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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 SEPTEMBER 30, 1999
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)
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DELAWARE 56-1546236
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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700 EAST MIDDLEFIELD ROAD, MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(650) 962-5000
(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. Yes [X] 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 1, 1999, was approximately $1,868,530,386.
On December 1, 1999, approximately 71,379,427 shares of the registrant's
Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Notice of Annual Meeting and Proxy Statement
for the registrant's annual meeting of stockholders to be held on March 3, 2000
are incorporated by reference into Part III hereof.
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This Form 10-K includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These statements include,
but are not limited to, statements concerning: the Company's plans to expand its
consulting services business; the Company's expansion into the market for
physical design tools; the Company's intention regarding expansion of its
offerings of system level design and verification tools; the Company's intention
regarding design reuse tools and techniques; the Company's expectations
regarding research and development, sales and marketing, and general and
administrative expenses; the Company's efforts to enhance its existing products
and develop or acquire new products; and the Company's requirements for working
capital. The Company's actual results could differ materially from those
projected in the forward-looking statements as a result of risks and
uncertainties that include, but are not limited to, those discussed under the
caption "Factors That May Affect Future Results" under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in Part
II, Item 8 hereto, as well as factors discussed elsewhere in this Form 10-K.
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SYNOPSYS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 18
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 29
Item 8. Financial Statements and Supplementary Data................. 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 53
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 53
Item 11. Executive Compensation...................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 53
Item 13. Certain Relationships and Related Transactions.............. 53
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................... 53
SIGNATURES............................................................ 57
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Synopsys, Inc. ("Synopsys" or the "Company") is a leading supplier of
electronic design automation (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 products (such as computers, cell
phones, and internet routers) that use such ICs. The Company also provides
consulting services to help its customers improve their IC design processes and,
where requested, to assist them with their IC designs. The Company's products
and services offer its customers the opportunity to reduce the time to market
for new products and reduce IC development and manufacturing costs by improving
the productivity of their IC designers and enhancing their design quality of
results. Synopsys also provides training and support services for its customers.
Synopsys was incorporated in Delaware in 1987.
THE ROLE OF EDA IN THE ELECTRONICS INDUSTRY
Over the past three decades, technology advances in the semiconductor
industry have dramatically increased the number of transistors that can be
placed on a chip and reduced the cost of manufacturing each chip. A
state-of-the-art IC may have over 20 million transistors on it and may run at 1
gigahertz, a speed that was unheard of even two years ago. Increasingly,
functions that formerly were performed by multiple ICs attached to a printed
circuit board are being combined in a single chip, referred to as a
system-on-a-chip. The increased capacity of ICs has fostered the development of
computers, internet routers, wireless communications networks, hand-held
personal digital assistants, and many other goods and services with tremendous
capabilities at relatively low cost.
In the current economic environment, competition and continuing innovation
have shortened the life cycle of electronic products, so time-to-market is
crucial to the success of a product. The growing complexity of advanced ICs
threaten to lengthen the development cycle for new products, however. EDA
products play a critical role in reducing time-to-market for new products by
providing IC designers with tools and techniques to (a) reduce the time and
manual effort required to design, analyze and verify individual ICs, (b) improve
the performance and density of complex IC designs and (c) enhance the
reliability of the IC design and manufacturing process.
Successfully exploiting the increased potential of ICs presents challenges
for the semiconductor and electronics industries. IC designers face both a
"designer productivity gap" and a "silicon performance gap." The designer
productivity gap occurs because chip capability is increasing faster than the
supply of IC designers with skills required to exploit that capability. EDA
products help increase the productivity of designers by allowing them to
describe their designs using an abstract, or "high level" design language (as
opposed to describing the design at the transistor level), and then
automatically deriving the detailed final design from the higher level
description. EDA products also permit designers to analyze and verify the
performance of the chip using high level design languages. Additionally, as the
electronics industry increasingly produces system-on-a-chip ICs, the EDA
industry is developing tools and techniques for reusing existing IC designs and
integrating disparate IC blocks onto a single chip, both of which offer the
potential for significant time savings in the design cycle.
The silicon performance gap occurs because the design effort required to
develop a chip that fully exploits a new semiconductor technology increases as
the size of the transistors shrink. A gap has developed between the potential
performance enabled by new semiconductor technology and the performance that can
be "designed in" by EDA tools. As ICs have increased in complexity and
transistor sizes have dropped, the problems faced by IC designers have changed.
In particular, ensuring that a chip will run at the desired speed has become
substantially more difficult. At larger transistor sizes, IC designers could use
standard estimates of chip timing during the logic design phase, and be
confident that the timing characteristics would be preserved through the
physical design phase. At smaller chip sizes, these estimates are unreliable. As
a result, Synopsys
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and other EDA companies have introduced a new generation of products that
address the timing problem by incorporating physical design information, with
more accurate timing estimates, into the logic design phase of IC design. Other
physical phenomena that increasingly must be considered earlier in the design
process include power consumption, cross-talk, and metal migration into an IC
design. The EDA industry is also developing products that take these phenomena
into account earlier in the design process. As system-on-a-chip designs become
more prevalent, the development of these types of tools will grow more important
in closing the silicon performance gap.
SYNOPSYS PRODUCT OVERVIEW
Synopsys provides products and services that help customers meet the
challenges of producing leading edge ICs and the products that incorporate them.
Synopsys' design tools include an extensive line of logic synthesis and system
design and analysis software that allow an IC designer to describe chip behavior
in a high-level language, convert that description into a gate-level
representation, and analyze the expected performance of the chip at the
gate-level. Synopsys' design tools also include tools to facilitate testing of
an IC after the IC is built, as well as design reuse products that help reduce
design time by permitting the straight-forward reuse of previously-proven
circuit "blocks." Synopsys also provides semiconductor libraries for IC vendors
and their customers.
Synopsys has recently extended its design tools product line to include
several products targeted at the "back end," or physical design portion of the
IC design process. Synopsys has not previously offered products in this portion
of the EDA market. In fiscal 1999, Synopsys introduced Chip Architect, a design
planning tool -- which incorporates floorplanning, placement, and global
routing, and FlexRoute, a top-level router. Synopsys also commenced extensive
customer testing of Physical Compiler, a product that unifies synthesis,
placement and global routing which was introduced early in fiscal 2000.
Synopsys' verification products are used in several stages of the system
and IC design process to ensure that the resulting IC performs the function that
the IC designer intended. Synopsys' simulation products permit IC designers to
simulate their designs at various levels of abstraction (behavioral, register
transfer, gate-level, and switch logic level) and to explore tradeoffs between
incorporating functionality in hardware or software. Synopsys is also a leading
provider of software and hardware models, which are used to test an IC design
within the context of the system in which the IC will eventually be used. In
addition, Synopsys offers an extensive line of software tools to analyze power,
timing and reliability concerns in an IC design at the transistor level.
Synopsys offers its customers an extensive array of professional services,
which can be tailored to meet their specific needs. These services may include
methodology consulting, aimed at helping a customer improve its design process;
design reuse consulting, which helps a customer modify its inventory of designs
to facilitate their reuse in newer designs; and design assistance, which helps a
customer design, verify or test a discreet portion of a chip or an entire chip.
