivery and implementation does not require
any significant modification or alteration. The Company's services to its
customers often include assistance with product adoption and integration and
specialized design methodology assistance. Customers typically purchase these
professional services to facilitate the adoption of the Company's technology and
dedicate personnel to participate in the services being performed, but they may
also decide to use their own resources or appoint other professional service
organizations to provide these services. Software products are billed separately
and independently from consulting services, which are generally billed on a
time-and-materials or milestone-achieved basis. The Company generally recognizes
revenue from consulting services as the services are performed.
Exceptions to the general rule above involve arrangements where the Company
has committed to significantly alter the features and functionality of its
software or build complex interfaces necessary for the Company's software to
function in the customer's environment. These types of services are considered
to be essential to the functionality of the software. Accordingly, contract
accounting is applied to both the software and service elements included in
these arrangements.
PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost.
Depreciation and amortization of assets is provided using the straight-line
method over estimated useful lives of the property or equipment ranging from
three to five years. Leasehold improvements are amortized using the
straight-line method over the remaining term of the lease or the economic useful
life of the asset whichever is shorter. The cost of repairs and maintenance is
charged to operations as incurred. A detail of property and equipment is as
follows:
OCTOBER 31,
----------------------------------
2002 2001
----------------- ---------------
(IN THOUSANDS)
Computer and other equipment........... $ 279,239 $ 271,264
Buildings.............................. 21,821 22,092
Furniture and fixtures................. 26,446 23,160
Land................................... 42,754 50,153
Leasehold improvements................. 61,796 35,775
----------------- ----------------
432,056 402,444
Less accumulated depreciation and
amortization. (247,016) (210,140)
----------------- ----------------
$ 185,040 $ 192,304
================= ================
SOFTWARE DEVELOPMENT COSTS. Capitalization of software development costs
begins upon the establishment of technological feasibility, which is generally
the completion of a working prototype. Software development costs capitalized
were $1.6 million in fiscal 2002, $1.0 million in fiscal 2001, and $1.0 million
in fiscal 2000. Amortization of software development costs is computed based on
the straight-line method over the software's estimated economic life of
approximately two years. The Company recorded amortization of $1.1 million, $1.0
million, and $1.0 million in fiscal 2002, 2001 and 2000, respectively.
GOODWILL AND INTANGIBLE ASSETS. Goodwill represents the excess of the
aggregate purchase price over the fair value of the tangible and identifiable
intangible assets acquired by the Company. Intangible assets consist of
purchased technology, contract rights intangibles, customer installed
base/relationship, trademarks and tradenames, covenants not to compete, customer
backlog and capitalized software. Intangible assets are amortized on a
straight-line basis over their estimated useful lives which range from three to
ten years. Amortization of intangible assets was $61.1 million, $17.0 million
and $15.1 million in fiscal 2002, 2001 and 2000, respectively.
The Company periodically evaluates its intangible assets for indications of
impairment. If this evaluation indicates that the value of the intangible asset
may be impaired, an assessment of the recoverability of the net carrying value
of the asset over its remaining useful life is made. If this assessment
indicates that the intangible asset is not recoverable, based on the estimated
undiscounted future cash flows of the entity or technology acquired over the
remaining amortization period, the net carrying value of the related intangible
asset will be reduced to fair value and/or the remaining amortization period may
be adjusted. In fiscal 2002, the Company recognized an aggregate impairment
14
charge of $3.8 million to reduce the amount of certain intangible assets
associated with prior acquisitions to their estimated fair value. Approximately
$3.7 million and $0.1 million are included in integration expense and
amortization of intangible assets, respectively, on the statement of operations.
The impairment charge is primarily attributable to certain technology acquired
from, and goodwill related to the acquisition of Stanza, Inc. in 1999. During
the fourth quarter of fiscal 2002, the Company determined that it would not
allocate future resources to assist in the market growth of this technology as
products offered by Avant! provide customers with similar capabilities as well
as additional functionality and does not anticipate any future sales of the
product.
In fiscal 2001, the Company recognized an aggregate impairment charge of
$2.2 million to reduce the amount of certain intangible assets associated with
prior acquisitions to their estimated fair value. Approximately $1.8 million and
$0.4 million are included in cost of revenues and amortization of intangible
assets, respectively, on the statement of operations. The impairment charge is
attributable to certain technology acquired from, and goodwill related to the
acquisition of Eagle Design Automation, Inc. in 1997. During the fourth quarter
of fiscal 2001, the Company determined that it would not allocate future
resources to assist in the market growth of this technology and does not
anticipate any future sales of the product. There were no impairments of
intangible assets in fiscal 2000.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. Accounts payable and accrued
liabilities consist of:
OCTOBER 31,
----------------------------------
2002 2001
----------------- ----------------
(IN THOUSANDS)
Payroll and related benefits......... $ 106,155 $ 90,356
Other accrued liabilities............ 121,995 25,487
Accounts payable..................... 18,639 19,429
----------------- ----------------
Total...................... $ 246,789 $ 135,272
================= ================
DEFERRED COMPENSATION PLAN. The Company maintains a deferred compensation
plan (the Plan) which permits certain employees to defer up to 50% of their
annual cash base compensation or 100% of their annual cash variable
compensation. Distributions from the Plan are generally payable upon cessation
of employment over five to 15 years or as a lump sum payment, at the option of
the employee. Undistributed amounts under the Plan are subject to the claims of
the Company's creditors. As of October 31, 2002 and 2001, the invested amounts
under the Plan total $22.8 million and $15.6 million respectively, and are
recorded as a long-term asset on the Company's balance sheet. As of October 31,
2002 and 2001, the Company has recorded $22.9 million and $16.7 million,
respectively, as a long-term liability to recognize undistributed amounts due to
employees.
INCOME TAXES. The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
15
EARNINGS PER SHARE. Basic earnings per share is computed using the
weighted-average number of shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common
shares and dilutive stock options outstanding during the period. The
weighted-average dilutive stock options outstanding is computed using the
treasury stock method. Due to the net loss incurred for fiscal 2002, the effect
of employee stock options is anti-dilutive.
The following is a reconciliation of the weighted-average common shares used
to calculate basic net income per share to the weighted-average common shares
used to calculate diluted net income per share.
YEAR ENDED OCTOBER 31,
--------------------------------------------
2002 2001 2000
-------------- -------------- --------------
(IN THOUSANDS)
Weighted-average common shares for
basic net income per share........ 66,808 60,601 68,510
Weighted-average stock options
outstanding....................... -- 4,058 2,488
-------------- -------------- --------------
Weighted-average shares for diluted
net income per share.............. 66,808 64,659 70,998
============== ============== ==============
The effect of dilutive employee stock options excludes approximately 28.0
million, 3.8 million and 13.0 million stock options for fiscal 2002, 2001 and
2000, respectively, which were anti-dilutive for earnings per share
calculations.
STOCK-BASED COMPENSATION. As permitted by Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123), the
Company has elected to use the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB
25), to measure compensation expense for stock-based awards to employees.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to current year presentation.
NOTE 3. BUSINESS COMBINATIONS AND DIVESTITURES
PURCHASE COMBINATIONS. During fiscal 2002 and 2000, the Company made a
number of purchase acquisitions. Pro forma results of operations have been
presented only for the inSilicon and Avant! mergers since the effects of the
remaining 2002 and 2000 acquisitions are not material to the Company's
consolidated financial position, results of operations or cash flows for the
periods presented. The consolidated financial statements include the operating
results of each business from the date of acquisition. There were no purchase
transactions during fiscal 2001.
For each acquisition, the excess of the purchase price over the estimated
value of the net tangible assets acquired was allocated to various intangible
assets, consisting primarily of developed technology, customer- and
contract-related assets and goodwill. The values assigned to developed
technologies related to each acquisition were based upon future discounted cash
flows related to the existing products' projected income streams.
The amounts allocated to purchased in-process research and development were
determined through established valuation techniques in the high-technology
industry and were expensed upon acquisition because technological feasibility
had not been established and no future alternative uses existed.
16
ACQUISITION OF AVANT! CORPORATION.
On June 6, 2002 (the closing date), the Company completed the merger with
Avant!.
REASONS FOR THE ACQUISITION. The Board of Directors unanimously approved the
merger with Avant! at its December 1, 2001 meeting. In approving the merger
agreement, the Board of Directors consulted with legal and financial advisors as
well as with management and considered a number of factors. These factors
include the fact that the merger is expected to enable Synopsys to offer its
customers a complete end-to-end solution for system-on-chip design that includes
Synopsys' logic synthesis and design verification tools with Avant!'s advanced
place and route, physical verification and design integrity products, thus
increasing customers' design efficiencies. By increasing customer design
efficiencies, Synopsys expects to be able to better compete for customers
designing the next generation of semiconductors. Further, by gaining access to
Avant!'s physical design and verification products, as well as its broad
customer base and relationships, Synopsys will gain new opportunities to market
its existing products. The foregoing discussion of the information and factors
considered by the Board of Directors is not intended to be exhaustive but
includes the material factors considered by the Board of Directors.
PURCHASE PRICE. Holders of Avant! common stock received 0.371 of a share of
Synopsys common stock (including the associated preferred stock rights) in
exchange for each share of Avant! common stock owned as of the closing date,
aggregating 14.5 million shares of Synopsys common stock. The fair value of the
Synopsys shares issued was based on a per share value of $54.74, which is equal
to Synopsys' average last sale price per share as reported on the Nasdaq
National Market for the trading-day period two days before and after December 3,
2001, the date of the merger agreement.
The total purchase consideration consists of the following:
(IN THOUSANDS)
Fair value of Synopsys common stock issued $ 795,388
Acquisition related costs 37,397
Facilities closure costs 62,638
Employee severance costs 51,014
Fair value of options to purchase Synopsys common
stock issued, less $8.1 million representing
the portion of the intrinsic value of Avant!'s
unvested options applicable to the remaining
vesting period 63,033
--------------
$ 1,009,470
==============
The acquisition-related costs of $37.4 million consist primarily of banking,
legal and accounting fees, printing costs, and other directly related charges
including contract termination costs of $6.3 million.