The Company markets its products on a worldwide basis and offers
comprehensive customer service, education, consulting, and support as integral
components of its product offerings. Products are marketed primarily through its
direct sales force. The Company has licensed its products to many of the world's
leading semiconductor, computer, communications and electronics companies.
STRATEGY
Synopsys' strategy is to develop and offer to its customers an array of
tools and methodologies required to enable design of complex ICs, especially
system-on-a-chip ICs. The Company is seeking to enhance the performance and
broaden the range of its current products, and to increase its ability to
provide consulting services to its customers, while expanding in three principal
directions. First, building from its historical base of strength in high level
design, Synopsys plans to continue its expansion into the market for physical
design tools. Second, Synopsys will seek to expand its offerings of tools for
system level design and verification, a market the Company believes offers the
potential for significant growth over the long term. Third, Synopsys
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intends to continue to develop tools and techniques for promoting design reuse,
which the Company believes will become increasingly important to the successful
design of large system-on-a-chip ICs.
ORGANIZATION AND PRODUCTS
Synopsys is currently organized into two product development groups -- the
Design Tools Group and the High-Level Verification Group -- and a services
group -- the Professional Services Group.
DESIGN TOOLS GROUP
The Design Tools Group (DTG) produces a variety of products that are used
throughout the IC design flow, from initial system-level design to final
transistor level analysis. DTG's offerings include synthesis, design planning,
placement and routing products, plus transistor level analysis and verification
products (as a result of the combination of the former EPIC Technology Group
with DTG during fiscal 1999). As of the end of fiscal 1999, DTG was divided into
five business units.
Physical Synthesis Business Unit
The Physical Synthesis Business Unit is responsible for development of the
Company's new Physical Synthesis initiative. Physical Synthesis unites logic
synthesis, placement and routing and links them together with common timing.
Physical Synthesis incorporates several of the Company's existing products with
a number of new products. When used together, these products provide customers
with an integrated design flow from register transfer level
(RTL)-to-placed-gates, and address the critical timing problems encountered in
designing advanced ICs and systems-on-a-chip.
Logic synthesis is the process by which a high-level description of desired
chip functions is mapped into a connected collection of logic gates and other
circuit elements that performs the desired functions. Design Compiler(TM) is the
market-leading logic synthesis tool and is used by a broad range of companies
engaged in the design of ICs to optimize their designs for performance and area.
Design Compiler was introduced in 1988 and has been updated regularly since
then. In fiscal 1999, Synopsys released Design Compiler(TM) 99 as the latest
generation in the Design Compiler family. Design Compiler 99 features
significant enhancements, including a significant reduction in run time; an
improved links-to-layout methodology for multi-million-gate designs; and
automated chip synthesis, which speeds turnaround times by using parallel
computing. In addition, Synopsys has introduced a new high-end version of Design
Compiler, called Design Compiler Ultra (DC Ultra(TM)), which includes all
features of Design Compiler plus additional capabilities that are focused on
arithmetic-intensive and pipelined designs. In the Company's Physical Synthesis
initiative, Design Compiler will continue to be used for synthesis of
non-timing-critical blocks.
In fiscal 1999, the Physical Synthesis Business Unit released the first two
new products of the Physical Synthesis initiative -- Chip Architect and
FlexRoute(TM). Chip Architect is a hierarchical design planner, which takes into
account physical phenomena and is used at various stages of the system-on-a-chip
design process to perform chip level estimation, floor planning, timing analysis
and placement. FlexRoute is a high-capacity, object-based, top-level router,
which is used to route the longest, most difficult to route connections between
functional blocks on a system-on-a-chip. FlexRoute is "object-based" and permits
true gridless routing, which enables chip designers to address issues such as
cross-talk, delay and signal integrity, while optimizing chip area.
During fiscal 1999, the Company and certain customers extensively tested
Physical Compiler, a product that unifies synthesis and placement and is used
for the design of timing-critical functional blocks on a system-on-a-chip.
Physical Compiler was formally announced in November 1999.
The Physical Synthesis suite of products also includes Module Compiler(TM)
(which is used for synthesizing datapaths). The common timing engine for the
Physical Synthesis initiative comes from the Company's PrimeTime product, which
is described below.
The Physical Synthesis Business Unit also offers other tools to provide
designers with a comprehensive design environment. RTL Analyzer(TM) lets IC
designers analyze and improve their source code before
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synthesis and simulation runs. Power Compiler(TM) allows designers to optimize
their designs for power consumption.
Nanometer Analysis and Test Business Unit
The Nanometer Analysis and Test Business Unit develops a range of products
for gate-level timing analysis and functional verification, design for test, and
transistor-level analysis and verification.
Static Timing Analysis, Formal Verification and Test. Accurate analysis of
timing is critical to ensuring successful chip design. PrimeTime(R) is a
full-chip, gate-level static timing analysis tool that provides
application-specific integrated circuit (ASIC) customers with essential design
verification capabilities. PrimeTime ensures that as a design advances from
synthesis (high-level design) to gate-level implementation, all timing-critical
paths in the chip can be clearly understood and verified.
Formality(R) is a formal verification product that lets IC designers
compare different stages of a design to determine whether they are functionally
equivalent. Thus, assuming that the original design was functionally correct,
Formality permits the designer to detect errors introduced during implementation
of the design. Historically, such errors were detected by simulating the
modified design using patterns validated with the functionally correct design.
This approach is time-consuming. Formality provides an alternative method for
detecting any functional differences without simulating the design, accelerating
the detection of errors. Formality is tightly integrated with PrimeTime and
Design Compiler. When used together as part of Synopsys' verification
methodology, these tools can reduce the number of gate-level simulation runs,
enabling designers to complete their designs faster and with a higher level of
confidence.
Synopsys' 1-Pass Test Synthesis solution, DC Expert Plus(TM), is a
design-for-test product that allows users to add, starting at the RTL level, the
needed scan circuits for efficient, high coverage testing of the chip after
manufacturing. This way, as part of the synthesis process, the test-related
circuits are inserted taking into account all the needed constraints, such as
timing, in one pass. By moving these critical test activities to a much earlier
stage in the design process, we are able to generate these circuits in an easy
and predictable fashion.
TetraMAX(TM) APTG is an automatic test pattern generation solution
optimized for speed, capacity, coverage, vector compaction and ease-of-use. The
TetraMAX APTG product, announced in fiscal 1999, works in concert with Synopsys'
DC Expert Plus.
Synopsys also provides software to help customers design into their ICs
features to facilitate the testing of chips after manufacture. This reduces the
need for the time-consuming and expensive post-fabrication tests to which ICs
are subjected to determine if they are free of manufacturing defects.
Transistor-Level Analysis and Verification. Advanced electronics
products -- most notably in the consumer electronics and wireless communications
markets -- require chips that operate at very high speeds, use very little power
and last for an extended period of time. Designers of the complex ICs used in
these devices rely heavily on analysis and verification tools that operate at
the transistor level. Synopsys offers its customers a complete line of
transistor-level tools -- characterization, simulation, modeling, analysis,
extraction and physical verification -- which enable designers to address
timing, power, and reliability requirements of mixed signal, high performance
and low power ICs.
Transistor-level analysis and verification is important for two principal
reasons. First, speed, power consumption and reliability often require
tradeoffs -- for example, fast chips tend to consume more power and thus produce
more heat (which hurts reliability) than slower chips. It is at the transistor
level that the designer has the last chance to optimize a design for speed,
power and reliability, and the last chance to analyze and correct design flaws
that can result in the failure of a chip to function as intended. Second, as ICs
become more powerful and more complex, the size of the transistors and wires in
those ICs shrink below one quarter micron (250 nanometers) and the total length
of wire connecting the transistors lengthens to as much as one mile. At these
dimensions, ICs exhibit unique electrical effects; having the ability to analyze
these effects is central to the success of an advanced IC design.
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Synopsys' principal transistor-level analysis and verification tools
include:
PathMill(R) provides a detailed critical path analysis and static timing
verification capability. PathMill provides accurate and flexible modeling for
transistor level static timing analysis. PathMill's behavioral-, gate- and
transistor-level models allow accurate analysis at each level of the design
hierarchy, allowing the user to mix top-down design and bottom-up
implementation.
PowerMill(R) simulates block and full chip current and power behavior,
providing fast and accurate current and power analysis, and diagnostics.
PowerMill offers static and dynamic diagnostics to identify design flaws that
cause unnecessary power consumption. After layout, PowerMill helps designers
confirm that power consumption is acceptable before committing the design to
silicon.
Arcadia(R) provides full chip and net-by-net resistance and capacitance
(RC) extraction, permitting designers to focus design analysis effort on
critical paths. Arcadia offers a distributed processing capability that enables
designers to extract and analyze data from very large designs in a short time.
TimeMill(R) is a transistor-level simulator and dynamic timing analyzer. In
the prelayout phase, TimeMill helps designers optimize the performance of
transistor-level blocks, memories and data paths. TimeMill allows designers to
quickly explore changes in voltage levels, temperature or process parameters and
to detect problems such as charge sharing and race conditions.
The Analog Circuit Engine (ACE(TM)) is an analog simulation option
available for TimeMill and PowerMill tools. ACE provides a high-speed, accurate,
mixed analog/digital circuit simulation solution.
The Nanometer Analysis and Test Business Unit also offers the Direct
Silicon Access(TM) silicon characterization services (DSA), which provide
accurate models for nanometer processes to customers. The DSA methodology
correlates expected chip behavior with measurements performed on actual silicon
test circuits, which then provides a reliable source of data for customers to
create accurate technology files for RC extraction and circuit simulation tools.
System Level Design Business Unit
The System-Level Design Business Unit offers three principal products:
COSSAP(R) is a digital signal processing (DSP) design system targeted at
designers of digital communications devices such as third generation wireless
phones. COSSAP can simulate large, complex systems that would be hard to model
with standard cycle-based or event-driven simulators. COSSAP includes a
comprehensive library of DSP and digital communications building blocks.
Behavioral Compiler(TM) is a synthesis tool that enables designers to
create complex circuits from a higher level of abstraction than Design Compiler
does, thus dramatically accelerating the design cycle. Behavioral Compiler
allows designers to quickly create different implementations of a design,
enabling them to spend more time evaluating tradeoffs in areas such as
performance, size, and power consumption before committing to a particular
implementation.
Protocol Compiler(TM) facilitates the design and implementation of protocol
control logic -- a critical aspect of asynchronous transfer mode (ATM),
Synchronous Optical Network (SONET) and Synchronous Digital Hierarchy (SDH)
equipment for networking and telecommunications applications. Protocol Compiler
enables control logic design at the behavioral level, generating output that is
optimized for Synopsys' flagship Design Compiler tool. By taking protocol
control logic design up to the behavioral level, Protocol Compiler greatly
simplifies the process of designing complex chips targeted at networking
applications.
In 1999, Synopsys introduced SystemC, which promotes and accelerates the
exchange of system-level intellectual property (IP) and executable
specifications by providing a common C++ modeling platform. Designers can
create, validate and share models with other companies using SystemC and a
standard ANSI C++ compiler. In addition, EDA vendors have complete access to the
SystemC modeling platform required to build interoperable tools. There are no
licensing fees associated with the use of SystemC, and any company is free to
join and participate. Backed by over 60 charter member companies, the Open
SystemC Initiative
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includes representation from the systems, semiconductor, IP, embedded software
and EDA industries. The steering group includes ARM, CoWare, Inc., Cygnus
Solutions, Ericsson, Fujitsu, Infineon, Lucent Technologies, Sony,
STMicroelectronics, Synopsys and Texas Instruments.
FPGA Business Unit
The FPGA Business Unit provides logic synthesis products for field
programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs).
With the advent of high density chips (.25 micron and below), FPGAs became dense
and fast enough in 1999 to handle a substantial fraction of projects that
previously required mask-programmed ASICs. Furthermore, FPGAs' unique ability to
deliver very quick time-to-market make them attractive in today's business
environment. As a result, programmable logic is currently a small, but
fast-growing part of the semiconductor market. In fiscal 1999, Synopsys
announced new versions of FPGA Express(TM) and FPGA Compiler II(TM). The latter
includes features such as advanced automatic retiming and pipelining to extend
to FPGA designers the unique technologies and experience that Synopsys developed
for ASICs.
Design Reuse Business Unit
As IC designs continue to grow in size, reusing design blocks is becoming a
more important method for reducing overall design cycle time. Enabling design
reuse requires a significant methodology shift from traditional IC design. In
the past, designs were intimately tied to a particular semiconductor process
technology or design methodology, making reuse of design blocks from one chip
design to the next difficult and costly. To address these challenges, the Design
Reuse Business Unit offers an array of products and services.
Synopsys' DesignWare(R) provides IC designers with libraries of
pre-designed, pre-verified Synopsys-synthesizable (i.e., usable by Synopsys'
design tools in optimizing a design), off-the-shelf design modules to
incorporate into their own designs. The DesignWare foundation library includes
more than 100 commonly used functions of low-to medium-scale complexity,
including an 8051 microcontroller block and a PCI 2.1 bus interface block.
DesignWare(R) Developer helps customers package their own low-complexity
functions in such a way that they are integrated into designs in the same way as
DesignWare components.
In fiscal 1999, Synopsys introduced coreBuilder(TM) and coreConsultant(TM),
which ease the packaging and integration of medium-to high-complexity cores.
CoreBuilder is used to package cores, and guides the capture of synthesis data,
designer knowledge, configuration parameters (along with their interactions and
limits), and implementation/verification procedures. CoreConsultant is used to
unpack the cores and uses this information to create an optimal,
technology-mapped netlist, lowering the effort of integrating the cores into
system-on-a-chip designs.
The Design Reuse Business Unit also develops and supports silicon libraries
of logic functions used in developing ICs. The libraries are optimized to the
customer's semiconductor process and Synopsys' tools. The silicon libraries
contain the models that are required by EDA design tools to design an IC.
Synopsys offers a proprietary gate array IC architecture, known as Cell-Based
Array (CBA(TM)). Synopsys has entered into CBA license agreements with many of
the world's leading ASIC vendors and vertically integrated semiconductor
companies. Synopsys has expanded its offering of silicon libraries to include
Odyssey standard cells and memories.