Facilities closure costs at the closing date include $54.2 million related
to Avant!'s corporate headquarters. After the merger, the functions performed in
the buildings were consolidated into Synopsys' corporate facilities. The lessors
have brought a claim against Avant! for the future amounts payable under the
lease agreements. The amount accrued at the closing date is equal to the future
amounts payable under the related lease agreements, without taking into
consideration in the accrual any defenses the Company may have to the claim.
Resolution of this contingency at an amount different from that accrued will
result in an increase or decrease in the purchase consideration and the amount
will be allocated to goodwill. Subsequent to October 31, 2002, Synopsys settled
all of the claims of the landlord of two of these buildings for $7.4 million.
The remaining facilities closure costs at the closing date totaling $8.4 million
represents the present value of the future obligations under certain of Avant!'s
lease agreements which the Company has or intend to terminate under an approved
facilities exit plan plus additional costs expected to be incurred directly
related to vacating such facilities.
17
Employee severance costs include (i) $39.6 million in cash paid to Avant!'s
Chairman of the Board, consisting of severance plus a cash payment equal to the
intrinsic value of his in-the-money stock options at the closing date, (ii) $5.1
million in cash severance payments paid to redundant employees (primarily sales
and corporate infrastructure personnel) terminated on or subsequent to the
consummation of the merger under an approved plan of termination and (iii) $6.3
million in termination payments to certain executives in accordance with their
respective pre-merger employment agreements. The total number of Avant!
employees terminated as a result of the merger was approximately 250.
As of October 31, 2002, $89.7 million of costs described in the three
preceding paragraphs have been paid and $61.4 million of these costs have not
yet been paid. The following table presents the components of
acquisition-related costs recorded, along with amounts paid during fiscal 2002.
PAYMENTS
THROUGH BALANCE AT
INITIAL OCTOBER 31, OCTOBER 31,
TOTAL COST ADDITIONS SUBTOTAL 2002 2002
(IN THOUSANDS) ----------- ------------ --------------- -------------- -------------
Acquisition related costs $ 37,342 $ 55 $37,397 $33,557 $ 3,840
Facilities closure costs 62,638 -- 62,638 5,377 57,261
Employee severance costs 50,367 647 51,014 50,724 290
----------- ---------- --------------- --------------- -------------
Total $ 150,347 $ 702 151,049 $89,658 $ 61,391
=========== ========== =============== =============== =============
During the fourth quarter of fiscal 2002, additions were made to increase
the total acquisition related costs including an increase to employee severance
costs totaling $0.6 million for actual amounts paid to such employees.
The total purchase consideration has been allocated to the assets and
liabilities acquired, including identifiable intangible assets, based on their
respective fair values at the acquisition date and resulting in excess purchase
consideration over the net tangible and identifiable intangible assets acquired
of $369.5 million. The following unaudited condensed balance sheet data presents
the fair value of the assets and liabilities acquired (after certain adjustments
made during the fourth quarter to the preliminary fair values of the assets and
liabilities acquired).
(IN THOUSANDS)
Assets acquired
Cash, cash equivalents and short-term investments $ 241,313
Accounts receivable 65,971
Prepaid expenses and other current assets 18,082
Intangible assets 373,300
Goodwill 369,470
Other assets 3,875
----------------
Total assets acquired $ 1,072,011
================
Liabilities acquired
Accounts payable and accrued liabilities $ 173,998
Deferred revenue 30,080
Income taxes payable 89,274
Other liabilities 4,651
----------------
Total liabilities acquired $ 298,003
================
The initial allocation of the purchase price included certain assets and
liabilities recorded using preliminary estimates of fair value. During the
fourth quarter of 2002, the value assigned to Avant!'s investment in a venture
capital fund was reduced from the preliminary value of $12.8 million to $5.0
million upon obtaining additional information on the venture funds non-public
investments and subsequent sale of the investment to a third party. The decrease
in the fair value of the investment increased the consideration allocated to
goodwill by $7.8 million. During the fourth quarter of 2002, the Company also
increased the value of the acquired customs and use-tax liabilities by $2.5
million, resulting in a corresponding increase in goodwill.
18
ASSET HELD FOR SALE. As a result of the merger, Synopsys acquired Avant!'s
physical libraries business, and Synopsys was obligated to offer and sell such
business to Artisan Components, Inc. under the terms of a January 2001
non-compete agreement, under which Synopsys agreed not to engage, directly or
indirectly, in the physical libraries business before January 3, 2003. As of the
closing date, the value allocated to the acquired libraries business had been
recorded as net assets held for sale, based on the estimated future net cash
flows from the libraries business in accordance with EITF 87-11, ALLOCATION OF
PURCHASE PRICE TO ASSETS TO BE SOLD. During the fourth quarter of fiscal 2002,
management determined that the libraries business would not be sold and,
accordingly, allocated the fair value of the libraries business as of the
closing date to the underlying tangible assets and intangible assets. The fair
value allocated to the tangible and intangible assets was $8.3 million, with the
remaining fair value allocated to goodwill. This allocation is reflected in the
balance sheet as of October 31, 2002.
GOODWILL AND INTANGIBLE ASSETS. Goodwill, representing the excess of the
purchase price over the fair value of tangible and identifiable intangible
assets acquired in the merger, will not be amortized, consistent with the
guidance in SFAS 142 as discussed under Note 11 below. The goodwill associated
with the Avant! acquisition is not deductible for tax purposes. In addition, a
portion of the purchase price was allocated to the following identifiable
intangible assets:
INTANGIBLE ASSET (IN THOUSANDS) ESTIMATED USEFUL LIFE
------------------------------------ --------------- -----------------------
Core/developed technology $189,800 3 years
Contract rights intangible 51,700 3 years
Customer installed base/relationship 102,900 6 years
Trademarks and tradenames 17,700 3 years
Covenants not to compete 9,100 The life of the
related agreement
(2 to 4 years)
Customer backlog 2,100 3 years
---------------
Total $373,300
===============
CONTRACT RIGHTS INTANGIBLE. Avant! had executed signed license agreements
and delivered the initial configuration of licensed technologies under ratable
license arrangements and had executed signed contracts to provide PCS over a one
to three year period, for which Avant! did not consider the fees to be fixed and
determinable at the outset of the arrangement. There were no receivables or
deferred revenues recorded on Avant!'s historical financial statements at the
closing date as the related payments were not yet due under extended payment
terms and deliveries are scheduled to occur over the terms of the arrangements.
These ratable licenses and PCS arrangements require future performance by both
parties and, as such, represent executory contracts. The contract rights
intangible asset associated with these arrangements is being amortized to cost
of revenue over the related contract lives of three years.
The amortization of intangible assets, with the exception of the contract
rights intangible and core/developed technology, is included in operating
expenses in the statement of operations for the fiscal year ended October 31,
2002. Amortization of core/developed technology and contract rights intangible
is included in cost of revenue.
CADENCE LITIGATION. As the time of the acquisition of Avant!, Avant! was
engaged in civil litigation with Cadence regarding alleged misappropriation of
trade secrets, among other things, by Avant! and certain individuals.
In connection with the merger, Synopsys entered into a policy with a
subsidiary of American International Group, Inc., a AAA-rated insurance company,
whereby insurance was obtained for certain compensatory, exemplary and punitive
damages, penalties and fines and attorneys' fees arising out of pending
litigation between Avant! and Cadence. The policy does not provide coverage for
litigation other than the Avant!/Cadence litigation.
19
The Company paid a total premium of $335 million for the policy, of which
$240 million was contingently refundable. The balance of the premium paid to the
insurer ($95 million) is included in integration expense for the year ended
October 31, 2002. Under the policy the insurer is obligated to pay covered loss
up to a limit of liability equaling (a) $500 million plus (b) interest accruing
at the fixed rate of 2%, compounded semi-annually, on $250 million (the interest
component), as reduced by previous covered losses. Interest earned on $250
million is included in other income, net in the post-merger statement of
operations.
On November 13, 2002, Cadence and Synopsys reached a settlement of the
litigation. Under the terms of the agreement, Cadence will be paid $265 million
in two installments--$20 million on November 22, 2002 and $245 million on
December 16, 2002. In addition, Cadence and Synopsys have entered into
reciprocal licenses arrangements covering the intellectual property at issue in
the litigation. As a result of the payment, Synopsys has recognized expense of
approximately $240.8 million, which is equal to the contingently refundable
portion of the insurance premium plus interest accrued on the restricted asset.
This expense is included in other income and expense on the statement of
operations.
ACQUISITION OF CO-DESIGN.
On September 6, 2002, the Company completed the acquisition of Co-Design.
REASONS FOR THE ACQUISITION. In approving the merger agreement, management
considered a number of factors, including (i) the acquisition will help promote
the development and adoption of the Superlog language, which Synopsys believes
can increase designer productivity; (ii) the combination of Co-Design's
technology with Synopsys' high-level verification and design implementation
tools is expected improve the performance Synopsys' products; and (iii) the
acquisition gives Synopsys access to Co-Design's highly-skilled employees who
will help Synopsys improve its existing products and facilitate the development
of new products. The foregoing discussion of the information and factors
considered by Synopsys' management is not intended to be exhaustive but includes
the material factors considered.
PURCHASE PRICE. Holders of Co-Design common stock received consideration
consisting of cash and notes totaling $32.7 million in exchange for all shares
of Co-Design common stock owned as of the merger date. The total purchase
consideration consists of the following:
(IN THOUSANDS)
Cash paid and notes issued of $2.9 million for Co-Design
common stock $ 32,651
Acquisition related costs 1,038
Fair value of options to purchase Synopsys common stock
issued, less $0.7 million representing the portion of
the intrinsic value of Co-Design's unvested options
applicable to the remaining vesting period 593
--------------
$ 34,282
===============
The acquisition-related costs of approximately $1.0 million consist
primarily of legal and accounting fees. As of October 31, 2002, substantially
all of these acquisition-related costs have been paid.
Total consideration for the acquisition and services provided has been
allocated to the total assets acquired of $8.8 million, total liabilities
assumed of $5.3 million and notes payable of $4.8 million, including
identifiable intangible assets, based on their respective fair values at the
acquisition date. The identifiable intangible assets consist of core/developed
technology totaling $6.2 million which is being amortized over an estimated
useful life of 10 years due to the fact that this technology is essentially a
programming language. The $4.8 million of notes are payable to former Co-Design
shareholders in 2007 of which $1.9 million has been included in integration
expense for services performed in the statement of operations. If certain
milestones are met, the notes may be prepaid in fiscal 2004 and upon prepayment,
an additional interest component totaling approximately $1.0 million is also
payable. The total purchase consideration has been allocated to the assets and
liabilities acquired, including identifiable intangible assets, based on their
respective fair values at the acquisition date and resulted in excess purchase
consideration over the net tangible and identifiable intangible assets acquired
of $27.7 million.
20
ACQUISITION OF INSILICON CORPORATION (INSILICON).
On September 20, 2002, the Company completed the acquisition of inSilicon.
REASONS FOR THE ACQUISITION. In approving the merger agreement, management
considered a number of factors, including the complementary nature of
inSilicon's portfolio of intellectual property blocks and Synopsys' own
portfolio; the fact that inSilicon had established a per-use license model for
its IP products, which would accelerate Synopsys' adoption of a per-use model
for its new and development-stage IP, inSilicon's relationships with chip design
teams, inSilicon's positive reputation as a vendor of high-quality IP and
inSilicon's highly-skilled employee base. The foregoing discussion of the
information and factors considered by Synopsys' management is not intended to be
exhaustive but includes the material factors considered.
PURCHASE PRICE. Holders of inSilicon common stock received $4.05 in
exchange for each share of inSilicon common stock owned as of the merger date,
or approximately $65.4 million. The total purchase consideration consists of the
following:
(IN THOUSANDS)
Cash paid for inSilicon common stock $ 65,386
Acquisition related costs 6,221
Fair value of options to purchase Synopsys common stock
issued, less $1.7 million representing the portion of
the intrinsic value of inSilicon's unvested options
applicable to the remaining vesting period 2,975
------------
$ 74,582
============
The acquisition-related costs of $6.2 million consist primarily of legal and
accounting fees of $1.8 million, and other directly related charges including
contract termination costs of $3.3 million, and restructuring costs of
approximately $0.8 million. As of October 31, 2002, $3.4 million of
acquisition-related costs have been paid. Of the balance remaining at October
31, 2002, $2.2 million represents outstanding contract termination costs.
The total purchase consideration has been allocated to the assets and
liabilities acquired, including identifiable intangible assets, based on their
respective fair values at the acquisition date, resulting in goodwill of $22.2
million. The following unaudited condensed balance sheet data presents the fair
value of the assets and liabilities acquired.
(IN THOUSANDS)
Assets acquired
Cash, cash equivalents and short-term investments $ 24,908
Accounts receivable 2,428
Prepaid expenses and other current assets 7,463
Core/developed technology 15,100
Customer backlog 1,200
Goodwill 22,160
Other assets 1,290
----------------
Total assets acquired $ 74,549
================
Liabilities acquired
Accounts payable and accrued liabilities $ 8,242
Deferred revenue 1,137
Income taxes payable 463
Other liabilities 1,736
----------------
Total liabilities acquired $ 11,578
================
21
GOODWILL AND INTANGIBLE ASSETS. Goodwill, representing the excess of the
purchase consideration over the fair value of tangible and identifiable
intangible assets acquired in the merger will not be amortized, consistent with
the guidance in SFAS 142 as discussed under Note 11 below. The goodwill
associated with the inSilicon acquisition is not deductible for tax purposes.
inSilicon had executed signed contracts with five of its major customers to
provide IP licenses, including significant modifications to the IP license in
order to meet unique customer requirements. The value associated with these
contracts was determined by quantifying the projected cash flow related to these
contracts, discounted to present value, and is recorded as customer backlog in
intangible assets in the consolidated balance sheets.
Intangible assets are being amortized over their estimated useful life of
three years. The amortization of intangible assets is included in cost of
revenue in the statement of operations for the fiscal year ended October 31,
2002.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS. The following table presents pro
forma results of operations and gives effect to the Avant! and inSilicon mergers
as if the mergers were consummated on November 1, 2000. The unaudited pro forma
results of operations are not necessarily indicative of the results of
operations had the Avant! and inSilicon mergers actually occurred at the
beginning of fiscal 2001, nor is it necessarily indicative of future operating
results:
YEAR ENDED
----------------------------------
OCTOBER 31, OCTOBER 31,
2002 2001
----------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues $ 1,186,916 $ 1,100,249
Net income $ 117,494 $ 78,909
Basic earnings per share $ 1.56 $ 1.05
Weighted average common shares
outstanding 75,311 75,131
Diluted earnings per share $ 1.49 $ 0.98
Weighted average common shares
and dilutive stock options
outstanding 78,656 80,180
The unaudited pro forma results of operations for each of the periods
presented exclude non-recurring merger costs of $335.8 million for the Avant!
insurance policy premium, $82.5 million for IPRD resulting from the Avant!
merger, $5.2 million for IPRD resulting from the inSilicon merger and $21.0
million and $268.1 million for Avant!'s pre-merger litigation settlement and
other related costs incurred in fiscal 2002 and 2001, respectively. These
expenses are included in the historical consolidated statement of operations.
INTEGRATION COSTS. Non-recurring integration costs incurred relate to merger
activities which are not included in the purchase consideration under Emerging
Issues Task Force Number 95-3 (EITF 95-3), RECOGNITION OF LIABILITIES IN
CONNECTION WITH A PURCHASE BUSINESS COMBINATION. These costs are expensed as
incurred. During fiscal 2002, integration costs totaled $128.5 million. These
costs consisted primarily of (i) $95.0 million related to the premium for the
insurance policy acquired in conjunction with the Avant! merger, (ii) $14.7
million related to write-downs of Synopsys facilities and property under the
approved facility exit plan for the Avant! merger, (iii) $10.0 million and $0.7
million related to severance costs for Synopsys employees who were terminated
and costs associated with transition employees as a result of the Avant! and
inSilicon mergers, respectively, (iv) $1.3 million related to the write-off of
software licenses owned by Synopsys which were originally purchased from Avant!,
(v) $3.7 million goodwill impairment charge related to a prior Synopsys
acquisition as a result of the acquisition of Avant! and (vi) $1.2 million and
$1.9 million of other expenses including travel and certain professional fees
for the Avant! and Co-Design mergers, respectively.
22
PRIOR YEAR BUSINESS COMBINATIONs AND DIVESTITURES. On January 4, 2001, the
Company sold the assets of its silicon libraries business to Artisan Components,
Inc. for a total sales price of $15.5 million, including common stock with a
fair value on the date of sale of $11.4 million, and cash of $4.1 million. The
net book value of the assets sold was $1.4 million. Expenses incurred in
connection with the sale were $3.5 million. The Company recorded a gain on the
sale of the business of $10.6 million, which is included in other income, net in
2001. Direct revenue for the silicon libraries business was $0.2 million and
$4.3 million for the fiscal years 2001 and 2000, respectively.
There were no business combinations completed in fiscal 2001.
In fiscal 2000, the Company acquired (i) VirSim, a software product, from
Innoveda, Inc., for a purchase price of approximately $7.0 million in cash, (ii)
The Silicon Group, Inc., a privately held provider of integrated circuit design
and intellectual property integration services, for a purchase price of $3.0
million, including cash payments of $1.8 million and a reserve of approximately
34,000 shares of common stock for issuance under The Silicon Group's stock
option plan which was assumed in the transaction, and (iii) Leda, S.A. (Leda), a
privately held provider of RTL coding-style-checkers, for a purchase price of
$7.7 million, including cash payments of $7.5 million. Approximately $1.7
million of the Leda purchase price was allocated to in-process research and
development and charged to operations because the acquired technology had not
reached technological feasibility and had no alternative uses. The purchase
price of each of these transactions was allocated to the acquired assets and
liabilities based on their estimated fair values as of the date of the
respective acquisition. Amounts allocated to developed technology and goodwill
are being amortized on a straight-line basis over periods ranging from three to
five years. Beginning November 1, 2002, amounts allocated to goodwill will no
longer be amortized in accordance with FAS 142 as discussed below under Note 11.
NOTE 4. FINANCIAL INSTRUMENTS
CASH, CASH EQUIVALENTS AND INVESTMENTS. All cash equivalents, short-term
investments, and non-current investments have been classified as
available-for-sale securities and are detailed as follows:
NET NET
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ------------ ------------ ------------
OCTOBER 31, 2002 (IN THOUSANDS)
Classified as current assets:
Cash................................. $ 129,044 $ -- $ -- $ 129,044
Money market funds................... 183,536 -- -- 183,536
Tax-exempt municipal obligations..... 101,904 249 -- 102,153
Municipal auction rate preferred stock -- -- -- --
------------- ------------ ------------ ------------
414,484 249 -- 414,733
Classified as non-current assets:
Equity securities.................... 25,113 14,273 -- 39,386
------------- ------------ ------------ ------------
Total.............................. $ 439,597 $ 14,522 $ -- $ 454,119
============= ============ ============ ============
OCTOBER 31, 2001
Classified as current assets:
Cash................................. $ 47,383 $ -- $ -- $ 47,383
Money market funds................... 224,313 -- -- 224,313
Tax-exempt municipal obligations..... 188,714 1,751 -- 190,465
Municipal auction rate preferred stock 14,275 -- -- 14,275
------------- ------------ ------------ ------------
474,685 1,751 -- 476,436
Classified as non-current assets:
Equity securities.................... 38,577 23,122 -- 61,699
------------- ------------ ------------ ------------
Total.............................. $ 513,262 $ 24,873 $ -- $ 538,135
============= ============ ============ ============
23
Short-term investments include tax-exempt municipal obligations, which may
have underlying maturities of more than one year. However, such investments may
have put options or reset dates within three years that meet high credit quality
standards as specified in the Company's investment policy. At October 31, 2002,
the underlying maturities of the Company's investments are $8.0 million within
one year, $39.9 million within one to five years, $15.1 million within five to
ten years and $39.1 million after ten years. These investments are generally
classified as available for sale, and are recorded on the balance sheet at fair
market value with unrealized gains or losses reported as a separate component of
accumulated other comprehensive income, net of tax. Realized gains and losses on
sales of short-term investments have not been material.