The Design Reuse Business Unit, together with the Synopsys Professional
Services Group (PSG), also offers consulting services around implementation of
the design principles set forth in the Reuse Methodology Manual (RMM). Jointly
authored by Synopsys and Mentor Graphics Corp., the RMM contains detailed
guidelines and best practices for planning, specifying, coding, testing and
documenting reusable design blocks.
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HIGH-LEVEL VERIFICATION GROUP
The High-Level Verification Group provides a range of products that allow
IC designers to determine, at different levels of design and at various stages
of the design process, whether an IC will perform as intended. Verification is
becoming increasingly important in the design process, because as the complexity
of chip design increases, the complexity of verification increases
exponentially. A verification bottleneck has developed, with designers of
complex chips spending half or more of their total design time performing
verification. Synopsys verification products are intended to provide an
integrated solution for customers that is accurate, exhaustive and fast.
Simulation Technology Group
In the simulation process, simulation software "exercises" an IC design by
running it through a series of tests and comparing the actual outputs from the
design with the expected output. The goal of simulation is to make sure that the
functionality and timing performance of the design meet the original
specifications of the chip. The Simulation Tools Group provides designers with
several products for high-level simulation, including VCS(TM) for designs
written in Verilog and VSS(TM) and Cyclone(R) for designs written in VHDL. The
Company is focused on providing the industry's fastest simulation technology and
believes that both VCS and Cyclone are industry leaders in the areas of
performance and capacity. VCS is supported by the all of the major semiconductor
manufacturers. VCS, VSS and Cyclone are optimized for use with Design Compiler
and the Company's other design tools.
VERA Group
The Company estimates that approximately half of the time spent in the
verification phase of IC design is spent designing testbenches, which are the
set of test vectors that are used by simulation tools in verifying that a chip
design functions properly. The VERA Group provides software that helps generate,
manage, and evaluate the data flowing between the simulator and the IC design.
VERA(TM), the principal product of the Group, automates the design of
testbenches, thereby offering the IC designer significant potential reductions
in overall verification time. VERA is integrated with the rest of Synopsys'
simulation, modeling and hardware/software co-verification products.
Large Systems Technology Group
The Large Systems Technology Group provides high-level models and tools to
facilitate the modeling and verification of complex electronic systems. The
Group manages the Company's hardware and software modeling products as well as
its Eagle hardware/software co-design tools.
Synopsys offers a full range of hardware and software modeling solutions.
Synopsys' ModelSource(TM) 3000 series is a family of hardware modeling systems
for ASIC and board level design which provide a flexible means for designers to
model complex devices. ModelSource 3000 systems use the actual integrated
circuit to model its own behavior. Synopsys' SmartModels(R) Libraries offer
models for more than 13,000 commercially available ICs, including a wide range
of microprocessors, controllers, DSPs, FPGAs, CPLDs, peripherals, memories and
standard logic. Synopsys' bus interface models are used to verify that designs
comply with established industry standards. Models are available for most
popular standards. In addition, Synopsys offers modeling technologies to allow
designers to create models of both standard and proprietary devices. These
models support all major EDA simulation environments and a wide range of EDA
platforms, giving designers access to a broad range of models to assist them
with verification of their designs.
Success in the modeling business depends, in part, upon making available a
wide range of models and model types. Synopsys continues to focus its modeling
development efforts on enhancing its ability to quickly and efficiently produce
and distribute new models to meet rising verification needs. Synopsys seeks to
maintain close relationships with leading semiconductor vendors to ensure model
accuracy and the earliest possible availability. Synopsys believes that future
design verification methodologies, including those for system-on-a-chip, will
require the availability of accurate, high performance models of complex
components and intellectual property blocks.
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Synopsys' Eagle Design Automation tools help shorten the development time
of embedded systems through hardware/software (HW/SW) co-development. The term
"embedded systems" describes ICs or PCBs that include a microprocessor or
microcontroller. The use of embedded systems is growing, in part due to the
growth of system-on-a-chip designs, which include logic, memory and at least one
processor on the same chip. An important decision in embedded system design is
the allocation of functions between hardware and software. An estimated 50% of
the overall embedded systems design time is spent in HW/SW design and debug, and
prototype debug. As a result, hardware and software development for embedded
systems are becoming more interdependent, and given the costs of design cycle
iterations, there are advantages to consider hardware and software interaction
earlier in the design cycle. By helping IC designers consider this interaction
early in the design cycle, the Synopsys' Eaglei(R)(TM) product, which is used
for full system integration testing, and the Synopsys EagleV(TM) product, which
is used for verification of embedded processors within an ASIC, can help reduce
the overall cost of embedded system designs.
PROFESSIONAL SERVICES GROUP
The Professional Services Group (PSG) provides a combination of flow and
methodology services, design assistance and design services aimed at solving our
customers' toughest design problems.
Our consultants offer targeted expertise to help define and implement
optimized design environments and to support engineering teams with complete
system-on-a-chip flows. Design assistance services accelerate the adoption and
acceptance of new tools and methodologies enabling customers to acquire the
knowledge and experience to tackle future challenges with increased confidence.
As needed, Synopsys consultants will also take on the responsibility for
designing and verifying parts or all aspects of a customer's design.
CUSTOMER SERVICE AND SUPPORT
Synopsys devotes substantial resources to providing customers with
technical support, customer education, and consulting services. The Company
believes that a high level of customer service and support is critical to the
adoption and successful utilization of high-level design automation methodology.
As a result of increased product sales during fiscal 1999, service revenue as a
percentage of total revenue decreased to 37% in such period from 40% in fiscal
1998.
TECHNICAL SUPPORT
Technical support for the Company's products is provided through both
field- and corporate-based technical application engineering groups. Synopsys
provides customers with software updates and a formal problem identification and
resolution process through the Synopsys Technical Support Center. Synopsys'
central entry point of all customer inquiries is SolvNET(R), a direct-access
service available worldwide, 24 hours per day, through electronic mail and the
World Wide Web that lets customers quickly seek answers to design questions or
more insight into design problems. SolvNET combines Synopsys' complete design
knowledge database with sophisticated information retrieval technology. Updated
daily, it includes documentation, design tips, and answers to user questions.
CUSTOMER EDUCATION SERVICES
Synopsys offers a number of workshops focused on high-level design
languages, high-level design, simulation, synthesis, physical design, system
design and test. Regularly scheduled workshops are offered in Mountain View,
California; Austin, Texas; Burlington, Massachusetts; Reading, England; Rungis,
France; Munich, Germany; Tokyo and Osaka, Japan; and Seoul, Korea. On-site
workshops are available on a worldwide basis at customers' facilities or in
their locales. Over 14,000 design engineers attended Synopsys workshops during
fiscal 1999.
PRODUCT WARRANTIES
Synopsys generally warrants its products to be free from defects in media
and to substantially conform to material specifications for a period of 90 days.
Synopsys has not experienced significant returns to date.
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<PAGE> 12
SUPPORT FOR INDUSTRY STANDARDS
Synopsys actively supports standards that it believes will help its
customers increase productivity and solve design problems, including key
interfaces and modeling languages that promote system-on-a-chip design and
facilitate interoperability of tools from different vendors. Standards in the
EDA industry can be obtained through formal accredited committees, by licensing
made available to all, or through community licensing.