STRATEGIC INVESTMENTS. The Company's strategic investment portfolio consists
of minority equity investments in publicly traded companies and investments in
privately held companies, many of which can still be considered in the start-up
or development stages. The securities of publicly traded companies are generally
classified as available-for-sale securities accounted for under Statement of
Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS 115), and are reported at fair value, with
unrealized gains or losses, net of tax, recorded as a component of other
comprehensive income in stockholders' equity. The cost of securities sold is
based on the specific identification method. The securities of privately held
companies are reported at the lower of cost or fair value.
During the years ended October 31, 2002 and 2001 the Company determined that
certain strategic investments, with an aggregate value of $16.3 million and $9.4
million, respectively, were impaired, and that the impairment was other than
temporary. Accordingly, the Company recorded a charge of approximately $11.3
million and $5.8 million during fiscal 2002 and 2001, respectively, to write
down the carrying value of the investments. The impairment charge is included in
other income, net. The Company reviews its investments in non-public companies
on a quarterly basis and estimates the amount of any impairment incurred during
the current period based on specific analysis of each investment, considering
the activities of and events occurring at each of the underlying portfolio
companies during the quarter. The Company's portfolio companies operate in
industries that are rapidly evolving and extremely competitive. For equity
investments in non-public companies for which there is not a market in which
their value is readily determinable, the Company assesses each investment for
indicators of impairment at each quarter end based primarily on achievement of
business plan objectives and current market conditions, among other factors. The
primary business plan objectives the Company considers include achievement of
planned financial results, completion of capital raising activities, the
launching of technology, the hiring of key employees and overall progress on the
portfolio company's business plan. If it is determined that an impairment has
occurred with respect to an investment in a portfolio company, in the absence of
quantitative valuation metrics, management estimates the impairment and/or the
net realizable value of the portfolio investment based on public- and
private-company market comparable information and valuations completed for
companies similar to Synopsys' portfolio companies. There were no impairment
charges recorded during fiscal 2000.
DERIVATIVE FINANCIAL INSTRUMENTS. Available-for-sale equity investments
accounted for under SFAS 115 are subject to market price risk. From time to
time, the Company enters into and designates forward contracts to hedge variable
cash flows from anticipated sales of these investments. In accounting for a
derivative designated as a cash flow hedge, the effective portion of the change
in fair value of the derivative is initially recorded in other comprehensive
income and reclassified into earnings when the hedged anticipated transaction
affects earnings. The ineffective portion of the change in the fair value of the
derivative is recognized in earnings immediately.
The Company's objective for entering into derivative contracts is to lock in
the price of selected equity holdings while maintaining the rights and benefits
of ownership until the anticipated sale occurs. The forecasted sale selected for
hedging is determined by market conditions, up-front costs, and other relevant
factors. The Company has generally selected forward sale contracts to hedge its
market price risk.
24
Changes in the spot rate of the forward sale contracts designated and
qualifying as cash flow hedges of the forecasted sale of available-for-sale
investments accounted for under SFAS 115 are reported in other comprehensive
income. The notional amount of the forward designated as the hedging instrument
is equal to the available-for-sale securities being hedged. In addition, hedge
effectiveness is assessed based on the changes in spot prices. As such, the
hedging relationship is perfectly effective, both at inception of the hedge and
on an on-going basis. The difference between the contract price and the forward
price, which is generally not material, is reflected in other income.
The Company has entered into forward sale contracts in fiscal 2001 and 2000
with a major financial institution for the sale through April 10, 2003 of
certain of the Company's strategic investments. During fiscal 2001, the Company
physically settled certain forward contracts. The net gain on the forward
contracts was offset by the net loss on the related available-for-sale
investment since inception of the hedge, with any gain or loss reclassified from
other comprehensive income to other income. As of October 31, 2002, the Company
has forward sale contracts outstanding for 46,790 shares of Broadcom Corporation
stock at a forward price of $222.72. As of October 31, 2002, the excess of the
fair market value of the forward sale price over cost has been recorded in
stockholders' equity as a component of accumulated other comprehensive income.
In fiscal 2002, the Company recorded a net realized gain on the sale of the
available-for-sale investments of $22.7 million (net of premium amortization).
As of October 31, 2002, the Company has recorded $7.6 million in long-term
investments due to locked-in unrealized gains on the available-for-sale
investments. As of October 31, 2002, the maximum length of time over which the
Company is hedging its exposure to the variability in future cash flows
associated with the forward sale contracts is 6 months.
FOREIGN CURRENCY HEDGING. The Company conducts business on a global basis.
Consequently, the Company enters into foreign currency forward contracts to
reduce the impact of certain currency exposures. As of October 31, 2002, 2001,
and 2000, the Company had $305.1 million, $72.2 million and $47.5 million,
respectively of short-term foreign currency forward contracts outstanding. These
contracts are denominated primarily in the Euro and Japanese yen. The
outstanding forward contracts have maturities that expire in approximately one
month from the balance sheet date. For fair value hedges, foreign currency gains
and losses on forward contracts and their underlying balance sheet exposures
resulting from market adjustments are included in earnings. Gains and losses
related to these instruments for the fiscal years ended October 31, 2002, 2001
and 2000 were not material. The Company also uses forward foreign currency
contracts to hedge cash flow exposures resulting from the impact of currency
exchange rate fluctuations on forecasted receivables. As of October 31, 2002,
the unrealized gain of approximately $10.0 million on these forward contracts is
recorded in stockholders' equity, net of tax, as a component of accumulated
other comprehensive income.
OTHER COMPREHENSIVE INCOME. Other comprehensive income includes a
reclassification adjustment related to unrealized gains on investments,
accumulated net translation adjustments and unrealized gains on certain foreign
currency forward contracts that qualify as cash flow hedges. In fiscal 2002,
2001 and 2000, the reclassification adjustment is $5.8 million, $33.7 million
and $8.9 million, respectively. The reclassification amount adjusts other
comprehensive income for gains on the sale of available-for-sale securities
realized during the current year and included in other comprehensive income as
unrealized holding gains in the period in which such unrealized gains arose. The
reclassification adjustment is net of income tax expense of $3.8 million, $21.6
million and $6.0 million, respectively, in fiscal 2002, 2001 and 2000.
DEBT. As of October 31, 2002, the Company's debt consisted of $0.1 million
for equipment leases and $5.1 million for notes payable related to acquisitions
payable through 2007. In fiscal 2002, the Company was also assessed
approximately $1.4 million to secure bonds related to certain property taxes. As
of October 31, 2001, the Company's debt consisted of $0.1 million for equipment
leases and $0.3 million of notes payable from acquisitions. The fair value of
the Company's long-term debt approximates the carrying amount.
25
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company leases its domestic and foreign facilities and certain office
equipment under operating leases. Rent expense was $33.7 million, $30.0 million
and $29.1 million in fiscal 2002, 2001 and 2000, respectively. During December
2000, the Company entered into a sublease agreement for a portion of its office
space through May 2003. Monthly lease payments of $912,000 began on December 1,
2000. In November 2002, the sub-lessee prepaid monthly lease payments totaling
$8.1 million.
Future minimum lease payments on all facility operating leases (net of
sublease income) as of October 31, 2002 are as follows:
MINIMUM
LEASE
PAYMENTS (1) LEASE INCOME NET
-------------- -------------- --------------
FISCAL YEAR (IN THOUSANDS)
2003................................ $ 31,222 $ (7,768) $ 23,454
2004................................ 30,163 - 30,163
2005................................ 24,673 - 24,673
2006................................ 24,286 - 24,286
2007................................ 20,147 - 20,147
Thereafter.......................... 103,221 - 103,221
-------------- -------------- --------------
Total minimum payments required.. $ 233,712 $ (7,768) $ 225,944
============== ============== ==============
(1) Minimum lease payments exclude leases related to Avant! facilities which
the Company intends to terminate under its approved facilities exit plan as
these payments are included in the Facilities Closure Costs portion of the
Avant! merger accrual, described in Note 3.
NOTE 6. STOCKHOLDERS' EQUITY
STOCK REPURCHASE PROGRAMS. In July 2001, the Company's Board of Directors
authorized stock repurchase programs under which Synopsys common stock with a
market value up to $500 million may be acquired in the open market. This stock
repurchase program replaced all prior repurchase programs authorized by the
Board. Common shares repurchased are intended to be used for ongoing stock
issuances under the Company's employee stock plans and for other corporate
purposes. The July 2001 stock repurchase program expired on October 31, 2002.
During fiscal 2002, 2001 and 2000, the Company purchased 3.9 million shares at
an average price of $44.20 per share, 6.6 million shares at an average price of
$50.00 per share, and 9.9 million shares at an average price of $40.02,
respectively.
PREFERRED SHARES RIGHTS PLAN. The Company has adopted a number of
provisions that could have anti-takeover effects, including a Preferred Shares
Rights Plan. In addition, the Board of Directors has the authority, without
further action by its shareholders, to fix the rights and preferences and issue
shares of authorized but undesignated shares of Preferred Stock. This provision
and other provisions of the Company's Restated Certificate of Incorporation and
Bylaws and the Delaware General Corporation Law may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
the Company, including transactions in which the stockholders of the Company
might otherwise receive a premium for their shares over then current market
prices. The preferred share rights expire on October 24, 2007.
26
EMPLOYEE STOCK PURCHASE PLAN. Under the Company's 1992 Employee Stock
Purchase Plan 7,050,000 shares have been authorized for issuance as of October
31, 2002. Under the ESPP, employees are granted the right to purchase shares of
common stock at a price per share that is 85% of the lesser of the fair market
value of the shares at (i) the beginning of a rolling two-year offering period,
or (ii) the end of each semi-annual purchase period. During fiscal 2002, 2001,
and 2000 shares totaling 627,941, 567,254, and 512,988, respectively, were
issued under the plan at average per share prices of $33.85, $33.20, and $32.63,
respectively. As of October 31, 2002, 2,885,283 shares of common stock were
reserved for future issuance under the plan.
STOCK OPTION PLANS. Under the Company's 1992 Stock Option Plan (1992 Plan),
19,475,508 shares of common stock have been authorized for issuance. Pursuant to
the 1992 Plan, the Board of Directors may grant either incentive or
non-qualified stock options to purchase shares of the Company's common stock to
eligible individuals at not less than 100% of the fair market value of those
shares on the grant date. Stock options generally vest over a period of four
years and expire ten years from the date of grant. As of October 31, 2002,
3,523,486 shares of common stock are reserved for future grants under the 1992
Plan.