Synopsys' products support many formal standards, including the two most
commonly used hardware description languages, VHDL and Verilog HDL, and industry
standard data formats for the exchange of data between Synopsys' tools and other
EDA products.
Synopsys is a board member and/or participant in the major EDA standards
organizations: Virtual Socket Interface Alliance (VSIA), an industry group
formed to promote standards that facilitate the integration and reuse of
functional blocks of intellectual property; Open Verilog International (OVI),
which promotes the Verilog language; VHDL International (VI), which promotes the
VHDL language; the EDIF steering committee of the Electronics Industry
Association (EIA), which evolves the Electronic Design Interchange Format
(EDIF); the interoperability committee of the EDA Consortium, which helps
promotes interoperability among EDA products from different vendors; Virtual
Component Exchange (VCX), which is investigating methods for facilitating the
exchange of intellectual property (IP) blocks; and Reusable Application-specific
Intellectual Property Developers (RAPID), which promotes the acceptance and
usage of IP throughout the electronics industry.
To enhance EDA industry interoperability, Synopsys launched the TAP-In
program in 1998 to provide open access for all companies to selected interfaces
for Synopsys tools. Synopsys has licensed its text-based synthesis library
format, Liberty, as well as its design constraints format, SDC, to the majority
of the EDA industry, including the Company's competitors, on reasonable terms.
In 1999, Synopsys licensed its VERA API (application programming interface) and
VERA HVL (High-level Verification Language) for test bench verification. Also,
Synopsys licensed its OpenESPF format for representing physical data necessary
for reliability verification.
In 1999, Synopsys introduced SystemC through its TAP-in program. SystemC is
discussed above under "Design Tools Group -- System Level Design Business Unit."
Synopsys' products are written mainly in the C and C++ languages and
utilize industry standards for graphical user interfaces. Synopsys' software
runs principally under the UNIX operating system, with some products running
under Windows NT and Linux. Synopsys' products are offered on the most widely
used workstation platforms, including those from Sun Microsystems,
Hewlett-Packard, IBM, and Compaq (formerly Digital Equipment Corporation).
SALES, DISTRIBUTION AND BACKLOG
Synopsys markets its products and services primarily through its direct
sales and service force in over 30 offices in the United States and principal
international markets. Synopsys employs highly skilled engineers and technically
proficient sales persons capable of serving the sophisticated needs of the
customers' engineering and management staffs.
For fiscal years 1999, 1998 and 1997, international sales represented 34%,
39% and 41%, respectively, of Synopsys' total revenue. Additional information
relating to domestic and foreign operations is contained in Note 7 of Notes to
Synopsys' Consolidated Financial Statements.
The Company has 23 sales/support centers throughout the United States, in
addition to its Mountain View, California headquarters. Internationally, the
Company has sales/support offices in Canada, Finland, France, Germany, Hong
Kong, India, Israel, Italy, Japan, Korea, the People's Republic of China,
Singapore, Sweden, Taiwan and the United Kingdom, including regional
headquarters offices in Germany, Japan, Singapore and Ireland. On a limited
basis, the Company also utilizes manufacturer's representatives and
distributors. The Company has established such relationships in Australia,
Brazil, India, Korea, Malaysia, Taiwan and China.
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<PAGE> 13
Synopsys' backlog on December 1, 1999 was approximately $276.0 million,
compared to approximately $241.1 million on November 1, 1998.
Backlog consists of orders for system and software products sold under
perpetual and time-based licenses with customer requested ship dates within
three months but which have not been shipped, orders for customer training and
consulting services which are expected to be completed within one year, and
subscription services, maintenance and support with contract periods extending
up to fifteen months.
The Company has not historically experienced significant cancellations of
orders. Customers frequently reschedule or revise the requested ship dates of
orders however, which can have the effect of deferring recognition of revenue
for these orders beyond the expected time period.
RESEARCH AND DEVELOPMENT
The Company believes that its future performance will depend in large part
on its ability to maintain and enhance its current product lines, develop new
products, maintain technological competitiveness, and meet an expanding range of
customer requirements. In addition to product development teams, the Company
maintains an advanced research group that is responsible for exploring new
directions and applications of its core technologies, migrating new technologies
into the existing product lines, and maintaining strong research relationships
outside the Company within both industry and academia.
During fiscal years 1999, 1998 and 1997, research and development expenses,
net of capitalized software development costs, were $167.1 million, $156.7
million and $146.8 million, respectively. Synopsys capitalized software
development costs of approximately $1.0 million, $2.1 million and $4.2 in fiscal
1999, 1998 and 1997, respectively. The Company anticipates that it will continue
to commit substantial resources to research and development in the future.
MANUFACTURING
Synopsys' manufacturing operations consist of assembling, testing,
packaging and shipping its system and software products and documentation needed
to fulfill each order. Manufacturing is currently performed in Synopsys'
Mountain View, California and Beaverton, Oregon facilities. Outside vendors
provide tape and CD-ROM duplication, printing of documentation and manufacturing
of packaging materials. Synopsys employees manufacture and test the hardware
modeling system products, with some sub-assembly performed by outside vendors.
Synopsys typically ships its software products, with either a permanent or
temporary access key, within 10 days of acceptance of customer purchase orders
and execution of software license agreements, unless the customer has requested
otherwise. For its hardware modeling products, Synopsys buys components and
assemblies in anticipation of orders and configures units to match orders,
typically shipping within one to ten weeks of order acceptance, unless the
customer has requested otherwise.
COMPETITION
The EDA industry is highly competitive. We compete against other EDA
vendors, and with customers' internally developed design tools and internal
design capabilities, for a share of the overall EDA budgets of our potential
customers. In general, competition is based on product quality and features,
post-sale support, price and, as discussed below, the ability to offer a
complete design flow. Our competitors include companies that offer a broad range
of products and services, such as Cadence Design Systems, Inc. (Cadence), Mentor
and Avant! Corporation (Avant!), as well as companies, including numerous
start-up companies, that offer products focused on a discrete phase of the
integrated circuit design process. Synopsys' competitors continue to offer
aggressive discounts on their products, in particular on synthesis and Verilog
simulation products. If this behavior continues, average prices for our products
may fall. In order to compete successfully, we must continue to enhance our
products and bring to market new products that address the needs of our
customers. We also will have to expand our consulting services business. The
failure to enhance existing products, develop and/or acquire new products or
expand our ability to offer consulting services could have a material adverse
effect on our business, financial condition and results of operations.
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<PAGE> 14
Technology advances and customer requirements are fueling a change in the
nature of competition among EDA vendors. Increasingly, EDA companies compete on
the basis of "design flows" involving integrated logic and physical design tools
rather than on the basis of individual "point" tools performing a discrete phase
of the design process. The need to offer products linking logic and physical
design will become increasingly important, as IC complexity is increasing, chip
production moves increasingly to 0.18 micron and below, and system-on-a-chip
designs become more prevalent. We offer a wide range of logic design tools but
have only recently introduced our first physical design tools. We are working on
completing our design flow, although for the foreseeable future will not be able
to offer such a flow to customers. The market for physical design tools is
dominated by Cadence and Avant! Both companies have acquired logic synthesis
technology and are offering products linking synthesis to their physical design
products. If we are unsuccessful in developing a complete design flow on a
timely basis or in convincing customers to adopt our physical design products
and methodology, our competitive position could be significantly weakened.