Under the Company's Non-Statutory Stock Option Plan (1998 Plan), 26,623,534
shares of common stock have been authorized for issuance. Pursuant to the 1998
Plan, the Board of Directors may grant non-qualified stock options to employees,
excluding executive officers. Exercisability, option price and other terms are
determined by the Board of Directors, but the option price shall not be less
than 100% of the fair market value of the stock at the grant date. Stock options
generally vest over a period of four years and expire ten years from the date of
grant. At October 31, 2002, 4,817,722 shares of common stock were reserved for
future grants.
Under the Company's 1994 Non-Employee Directors Stock Option Plan (Directors
Plan), a total of 750,000 shares have been authorized for issuance. The
Directors Plan provides for automatic grants to each non-employee member of the
Board of Directors upon initial appointment or election to the Board, reelection
and for annual service on Board committees. Stock options are granted at not
less than 100% of the fair market value of those shares on the grant date. Stock
options granted upon appointment or election to the Board vest 25% annually but
may be exercised immediately. Stock options granted upon reelection to the Board
and for committee service vest 100% after the first year of continuous service.
As of October 31, 2002, 71,839 shares of common stock were reserved for future
grants.
The Company has assumed certain option plans in connection with business
combinations. Generally, these options were granted under terms similar to the
terms of the Company's stock option plans at prices adjusted to reflect the
relative exchange ratios. All assumed plans were terminated as to future grants
upon completion of each of the business combinations.
27
Additional information concerning stock option activity under all plans is
as follows:
WEIGHTED-
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
---------------- -----------------
(IN THOUSANDS)
----------------
Outstanding at October 31, 1999..... 13,031 $38.75
Granted and assumed.............. 16,220 $36.05
Exercised........................ (1,554) $27.37
Canceled......................... (2,952) $41.35
----------------
Outstanding at October 31, 2000..... 24,745 $37.39
Granted.......................... 5,967 $48.23
Exercised........................ (2,605) $33.14
Canceled......................... (2,187) $39.80
----------------
Outstanding at October 31, 2001..... 25,920 $40.10
Granted.......................... 4,081 $47.88
Options assumed in acquisitions.. 2,511 $37.16
Exercised........................ (2,851) $34.43
Canceled......................... (1,681) $42.93
----------------
Outstanding at October 31, 2002..... 27,980 $41.40
================
Options exercisable at:
October 31, 2000................. 6,619 $36.15
October 31, 2001................. 10,405 $38.23
October 31, 2002................. 15,230 $40.49
The following table summarizes information about stock options outstanding
at October 31, 2002:
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED- EXERCISABLE OPTIONS
AVERAGE -------------------------
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE (IN EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING YEARS) PRICE EXERCISABLE PRICE
---------------------- ------------ -------------- ------------ ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
$0.003-- $32.25 7,317 7.12 $29.45 4,197 $28.96
$32.38 -- $39.50 7,569 7.05 $37.31 4,863 $37.18
$39.81 -- $49.60 6,512 8.08 $45.17 2,998 $45.07
$49.83 -- $60.00 5,695 8.25 $54.68 2,591 $55.23
$60.06 --$111.86 887 7.35 $61.79 581 $62.13
------------ ------------
$0.003--$111.86 27,980 7.56 $41.40 15,230 $40.49
============ ============
STOCK-BASED COMPENSATION. In accordance with APB 25, the Company applies the
intrinsic value method in accounting for employee stock options. Accordingly,
the Company generally recognizes no compensation expense with respect to
stock-based awards to employees. The Company has determined pro forma
information regarding net income and earnings per share as if the Company had
accounted for employee stock options under the fair value method as required by
SFAS No. 123. The fair value of these stock-based awards to employees was
estimated using the Black-Scholes option pricing model, assuming no expected
dividends and using the following weighted-average assumptions:
YEAR ENDED OCTOBER 31,
-----------------------------------------
2002 2001 2000
-------------- -------------- -----------
STOCK OPTION PLANS
Expected life (in years).... 4.9 4.4 3.9
Risk-free interest rate..... 4.0% 4.8% 6.3%
Volatility.................. 59.0% 62.0% 58.3%
ESPP
Expected life (in years).... 1.25 1.25 1.25
Risk-free interest rate..... 2.1% 4.1% 6.1%
Volatility.................. 59.0% 62.0% 58.3%
28
For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the options' vesting period of
four years and the ESPP's six-month purchase period. The weighted-average
estimated fair value of stock options issued during fiscal 2002, 2001 and 2000
was $25.74, $25.62 and $15.96 per share, respectively. The weighted-average
estimated fair value of share purchase rights under the ESPP during fiscal 2002,
2001 and 2000 was $16.84, $16.57 and $14.32 per share, respectively.
The Company's pro forma net income and earnings per share data under SFAS No.
123 is as follows:
YEAR ENDED OCTOBER 31,
2002 2001 2000
---------------- ----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss)
As reported under APB 25............ $ (199,993) $ 56,802 $ 97,778
Pro forma under SFAS No. 123........ $ (333,708) $ (80,107) $ (757)
Earnings (loss) per share-- basic
As reported under APB 25............ $ (2.99) $ 0.94 $ 1.43
Pro forma under SFAS No. 123........ $ (5.00) $ (1.32) $ (0.01)
Earnings (loss) per share-- diluted
As reported under APB 25............ $ (2.99) $ 0.88 $ 1.38
Pro forma under SFAS No. 123........ $ (5.00) $ (1.32) $ (0.01)
NOTE 7. INCOME TAXES
The Company is entitled to a deduction for federal and state tax purposes
with respect to employees' stock option activity. The net reduction in taxes
otherwise payable arising from that deduction has been credited to additional
paid-in capital.
The components of the Company's total income before provision for income
taxes are as follows:
YEAR ENDED OCTOBER 31,
----------------------------------------
2002 2001 2000
------------- ------------- ------------
(IN THOUSANDS)
United States.................. $ (309,072) $ 93,187 $150,641
Foreign........................ 20,132 (9,654) (4,703)
------------- ------------- ------------
$ (288,940) $ 83,533 $ 145,938
============= ============= ============
29
The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED OCTOBER 31,
----------------------------------------
2002 2001 2000
-------------- ------------ ------------
(IN THOUSANDS)
Current:
Federal....................... $ 9,605 $ 80,783 $ 62,644
State......................... (1,319) 7,758 8,949
Foreign....................... 11,474 6,782 3,388
-------------- ------------ ------------
19,760 95,323 74,981
Deferred:
Federal....................... (104,041) (66,049) (30,025)
State......................... (21,728) (13,076) (4,266)
Foreign....................... (2,398) (5,460) (3,394)
-------------- ------------ ------------
(128,167) (84,585) (37,685)
Charge equivalent to the federal
and state tax benefit related
to employee stock options..... 19,460 15,993 10,864
-------------- ------------ ------------
Provision (benefit) for income
taxes $ (88,947) $ 26,731 $ 48,160
============== ============ ============
The provision (benefit) for income taxes differs from the amount obtained by
applying the statutory federal income tax rate to income (loss) before income
taxes as follows:
YEAR ENDED OCTOBER 31,
-------------------------------------
2002 2001 2000
------------ ------------ -----------
(IN THOUSANDS)
Statutory federal tax................ $(101,129) $ 29,236 $ 51,078
State tax, net of federal effect..... (8,105) 2,611 5,555
Tax credits.......................... (10,745) (9,041) (7,248)
Tax benefit from foreign sales
corporation/extraterritorial
income exclusion.................. (2,827) (2,780) (3,146)
Tax exempt income.................... (1,865) (3,289) (5,508)
Foreign tax in excess of (less than)
U.S. statutory tax................ 1,553 2,679 (1,194)
Non-deductible merger and acquisition
expenses.......................... 4,367 5,601 5,454
In-process research and development
expenses.......................... 30,695 -- 829
Other................................ (891) 1,714 2,340
------------ ------------ -----------
$ (88,947) $ 26,731 $ 48,160
============ ============ ===========
30
Net deferred tax assets of $276.3 million and $170.4 million were recorded
at October 31, 2002 and October 31, 2001, respectively. The net deferred tax
asset of $276.3 million for the year ended October 31, 2002 includes the tax
effects of the parent corporation, Synopsys, and the newly acquired
corporations, Avant!, inSilicon, and Co-Design. The tax effects of temporary
differences and carryforwards which give rise to significant portions of the
deferred tax assets and liabilities are as follows:
OCTOBER 31,
------------------------
2002 2001
-------------- -----------
(IN THOUSANDS)
Net deferred tax assets:
Deferred tax assets:
Current:
Net operating loss and tax credit carryovers $ 7,370 $ 5,157
Deferred revenue........................... 111,463 122,857
Reserves and other expenses not currently
deductible............................... 62,414 17,831
Unrealized foreign exchange losses......... -- 1,839
Insurance premiums......................... 94,213 --
Other...................................... 10,491 1,555
------------- ------------
285,951 149,239
Non-current:
Net operating loss and tax credit carryovers 52,529 6,496
Deferred compensation...................... 9,247 5,907
Deferred revenue........................... -- 11,883
Depreciation and amortization.............. 32,335 6,698
Other...................................... 2,148 1,258
------------- ------------
96,259 32,242
------------- ------------
Total deferred tax assets....................... 382,210 181,481
Deferred tax liabilities:
Current:
Unrealized foreign exchange losses......... (3,084) --
------------- ------------
(3,084) --
Non-current:
Unrealized gain on securities investments.. (5,256) (9,196)
Net capitalized software development costs. (1,185) (397)
Intangible assets.......................... (96,358) --
Other...................................... -- (1,482)
------------- ------------
(102,799) (11,075)
------------- ------------
Total deferred tax liabilities.................... (105,883) (11,075)
------------- ------------
Net deferred tax assets........................... $ 276,327 $ 170,406
============= ============
At October 31, 2002, the Company believes that it is more likely than not
that the results of future operations will generate sufficient taxable income to
realize the deferred tax assets.
The Company's United States income tax returns for fiscal years ended
September 30, 1996 and September 30, 1995 are under examination and the Internal
Revenue Service has proposed certain adjustments. Management believes that
adequate amounts have been provided for any adjustments that may ultimately
result from these examinations.