PRODUCT SALES AND LICENSING AGREEMENTS
Synopsys typically licenses its software to customers under non-exclusive
license agreements that transfer title to the media only and that restrict use
of the software to internal purposes within specified areas. The Company
currently licenses the majority of its software as a network license that allows
a number of individual users to access the software on a defined network. During
fiscal 1999, Synopsys offered software under a perpetual license or a license
with a term of one to three years. In the fourth quarter of fiscal 1999,
Synopsys announced a new program, under which software will be offered either
under a perpetual license or under term licenses of one, three or five years.
License fees are dependent on the type of license, product mix and number of
copies of each product required. Synopsys offers its hardware modeler products
for sale or lease.
PROPRIETARY RIGHTS
The Company primarily relies upon a combination of copyright, patent,
trademark and trade secret laws and license and nondisclosure agreements to
establish and protect proprietary rights in its products. The source code for
Synopsys' products is protected both as a trade secret and as an unpublished
copyrighted work. However, it may be possible for third parties to develop
similar technology independently, provided they have not violated any
contractual agreements or intellectual property laws. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries. The Company currently holds U.S. and foreign patents on some
of the technologies included in its products and will continue to pursue
additional patents in the future.
Although the Company believes that its products, trademarks and other
proprietary rights do not infringe on the proprietary rights of third parties,
there can be no assurance that infringement claims will not be asserted against
the Company in the future or that any such claims will not require the Company
to enter into royalty arrangements or result in costly and time-consuming
litigation.
EMPLOYEES
As of September 30, 1999, Synopsys had a total of 3,156 employees, of whom
2,421 were based in the United States and 735 were based internationally.
Synopsys' future financial results depend, in part, upon the continued service
of its key technical and senior management personnel and its continuing ability
to attract and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense. Experience at Synopsys is highly
valued in the EDA industry, and the Company's employees are recruited
aggressively by competitors and by start-up companies, including those in
internet-related businesses. The Company's salaries are competitive in the
market, but under certain circumstances, start-up companies can offer more
attractive stock option packages. As a result, the Company has experienced, and
may continue to experience, significant employee turnover. There can be no
assurance that Synopsys can retain its key managerial and technical employees or
that it can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. None of Synopsys' employees is represented
by a labor union. Synopsys has not experienced any work stoppages and considers
its relations with its employees to be good.
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<PAGE> 15
ITEM 2. PROPERTIES
Synopsys' principal offices are located in four adjacent buildings in
Mountain View, California, which together provide approximately 400,000 square
feet of available space. This space is leased through February 2003. Within one
half mile of these buildings, in Sunnyvale, California, Synopsys occupies
approximately 200,000 square feet of space in two adjacent buildings, which is
under lease through 2007, and approximately 85,000 square feet of space in a
third building, which is under lease until April 2007.
To help meet its future expansion needs, Synopsys has acquired seven acres
between its Sunnyvale and Mountain View campuses, thirty-four acres of
undeveloped land in San Jose, California and forty-four acres of undeveloped
land in Hillsborough, Oregon. The Company currently plans to develop a building
on the seven-acre site, for occupancy in February 2001.
The Company leases approximately 93,000 square feet of space in Beaverton,
Oregon for administrative, marketing, research and development and support
activities. This facility is leased through March 2002.
In addition, the Company leases approximately 82,000 square feet of space
in Marlboro, Massachusetts for sales and support, research and development and
customer education activities. This facility is leased through March 2009.
The Company currently leases 23 other domestic sales offices throughout the
United States, as well as three remote locations. Synopsys currently leases
international sales and service offices in Canada, Finland, France, Germany,
Hong Kong, India, Israel, Italy, Japan, Korea, the People's Republic of China,
Singapore, Sweden, Taiwan, and the United Kingdom. The Company also leases an
administrative and research and development facility in Ireland and a research
and development facility in India.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages, as December 1, 1999,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Aart J. de Geus...................... 45 Chief Executive Officer and Chairman of the Board of
Directors
Chi-Foon Chan........................ 50 President, Chief Operating Officer and Director
Vicki L. Andrews..................... 44 Senior Vice President, Worldwide Sales
David P. Burow....................... 47 Senior Vice President, High Level Verification Group
Raul Camposano....................... 44 Senior Vice President, Design Tools Group and Chief
Technical Officer
Deirdre Hanford...................... 37 Senior Vice President, Business & Market Development
Ernst W. Hirt........................ 59 Senior Vice President, Human Resources and Facilities
Edward C. Ross....................... 57 Senior Vice President, Professional Services Group
Steven K. Shevick.................... 43 Vice President, Investor Relations and Legal and
Corporate Secretary
David Sugishita...................... 51 Senior Vice President, Finance and Operations, Chief
Financial Officer and Treasurer
Jack J. Warecki...................... 48 Senior Vice President, Worldwide Application Services
</TABLE>
Dr. Aart J. de Geus co-founded Synopsys and currently serves as Chief
Executive Officer and Chairman of the Board of Directors. Since the inception of
Synopsys in December 1986 he has held a variety of positions
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<PAGE> 16
including Senior Vice President of Engineering and Senior Vice President of
Marketing. From 1986 to 1992 Dr. de Geus served as Chairman of the Board. He
served as President from 1992 to 1998. Dr. de Geus has served as Chief Executive
Officer since January 1994 and has held the additional title of Chairman of the
Board since February 1998. He has served as a Director since 1986. From 1982 to
1986, Dr. de Geus was employed by General Electric Corporation, where he was the
Manager of the Advanced Computer-Aided Engineering Group. Dr. de Geus holds an
M.S.E.E. from the Swiss Federal Institute of Technology in Lausanne, Switzerland
and a Ph.D. in electrical engineering from Southern Methodist University.
Dr. Chi-Foon Chan joined Synopsys as Vice President of Application
Engineering & Services in May 1990. Since April 1997 he has served as Chief
Operating Officer and since February 1998 he has held the additional title of
President. Dr. Chan also became a Director of the Company in February 1998. From
September 1996 to February 1998 he served as Executive Vice President, Office of
the President. From February 1994 until April 1997 he served as Senior Vice
President, Design Tools Group and from October 1996 until April 1997 as Acting
Senior Vice President, Design Reuse Group. Additionally, he has held the titles
of Vice President, Engineering and General Manager, DesignWare Operations and
Sr. Vice President, Worldwide Field Organization. From March 1987 to May 1990,
Dr. Chan was employed by NEC Electronics, where his last position was General
Manager, Microprocessor Division. From 1977 to 1987, Dr. Chan held a number of
senior engineering positions at Intel Corporation. Dr. Chan holds an M.S. and
Ph.D. in computer engineering from Case Western Reserve University.
Vicki L. Andrews joined Synopsys in May 1993 and currently serves as Senior
Vice President, Worldwide Sales. Before holding that position, she served in a
number of senior sales roles at Synopsys, including Vice President, Global and
Strategic Sales, Vice President, North America Sales and Director, Western
United States Sales. She has more than 18 years of experience in the EDA
industry. Ms. Andrews holds a B.S. in biology and chemistry from the University
of Miami.
David P. Burow joined Synopsys in connection with the Company's merger with
Viewlogic Systems, Inc. (Viewlogic) in December 1997 and currently serves as
Senior Vice President, High Level Verification Group. He served as Sr. Vice
President, Simulation Tools Group from December 1997 to August 1998. Mr. Burow
had served as Vice President of Viewlogic's ASIC Group since October 1996. He
joined Viewlogic in August 1995 as Vice President of the High Level Design Group
after serving in a number of key management positions from October 1991 through
August 1995 at Silicon Architects, which was acquired by Synopsys in May 1995.
Preceding Silicon Architects, Mr. Burow held other management positions within
the EDA and semiconductor industries, including President of CrossCheck, a test
company; General Manager of the Analog division at Dazix; and President of
Simucad, Inc., a simulation company. Mr. Burow holds a B.S. in engineering from
Purdue University and an M.B.A. from the University of Chicago.
Dr. Raul Camposano joined Synopsys in January 1994 and currently serves as
Senior Vice President, General Manager of the Design Tools Group and Chief
Technical Officer. From January 1997 to December 1997 he served as Senior Vice
President and General Manager, Design Tools Group. From May 1996 until January
1997 he served as Vice President, Engineering, Design Tools Group. From January
1996 until May 1996 he served as General Manager and Senior Director, Design
Planning Group, and from January 1994 until January 1996 as Director of
Engineering, Design Environment Group. Prior to joining Synopsys, Dr. Camposano
concurrently served as the Design Technology Director for the German National
Research Center for Computer Science and as Professor of Computer Science at the
University of Paderborn, Germany. Between 1986 and 1991, Dr. Camposano led the
project on high-level synthesis at the IBM T.J. Watson Research Center. Active
in the EDA professional community, he also serves on various technical program
committees and editorial boards worldwide and has published over 70 articles and
three books on electronic design automation. Dr. Camposano holds a B.S.E.E. from
the University of Chile, and a Ph.D. in computer science from the University of
Karlsruhe.
Deirdre Hanford joined Synopsys in 1987 and currently serves as Senior Vice
President, Business and Market Development. During her 12 years with Synopsys,
Ms. Hanford has held a variety of senior technical and management positions,
including Vice President of Professional Services Sales Development, Vice
President of Applications Engineering, Design Tools Group, Director of Strategic
Relationships and Director
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<PAGE> 17
of Corporate Applications Engineering. She holds a B.S.E.E. from Brown
University and an M.S.E.E. from U.C. Berkeley.
Ernst W. Hirt joined Synopsys in November 1997 and serves as Senior Vice
President, Human Resources and Facilities. Mr. Hirt was Vice President of Human
Resources at VLSI Technology, Inc. from March 1984 until he joined Synopsys. He
has also worked in high level Human Resources positions at Intel, Siemens,
Honeywell and General Electric. Mr. Hirt holds a Masters Degree in Economics
from the University of Cincinnati.
Dr. Edward C. Ross joined Synopsys in July 1998 as Senior Vice President
and General Manager of the Professional Services Group. Prior to joining
Synopsys, Dr. Ross served as President of Technology and Manufacturing at Cirrus
Logic since 1995, and President and Chief Executive Officer of Power
Integrations, Inc. from 1989 to 1995. Dr. Ross holds a B.S. in electrical
engineering from Drexel University and an M.S., M.A., and Ph.D., also in
electrical engineering, from Princeton University.
Steven K. Shevick joined Synopsys in July 1995 and currently serves as Vice
President, Legal and Investor Relations, General Counsel and Corporate
Secretary. From July 1995 to March 1998 he served as Deputy General Counsel and
Assistant Corporate Secretary. In March 1998 he was appointed Vice President,
Legal and General Counsel. In October 1999, Mr. Shevick gained the additional
title of Vice President of Investor Relations and was appointed Corporate
Secretary. Prior to joining Synopsys, Mr. Shevick was a lawyer in the New York,
Hong Kong and Washington, D.C. offices of Cleary, Gottlieb, Steen & Hamilton,
where his practice focused on international securities transactions, mergers and
acquisitions and technology licensing. Mr. Shevick has an A.B. from Harvard
College and a J.D. from Georgetown University Law Center.
David Sugishita joined Synopsys in June 1997 and currently serves as Senior
Vice President, Finance and Operations and Chief Financial Officer. From 1995 to
1997 he served as Senior Vice President of Finance and Administration and Chief
Financial Officer for Actel, and from 1994 to 1995 Mr. Sugishita was Senior Vice
President of Finance and Administration, Chief Financial Officer and Treasurer
for Micro Component Technology. From 1991 to 1994, he was Vice President and
Corporate Controller and Chief Accounting Officer for Applied Materials. From
1982 to 1991 he served as Vice President of Finance, Semiconductor Group for
National Semiconductor. He holds a B.S. in finance from San Jose State
University and an M.B.A. from Santa Clara University. Mr. Sugishita currently
serves as a Director for Micro Component Technology, as well as being active in
the community by serving on two school boards.
Jack J. Warecki joined Synopsys in December 1993 and currently serves as
Senior Vice President of Worldwide Application Services. Prior to that, he held
various management positions at Synopsys overseeing Application Services for
North America. Before joining Synopsys, he spent thirteen years in a number of
technical and project lead roles at TRW, Inc., an automotive, space, defense and
information systems company. Mr. Warecki holds a B.S. and M.S. in mathematics
from the Ohio State University. He also serves on the Electrical Engineering
Advisory Board for San Jose State University.
There are no family relationships among any executive officers of the
Company.
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<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth on page 52 of the
Synopsys 1999 Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED SEPTEMBER 30,(1)
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share
data)
Revenue............................ $ 806,098 $717,940 $646,956 $525,599 $410,644
Income before income taxes and
extraordinary items(2)........... 251,411 116,861 132,793 40,228 59,126
Extraordinary items, net of income
tax expense...................... -- 28,404 -- -- --
Provision for income taxes......... 90,049 55,819 51,043 23,426 22,771
Net income......................... 161,362 89,446 81,750 16,802 36,355
Earnings per share
Basic............................ 2.30 1.34 1.30 0.28 0.64
Diluted.......................... 2.20 1.29 1.24 0.27 0.59
Working capital.................... 627,207 504,759 336,675 238,942 221,425
Total assets....................... 1,173,918 951,633 769,499 584,853 446,443
Long-term debt..................... 11,642 13,138 9,191 15,974 63
Stockholders' equity............... 865,596 664,941 502,445 350,547 287,362
</TABLE>
- ---------------
(1) Amounts and per share data for periods presented have been retroactively
restated to reflect the merger of Everest Design Automation, Inc. (Everest)
in a pooling-of-interests transaction effective November 21, 1998.
(2) Includes charges of $21.2 million, $33.1 million, $5.5 million, $64.5
million, $12.5 million for the years ended September 30, 1999, 1998, 1997,
1996 and 1995, respectively, for in-process research and development.
Includes merger-related and other costs of $51.0 million and $11.4 million
for the years ended September 30, 1998 and 1997, respectively.