31
The Company has federal tax loss carryforwards of approximately $117.5
million at October 31, 2002. The loss carryforwards will expire in 2010 through
2020. Because of the change in ownership provisions of the Internal Revenue
Code, a portion of the Company's loss carryforwards may be subject to annual
limitations. The annual limitation may result in the expiration of the net
operating loss before utilization. The Company also has net operating loss
carryforwards from Ireland operations of approximately $25.2 million. These loss
carryforwards will expire in 2005 through 2006. Management believes that all net
operating losses will be utilized and a valuation allowance is not necessary.
NOTE 8. SEGMENT DISCLOSURE
Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS 131), requires
disclosures of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. The method for
determining what information to report under SFAS 131 is based upon the
"management approach," or the way that management organizes the operating
segments within a company, for which separate financial information is available
that is evaluated regularly by the Chief Operating Decision Maker (CODM) in
deciding how to allocate resources and in assessing performance. Synopsys' CODM
is the Chief Executive Officer and Chief Operating Officer.
The Company provides comprehensive design technology products and consulting
services in the electronic design automation software industry. The CODM
evaluates the performance of the Company based on profit or loss from operations
before income taxes not including merger-related costs, in-process research and
development and amortization of intangible assets. For the purpose of making
operating decisions, the CODM primarily considers financial information
presented on a consolidated basis accompanied by disaggregated information about
revenues by geographic region. There are no differences between the accounting
policies used to measure profit and loss for the Company segment and those used
on a consolidated basis. Revenue is defined as revenues from external customers.
The disaggregated financial information reviewed by the CODM is as follows:
YEAR ENDED OCTOBER 31,
-----------------------------------------
2002 2001 2000
------------- ------------- ------------
(IN THOUSANDS)
Revenue:
Product............................... 245,193 163,924 434,077
Service............................... 287,747 341,833 340,796
Ratable license....................... 373,594 174,593 8,905
------------- ------------ ------------
Total revenue....................... $ 906,534 $ 680,350 $ 783,778
============= ============ ============
Gross margin before amortization of
intangible assets and deferred stock
compensation.......................... $ 767,311 $ 550,228 $ 659,304
Operating income before integration costs,
in-process research and development,
amortization of intangible assets
and deferred stock compensation,
and $95 million of the insurance
premium related to the Cadence
litigation (1)......... $ 198,496 $ 16,761 $ 122,014
(1) The total premium paid to the insurer was $335.8 million of which
$95.0 million is included in operating income but is excluded from
this table and $240.8 million is included in other income and
expense in the Company's consolidated statement of operations.
32
There were no integration, amortization of deferred stock compensation or
insurance settlement costs during fiscal 2001 and 2000. There were no in-process
research and development costs during fiscal 2001.
A reconciliation of the Company's segment gross margin to the Company's
gross margin is as follows:
YEAR ENDED OCTOBER 31.
--------------------------------------
2002 2001 2000
------------ ------------- -----------
(IN THOUSANDS)
Gross margin before amortization of
intangible assets and deferred stock
compensation $ 767,311 $ 550,228 $ 659,304
Amortization of intangible assets and
deferred stock compensation (33,936) -- --
------------ ------------ ------------
Gross margin $ 733,375 $ 550,228 $ 659,304
============ ============ ============
Reconciliation of the Company's segment profit and loss to the Company's
operating income (loss) is as follows:
YEAR ENDED OCTOBER 31,
-------------------------------------------
2002 2001 2000
-------------- -------------- -------------
(IN THOUSANDS)
Operating income before integration
costs, in-process research and
development, amortization of intangible
assets and deferred stock compensation,
and $95 million of the insurance premium
related to the Cadence litigation (1)... $ 198,496 $ 16,761 $ 122,014
Integration costs........................ (128,528) -- --
In-process research and development...... (87,700) -- (1,750)
Amortization of intangible assets and
deferred stock compensation............ (62,585) (17,012) (15,129)
-------------- -------------- -------------
Operating (loss) income.................. $ (80,317) $ (251) $ 105,135
============== ============== =============
(1) The total premium paid to the insurer was $335.8 million of which
$95.0 million is included in operating income but is excluded from
this table and $240.8 million is included in other income and
expense in the Company's consolidated statement of operations.
33
Revenue and long-lived assets related to operations in the United States and
other geographic areas are as follows:
YEAR ENDED OCTOBER 31,
-------------------------------------------
2002 2001 2000
-------------- -------------- -------------
(IN THOUSANDS)
Revenue:
United States......... $ 591,526 $ 426,527 $ 456,759
Europe................ 145,758 125,380 141,306
Japan................. 95,413 69,850 130,698
Other................. 73,837 58,593 55,015
-------------- -------------- -------------
Consolidated........ $ 906,534 $ 680,350 $ 783,778
============== ============== =============
OCTOBER 31, OCTOBER 31,
2002 2001
-------------- --------------
Long-lived assets:
United States.............. $ 162,360 $ 176,330
Other...................... 22,680 15,974
-------------- --------------
Consolidated............. $ 185,040 $ 192,304
============== ==============
Geographic revenue data for multi-region, multi-product transactions
reflects internal allocations and is therefore subject to certain assumptions
and the Company's methodology. Revenue is not reallocated among geographic
regions to reflect any re-mixing of licenses between different regions following
the initial product shipment. No one customer accounted for more than ten
percent of the Company's consolidated revenue in the periods presented.
The Company segregates revenue into five categories for purposes of internal
management reporting: Design Implementation, Verification and Test, Design
Analysis, Intellectual Property (IP) and Professional Services. The following
table summarizes the revenue attributable to each of the various categories.
Revenue attributable to products acquired from Avant!, inSilicon and Co-Design
that was recognized by the acquired companies prior to the respective
acquisition date is not reflected in the following tables. Revenue attributable
to such acquired products after the acquisition date of the respective company
is included in fiscal 2002. As a result of the Avant! merger, the Company has
redefined its product groups. Prior period amounts have been reclassified to
conform to the new presentation.
YEAR ENDED OCTOBER 31,
--------------------------------------------
2002 2001 2000
-------------- -------------- --------------
(IN THOUSANDS)
Revenue:
Design Implementation................. $ 397,109 $ 270,357 $ 305,192
Verification and Test................. 269,098 222,776 266,489
Design Analysis....................... 119,469 40,658 44,220
IP.................................... 62,177 64,859 86,393
Professional Services................. 58,681 81,700 81,484
-------------- -------------- --------------
Consolidated........................ $ 906,534 $ 680,350 $ 783,778
============== ============== ==============
34
NOTE 9. TERMINATION OF AGREEMENT TO ACQUIRE IKOS SYSTEMS, INC.
On July 2, 2001, the Company entered into an Agreement and Plan of Merger
and Reorganization (the IKOS Merger Agreement) with IKOS Systems, Inc. (IKOS).
The IKOS Merger Agreement provided for the acquisition of all outstanding shares
of IKOS common stock by Synopsys.
On December 7, 2001, Mentor Graphics Corporation (Mentor) commenced a cash
tender offer to acquire all of the outstanding shares of IKOS common stock at
$11.00 per share, subject to certain conditions. On March 12, 2002, Synopsys and
IKOS executed a termination agreement by which the parties terminated the IKOS
Merger Agreement and pursuant to which IKOS paid Synopsys the $5.5 million
termination fee required by the IKOS Merger Agreement. This termination fee and
$2.4 million of expenses incurred in conjunction with the acquisition are
included in other income, net on the consolidated statement of operations for
the year ended October 31, 2002. Synopsys subsequently executed a revised
termination agreement with Mentor and IKOS in order to add Mentor as a party
thereto.
NOTE 10. DEFERRED STOCK COMPENSATION
In connection with the current year mergers, the Company also assumed
unvested stock options held by Avant!, inSilicon and Co-Design employees. The
Company has recorded deferred stock compensation totaling $8.1 million, $1.7
million and $0.7 million based on the intrinsic value of these assumed unvested
stock options for Avant!, inSilicon and Co-Design, respectively. The deferred
stock compensation is amortized over the options' remaining vesting period of
one to three years. During fiscal 2002, the Company recorded amortization of
deferred stock compensation in each of the following expense classifications in
the statement of operations:
(IN THOUSANDS)
Cost of revenues $ 207
Research and development 499
Sales and marketing 234
General and administrative 582
----------
Total $ 1,522
==========
NOTE 11. EFFECT OF NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS
(SFAS 141), and GOODWILL AND OTHER INTANGIBLE ASSETS (SFAS 142). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and specifies criteria intangible
assets acquired in a purchase method business combination must meet to be
recognized apart from goodwill. SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
SFAS 142.
The Company adopted SFAS 142 on November 1, 2002. As of October 31, 2002,
unamortized goodwill is $434.6 million, which will no longer be amortized
subsequent to the adoption of SFAS 142. Related goodwill amortization expense
for fiscal 2002, 2001 and 2000 is $16.2 million, $17.0 million and $15.1
million, respectively.
The Company adopted the provisions of SFAS 141 on July 1, 2001. Under SFAS
141, goodwill and intangible assets with indefinite useful lives acquired in a
purchase business combination completed after June 30, 2001, but before SFAS 142
is adopted, will not be amortized but will continue to be evaluated for
impairment in accordance with SFAS 121. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized and tested for impairment in accordance with current accounting
guidance until the date of adoption of SFAS 142.
35
Upon adoption of SFAS 142, the Company must evaluate its existing intangible
assets and goodwill acquired in purchase business combinations prior to July 1,
2001, and make any necessary reclassifications in order to conform with the new
criteria in SFAS 141 for recognition apart from goodwill. Upon adoption of SFAS
142, the Company has assessed useful lives and residual values of all intangible
assets acquired. The Company has also tested goodwill for impairment in
accordance with the provisions of SFAS 142. In completing its impairment
analysis, the Company has determined that it has one reporting unit as the
company operates in one reportable segment. In conjunction with the
implementation of SFAS No. 142, the Company has completed a goodwill impairment
review as of the beginning of fiscal 2003 and found no impairment. This
impairment review was based on the fair value of the Company as determined by
its market capitalization.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS (SFAS 143). SFAS 143
requires that asset retirement obligations that are identifiable upon
acquisition, construction or development and during the operating life of a
long-lived asset be recorded as a liability using the present value of the
estimated cash flows. A corresponding amount would be capitalized as part of the
asset's carrying amount and amortized to expense over the asset's useful life.
The Company is required to adopt the provisions of SFAS 143 effective November
1, 2002. The adoption of SFAS 143 will not have a significant impact on its
financial position and results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (SFAS
144), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and
the accounting and reporting provisions of APB Opinion No. 30, REPORTING THE
RESULTS OF OPERATIONS FOR A DISPOSAL OF A SEGMENT OF A BUSINESS. The Company is
required to adopt the provisions of SFAS 144 no later than November 1, 2002. The
adoption of SFAS 144 will not have a significant impact on the Company's
financial position and results of operations.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 (SFAS 146), ACCOUNTING FOR EXIT OR DISPOSAL ACTIVITIES. SFAS 146
addresses the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including costs related to
terminating a contract that is not a capital lease and termination benefits that
employees who are involuntarily terminated receive under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 supersedes Emerging Issues Task Force
Issue No. 94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS
AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A
RESTRUCTURING) and requires liabilities associated with exit and disposal
activities to be expensed as incurred. SFAS 146 will be effective for exit or
disposal activities of the Company that are initiated after December 31, 2002.
The Company believes that the adoption of SFAS 146 will not have a significant
impact on the Company's financial position and results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS 148), ACCOUNTING FOR STOCK-BASED COMPENSATION -
TRANSITION AND DISCLOSURE. SFAS 148 amends FASB Statement No. 123 (SFAS 123),
ACCOUNTING FOR STOCK-BASED Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS 148
are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The Company is
currently evaluating the impact of adoption of SFAS 148 on its financial
position and results of operations.
36
In November 2002, the EITF reached a consensus on Issue No. 00-21 (EITF
00-21), REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES. EITF 00-21 addresses
certain aspects of the accounting by a vendor for arrangements under which the
vendor will perform multiple revenue generating activities. EITF 00-21 will be
effective for fiscal years beginning after June 15, 2003. The Company does not
expect the adoption of EITF 00-21 to have a material impact on its financial
position and results of operations.
In November 2002, the FASB Interpretation No. 45 (Interpretation 45),
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS, which clarifies disclosure and
recognition/measurement requirements related to certain guarantees. The
disclosure requirements are effective for financial statements issued after
December 15, 2002 and the recognition/measurement requirements are effective on
a prospective basis for guarantees issued or modified after December 31, 2002.
The Company is currently evaluating the impact of adoption of Interpretation 45
on its financial position and results of operations.
NOTE 12. RELATED PARTY TRANSACTIONS
Approximately 8% of fiscal 2002 revenues were derived from a company whose
Chief Financial and Enterprise Officer serves on the Synopsys Board of
Directors. Management believes the transactions between the two parties were
carried out under the Company's normal terms and conditions.
The Company has a joint venture with Davan Tech Co., Ltd, of Korea (Davan
Tech) whereby Davan Tech acts as a non-exclusive distributor for the Company
subject to certain conditions as defined in the distribution agreement. As of
October 31, 2002, the Company owned approximately 10% of Davan Tech and the
investment is accounted for under the cost basis. During the period from June 6,
2002 through October 31, 2002, the Company recognized revenues totaling $1.3
million from Davan Tech.
The Chairman of the Company's Audit Committee is also the Chairman of the
Board of Directors for a company in which Synopsys has invested $500,000. During
the first quarter of fiscal 2003, Synopsys invested an additional $300,000 in
this company.
NOTE 13. SUBSEQUENT EVENTS
RENEWAL OF STOCK REPURCHASE PROGRAM. In December 2002, the Company's Board
of Directors renewed its stock repurchase program originally approved in July
2001. Under the renewed program, the Company may repurchase Synopsys common
stock with a market value up to $500 million (not including amounts purchased to
date under the July 2001 program on the open market). Common shares repurchased
are intended to be used for ongoing stock issuances, such as for existing
employee stock option and stock purchase plans and acquisitions.
PROPOSED ACQUISITION OF NUMERICAL TECHNOLOGIES, INC. On January 13, 2003,
the Company entered into an Agreement and Plan of Merger with Numerical
Technologies, Inc. (Numerical) under which the Company commenced a cash tender
offer to acquire all of the outstanding shares of Numerical common stock at
$7.00 per share, followed by a second-step merger in which the Company would
acquire any untendered Numerical shares at the same price per share. The total
transaction value is expected to be approximately $250 million. Following the
consummation of the cash tender offer, Numerical will merge with and into a
wholly owned subsidiary of the Company. The acquisition is subject to certain
conditions, including the tender of a majority of the fully diluted shares of
Numerical, compliance with regulatory requirements and customary closing
conditions.
WORKFORCE REDUCTION. During the first quarter of fiscal 2003, the Company
implemented a workforce reduction. The purpose was to reduce expenses by
decreasing the number of employees in all departments in domestic and foreign
locations. As a result, the Company expects to record a charge of between $4.8
million and $5.3 million during the first quarter of fiscal 2003. The charge
consists of severance and other special termination benefits.
37
NOTE 14. SELECTED QUARTERLY DATA (UNAUDITED)
QUARTER ENDED
-----------------------------------------------------
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
------------- ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2002:
Revenue $ 175,545 $ 185,638 $ 236,095 $ 309,256
Gross margin 140,355 151,246 188,409 253,365
Income (loss) before income taxes 20,179 30,716 (161,380) (178,455)
Net income (loss) 14,052 21,380 (137,589) (97,836)
Earnings (loss) per share
Basic $ 0.23 $ 0.35 $ (1.93) $ (1.31)
Diluted $ 0.22 $ 0.33 $ (1.93) $ (1.31)
Market stock price range (1):
High $ 59.70 $ 55.21 $ 55.30 $ 47.25
Low $ 49.46 $ 41.71 $ 40.24 $ 32.63
2001:
Revenue $ 157,154 $ 163,524 $176,110 $183,562
Gross margin 125,099 132,568 143,390 149,171
Income before income taxes 13,919 18,368 21,250 29,996
Net income 9,465 12,490 14,450 20,397
Earnings per share
Basic $ 0.15 $ 0.21 $ 0.24 $ 0.34
Diluted $ 0.15 $ 0.19 $ 0.22 $ 0.33
Market stock price range (1):
High $ 55.37 $ 61.87 $ 62.75 $ 54.35
Low $ 34.12 $ 43.12 $ 44.05 $ 37.04
(1) Company's common stock is traded on The Nasdaq Stock Market under
the symbol "SNPS." The stock prices shown represent quotations
among dealers without adjustments for retail markups, markdowns or
commissions and may not represent actual transactions. As of
October 31, 2002, there were approximately 568 shareholders of
record. To date, the Company has paid no cash dividends on its
capital stock, and has no current intention to do so.
38
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Financial Statements
The following documents are included as Part II, Item 8, of this Annual
Report on Form 10-K:
PAGE
Report of Independent Auditors.................................... 2
Consolidated Balance Sheets....................................... 3
Consolidated Statements of Operations............................. 4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income............................................ 5
Consolidated Statements of Cash Flows............................. 9
Notes to Consolidated Financial Statements........................ 10
(2) Financial Statement Schedule
The information required by this item is incorporated by reference
herein from Amendment No. 1 to this Annual Report on Form 10-K.
(3) Exhibits
See Item 15(c) below.
(b) Reports on Form 8-K
None.
(c) Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of December 3, 2001, among
Synopsys, Inc., Maple Forest Acquisition L.L.C., and Avant!
Corporation. (1)
3.1 Fourth Amended and Restated Certificate of Incorporation (2)
3.2 Certificate of Designation of Series A Participating Preferred Stock(3)
3.3 Certificate of Amendment of Fourth Amended and Restated Certificate of
Incorporation (10)
3.4 Restated Bylaws of Synopsys, Inc. (2)
39
4.1 Amended and Restated Preferred Shares Rights Agreement dated
November 24, 1999 (3)
4.3 Specimen Common Stock Certificate (4)
10.1 Form of Indemnification Agreement (4)
10.2 Director's and Officer's Insurance and Company Reimbursement Policy (4)
10.3 Lease Agreement, dated August 17, 1990, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20,
1977 (John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated July
20, 1977 (Richard T. Peery Separate Property Trust), as amended (4)
10.7 Lease Agreement, dated June 16, 1992, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20,
1977 (John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated July
20, 1977 (Richard T. Peery Separate Property Trust), as amended (5)
10.8 Lease Agreement, dated June 23, 1993, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20,
1977 (John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated July
20, 1977 (Richard T. Peery Separate Property Trust), as amended (6)
10.9 Lease Agreement, August 24, 1995, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated
July 20, 1977 (Richard T. Peery Separate Property Trust), as amended(7)
10.10 Amendment No. 6 to Lease, dated July 18, 2001, to Lease Agreement dated
August 17, 1990, between the Company and John Arrillaga, Trustee, or
his successor trustee, UTA dated July 20, 1997 (John Arrillaga
Survivor's Trust), and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended (8)(9)
10.11 Amendment No. 4 to Lease, dated July 18, 2001, to Lease Agreement dated
June 16, 1992, between the Company and John Arrillaga, Trustee, or his
successor trustee, UTA dated July 20, 1997 (John Arrillaga Survivor's
Trust), and Richard T. Peery, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Richard T. Peery Separate Property Trust),
as amended (8)(9)
10.12 Amendment No. 3 to Lease, dated July 18, 2001, to Lease Agreement dated
June 23, 1993, between the Company and John Arrillaga, Trustee, or his
successor trustee, UTA dated July 20, 1997 (John Arrillaga Survivor's
Trust), and Richard T. Peery, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Richard T. Peery Separate Property Trust),
as amended (8)(9)
10.13 Amendment No. 1 to Lease, dated July 18, 2001, to Lease Agreement dated
August 24, 1995, between the Company and John Arrillaga, Trustee, or
his successor trustee, UTA dated July 20, 1997 (John Arrillaga
Survivor's Trust), and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended. (8) (9)
10.14 Lease dated January 2, 1996 between the Company and Tarigo-Paul, a
California Limited Partnership (10)
40
10.15 1992 Stock Option Plan, as amended and restated (11)(12)
10.16 Employee Stock Purchase Program, as amended and restated (11)(13)
10.17 International Employee Stock Purchase Plan, as amended and
restated (11)(13)
10.18 Synopsys deferred compensation plan dated September 30, 1996 (11)(14)
10.19 1994 Non-Employee Directors Stock Option Plan, as amended
and restated(11)(15)
10.20 Form of Executive Employment Agreement dated October 1, 1997 (11)(16)
10.21 Schedule of Executive Employment Agreements (9)(11)
10.22 1998 Nonstatutory Stock Option Plan (11)(17)
10.23 Settlement Agreement and General Release by and among Cadence Design
Systems, Inc., Joseph Costello, Avant! Corporation LLC, Gerald Hsu,
Eric Cheng, Mitsuru Igusa and Synopsys, Inc. effective as of
November 13, 2002 (18)
10.24 Consulting Services Agreement between Synopsys, Inc. and
A. Richard Newton Dated November 1, 2001 (11)(19)
21.1 Subsidiaries of the Company
23.1 Report on Financial Statement Schedule (9)
23.2 Consent of KPMG LLP, Independent Auditors
24.1 Power of Attorney (9)
----------
(1) Incorporated by reference from exhibit to Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 5, 2001.
(2) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended April 3, 1999.
(3) Incorporated by reference from exhibit to Amendment No. 1 to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on December 13, 1999.
(4) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-45138) which became effective February
24, 1992.
(5) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992.
(6) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993.
(7) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
(8) Confidential Treatment requested for certain portions of this document.
(9) Filed as exhibit to Annual Report on Form 10-K for the fiscal year ended
October 31, 2002.
(10) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1996.
(11) Compensatory plan or agreement in which an executive officer or director
participates
(12) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 2001.
41
(13) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 2001.
(14) Incorporated by reference from exhibit to the Registration Statement on
Form S-4 (File No. 333-21129) of Synopsys, Inc. filed with the Securities
and Exchange Commission on February 5, 1997.
(15) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-8 (file No. 333-77597) filed with the Securities and
Exchange Commission on May 3, 1999.
(16) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended January 3, 1998.
(17) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-90643) filed with the Securities and
Exchange Commission on November 9, 1999.
(18) Incorporated by reference exhibit to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 19, 2002.
(19) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 2002.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Mountain View,
State of California, on this 17th day of March, 2003.
SYNOPSYS, INC.
By: /S/ AART J. DE GEUS
-----------------------------------
Aart J. de Geus
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
By: /S/ STEVEN K. SHEVICK
-----------------------------------
Steven K. Shevick
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
By: /S/ RICHARD T. ROWLEY
-----------------------------------
Richard T. Rowley
Vice President, Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/S/ AART J. DE GEUS* Chief Executive Officer March 17, 2003
-------------------------- (Principal Executive
Aart J. de Geus Officer) and Chairman of
the Board of Directors
/S/ CHI-FOON CHAN* President, Chief Operating March 17, 2003
--------------------------
Chi-Foon Chan Officer and Director
/S/ ANDY D. BRYANT* Director March 17, 2003
--------------------------
Andy D. Bryant
/S/ BRUCE R. CHIZEN* Director March 17, 2003
--------------------------
Bruce R. Chizen
/S/ DEBORAH A. COLEMAN* Director March 17, 2003
--------------------------
Deborah A. Coleman
/S/ A. RICHARD NEWTON* Director March 17, 2003
--------------------------
A. Richard Newton
/S/ SASSON SOMEKH* Director March 17, 2003
--------------------------
Sasson Somekh
/S/ STEVEN C. WALSKE* Director March 17, 2003
--------------------------
Steven C. Walske
By: Steven K. Shevick, Attorney-in-Fact
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of December 3, 2001, among
Synopsys, Inc., Maple Forest Acquisition L.L.C., and Avant!
Corporation. (1)
3.1 Fourth Amended and Restated Certificate of Incorporation (2)
3.2 Certificate of Designation of Series A Participating Preferred Stock(3)
3.3 Certificate of Amendment of Fourth Amended and Restated Certificate of
Incorporation (10)
3.4 Restated Bylaws of Synopsys, Inc. (2)
4.1 Amended and Restated Preferred Shares Rights Agreement dated
November 24, 1999 (3)
4.3 Specimen Common Stock Certificate (4)
10.1 Form of Indemnification Agreement (4)
10.2 Director's and Officer's Insurance and Company Reimbursement Policy (4)
10.3 Lease Agreement, dated August 17, 1990, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20,
1977 (John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated July
20, 1977 (Richard T. Peery Separate Property Trust), as amended (4)
10.7 Lease Agreement, dated June 16, 1992, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20,
1977 (John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated July
20, 1977 (Richard T. Peery Separate Property Trust), as amended (5)
10.8 Lease Agreement, dated June 23, 1993, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20,
1977 (John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated July
20, 1977 (Richard T. Peery Separate Property Trust), as amended (6)
10.9 Lease Agreement, August 24, 1995, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust), as amended, and
Richard T. Peery, Trustee, or his successor trustee, UTA dated
July 20, 1977(Richard T. Peery Separate Property Trust), as amended (7)
10.10 Amendment No. 6 to Lease, dated July 18, 2001, to Lease Agreement dated
August 17, 1990, between the Company and John Arrillaga, Trustee, or
his successor trustee, UTA dated July 20, 1997 (John Arrillaga
Survivor's Trust), and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended (8)(9)
10.11 Amendment No. 4 to Lease, dated July 18, 2001, to Lease Agreement dated
June 16, 1992, between the Company and John Arrillaga, Trustee, or his
successor trustee, UTA dated July 20, 1997 (John Arrillaga Survivor's
Trust), and Richard T. Peery, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Richard T. Peery Separate Property Trust),
as amended (8)(9)
10.12 Amendment No. 3 to Lease, dated July 18, 2001, to Lease Agreement dated
June 23, 1993, between the Company and John Arrillaga, Trustee, or his
successor trustee, UTA dated July 20, 1997 (John Arrillaga Survivor's
Trust), and Richard T. Peery, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Richard T. Peery Separate Property Trust),
as amended (8)(9)
10.13 Amendment No. 1 to Lease, dated July 18, 2001, to Lease Agreement dated
August 24, 1995, between the Company and John Arrillaga, Trustee, or
his successor trustee, UTA dated July 20, 1997 (John Arrillaga
Survivor's Trust), and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended. (8) (9)
10.14 Lease dated January 2, 1996 between the Company and Tarigo-Paul, a
California Limited Partnership (10)
10.15 1992 Stock Option Plan, as amended and restated (11)(12)
10.16 Employee Stock Purchase Program, as amended and restated (11)(13)
10.17 International Employee Stock Purchase Plan, as amended and
restated (11)(13)
10.18 Synopsys deferred compensation plan dated September 30, 1996 (11)(14)
10.19 1994 Non-Employee Directors Stock Option Plan, as amended
and restated(11)(15)
10.20 Form of Executive Employment Agreement dated October 1, 1997 (11)(16)
10.21 Schedule of Executive Employment Agreements (9)(11)
10.22 1998 Nonstatutory Stock Option Plan (11)(17)
10.23 Settlement Agreement and General Release by and among Cadence Design
Systems, Inc., Joseph Costello, Avant! Corporation LLC, Gerald Hsu,
Eric Cheng, Mitsuru Igusa and Synopsys, Inc. effective as of
November 13, 2002 (18)
10.24 Consulting Services Agreement between Synopsys, Inc. and
A. Richard Newton Dated November 1, 2001 (11)(19)
21.1 Subsidiaries of the Company
23.1 Report on Financial Statement Schedule (9)
23.2 Consent of KPMG LLP, Independent Auditors
24.1 Power of Attorney (9)
----------
(1) Incorporated by reference from exhibit to Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 5, 2001.
(2) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended April 3, 1999.
(3) Incorporated by reference from exhibit to Amendment No. 1 to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on December 13, 1999.
(4) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-45138) which became effective February
24, 1992.
(5) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992.
(6) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993.
(7) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
(8) Confidential Treatment requested for certain portions of this document.
(9) Filed as exhibit to Annual Report on Form 10-K for the fiscal year ended
October 31, 2002.
(10) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1996.
(11) Compensatory plan or agreement in which an executive officer or director
participates
(12) Incorporated by reference from exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 2001.
(13) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 2001.
(14) Incorporated by reference from exhibit to the Registration Statement on
Form S-4 (File No. 333-21129) of Synopsys, Inc. filed with the Securities
and Exchange Commission on February 5, 1997.
(15) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-8 (file No. 333-77597) filed with the Securities and
Exchange Commission on May 3, 1999.
(16) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended January 3, 1998.
(17) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-90643) filed with the Securities and
Exchange Commission on November 9, 1999.
(18) Incorporated by reference exhibit to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 19, 2002.
(19) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 2002.
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
Synopsys, Inc.:
We consent to the incorporation by reference in registration statements (Nos.
333-75638 and 333-67184) on Form S-4 and (Nos. 333-45056, 333-38810, 333-32130,
333-90643, 333-84279, 333-77597, 333-56170, 333-63216, 333-71056, 333-50947,
333-77000, 333-97317, 333-97319, 333-99651, 333-100155, 333-103418, 333-103635,
and 333-103636) on Form S-8 of Synopsys, Inc. of our reports dated November 20,
2002, except as to Note 13, which is as of January 13, 2003, relating to the
consolidated balance sheets of Synopsys, Inc. and subsidiaries as of October 31,
2002 and 2001 and the related consolidated statements of operations,
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended October 31, 2002, and the related
consolidated financial statement schedule, which reports appear in this annual
report on Form 10-K of Synopsys, Inc.
/s/ KPMG LLP
Mountain View, California
March 17, 2003
CERTIFICATIONS
I, Aart J. de Geus, certify that:
1. I have reviewed this annual report on Form 10-K of Synopsys, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
/s/ AART J. DE GEUS
-----------------------
Aart J. de Geus
Chief Executive Officer
(Principal Executive Officer)
I, Steven K. Shevick, certify that:
1. I have reviewed this annual report on Form 10-K of Synopsys, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
/S/ STEVEN K. SHEVICK
---------------------
Steven K. Shevick
Chief Financial Officer
(Principal Financial Officer)