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<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. For example,
statements including terms such as "projects," "expects," "believes,"
"anticipates" or "targets" are forward-looking statements. Actual results could
differ materially from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth under "Factors That May
Affect Future Results."
RESULTS OF OPERATIONS
Disposition of Viewlogic PCB/Systems Business -- effect on comparative
financial information. The Company merged with Viewlogic in December 1997 in a
transaction accounted for as a pooling-of interests. On October 2, 1998, the
Company sold the printed circuit board and electronics systems business
(PCB/Systems business) of Viewlogic. In the discussion below, financial
information for fiscal 1999 excludes the PCB/Systems business, while financial
information for fiscal 1998 includes the results of the PCB/Systems business.
Therefore, the comparative measures included in the discussion, in particular
with respect to absolute dollar amounts of revenue or expenditure, are not
necessarily valid with respect to the Company's business as it is presently
conducted. A pro forma unaudited consolidated statement of income, excluding the
results of the PCB/Systems business and certain unusual charges, was filed with
the Securities and Exchange Commission (SEC) on Form 8-K on January 25, 1999.
Revenue. Revenue consists of fees for licenses and subscriptions of the
Company's software products, sales of system products, maintenance and support,
customer training, and consulting. The Company's revenue increased by 12% to
$806.1 million in fiscal 1999 from $717.9 million in fiscal 1998 and by 11% from
$647.0 million in fiscal 1997 compared to fiscal 1998. The percentage of the
Company's total revenue attributable to software and system products increased
to 63% in fiscal 1999 from 60% in fiscal 1998 and remained flat in fiscal 1998
compared with fiscal 1997.
Product revenue increased by 17% to $505.8 million in fiscal 1999 from
$431.0 million in fiscal 1998 and by 6% from $408.3 million in fiscal 1997
compared to fiscal 1998. For each of the years, these increases were primarily
due to increased worldwide licensing and sales of the Company's EDA software
products such as synthesis, verification and system level design software
products. Service revenue increased by 5% to $300.3 million in fiscal 1999 from
$287.0 million in fiscal 1998 and by 20% from $238.7 million in fiscal 1997
compared to fiscal 1998. For each of the years, these increases were primarily
attributable to the renewal of maintenance and support contracts for EDA
products and growth in customer training and consulting services.
Revenue from international operations was $275.2 million, $279.8 million
and $262.2 million, or 34%, 39% and 41% of total revenue in fiscal 1999, 1998
and 1997, respectively. The decrease in international revenue as a percentage of
total revenue in fiscal 1999 compared to fiscal 1998 was due primarily to
increased demand for the Company's products and services in the U.S. and
unchanged demand in Japan. The decrease in international revenue as a percentage
of total revenue in fiscal 1998 compared to fiscal 1997 was due primarily to
decreased revenue in Asia/Pacific and Japan as a result of the economic turmoil
in many Asia/Pacific markets. This decrease was partially offset by growth in
European revenue in fiscal 1998.
Cost of Revenue. Cost of product revenue includes cost of production
personnel, product packaging, documentation, amortization of capitalized
software development costs and purchased technology, and costs of the Company's
system products. The cost of internally developed capitalized software is
amortized based on the greater of the ratio of current product revenue to the
total of current and anticipated product revenue or the straight-line method
over the software's estimated economic life of approximately two years. Cost of
product revenue remained relatively flat at 5% of total revenue in fiscal 1999
compared to 5% of total revenue in fiscal 1998 and 6% of total revenue in fiscal
1997. The reduction from fiscal 1998 to fiscal 1997 was due to the Company
realizing efficiencies in its software distribution infrastructure. Cost of
service revenue includes personnel and the related costs associated with
providing training and consulting services. Cost of service revenue as a
percentage of total revenue was 9% in fiscal 1999 and 8% of total revenue in
both fiscal 1998 and 1997. The increase in cost of service from fiscal 1998 was
due to the continued investment in the Company's infrastructure required to
expand its training and consulting practice.
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<PAGE> 20
Research and Development. Research and development expenses increased by 7%
to $167.1 million in fiscal 1999 from $156.7 million in fiscal 1998 and by 7%
from $146.8 million in fiscal 1997 compared to fiscal 1998, net of capitalized
software development costs. Research and development expenses represented 21%,
22% and 23% of total revenue in fiscal 1999, 1998 and 1997, respectively. The
increase in absolute dollars reflects the Company's ongoing research and
development efforts in a wide variety of areas such as tools for the design of
systems-on-a-chip and physical design tools. A significant portion of the
increase for each fiscal year was due to the addition of personnel and personnel
related costs, partly through acquisitions, for enhancement of existing
applications and development of next generation products. Also, fiscal 1998
included an additional week of operations, which was partially offset by
synergies realized from the integration of Viewlogic into Synopsys' operations.
The Company anticipates that it will continue to commit substantial resources to
research and development in the future, provided that it is able to continue to
hire and retain a sufficient number of qualified personnel. If the Company
believes that it is unable to enter a particular market in a timely manner, it
may license technology from other businesses or acquire other businesses as an
alternative to internal research and development. For fiscal 2000, the Company
expects that research and development expenses as a percentage of total revenue
will be at or slightly below the fiscal 1999 level.
Sales and Marketing. Sales and marketing expenses decreased by 2% to $241.6
million in fiscal 1999 from $245.4 million in fiscal 1998 and increased by 2%
from $240.6 million in fiscal 1997 compared to fiscal 1998. Sales and marketing
expenses represented 30%, 34% and 37% of total revenue in fiscal 1999, 1998 and
1997, respectively. Total expenses decreased in absolute dollars and as a
percentage of revenue in fiscal 1999 primarily as a result of the divesture of
the PCB/Systems business, as well as savings resulting from ongoing integration
of Viewlogic's other operations into the Company as a whole. These reductions
were partially offset by increased spending in marketing and advertising costs,
trade shows and travel-related costs. The fiscal 1998 increase over fiscal 1997
primarily resulted from the addition of personnel and personnel-related costs
due to the continued growth of the Company's worldwide sales and marketing
organizations and an increase in professional services. Fiscal 1998 also
included an additional week of operations. The Company expects that for fiscal
2000, sales and marketing expenses as a percentage of total revenue will be at
or slightly below the fiscal 1999 level.
General and Administrative. General and administrative expenses remained
relatively constant at $47.1 million in fiscal 1999 compared to $47.2 million in
fiscal 1998. General and administrative expense decreased slightly from $47.3
million in fiscal 1997 compared to fiscal 1998. As a percentage of total
revenue, general and administrative expenses were 6%, 7% and 7% in fiscal 1999,
1998 and 1997, respectively. In fiscal 1998, general and administrative expenses
included an additional week of operations; however, the associated expense
increases were offset by synergies realized from the integration of Viewlogic
into Synopsys' operations. The Company expects that for fiscal 2000, general and
administrative expenses as a percentage of total revenue will be at or slightly
below the fiscal 1999 level.
Amortization of Intangible Assets. Amortization of intangible assets
represents the excess of the aggregate purchase price over the fair value of the
tangible and intangible assets acquired by the Company and, is being amortized
over the estimated useful life of four to five years. The Company assesses the
recoverability of intangible assets by determining whether the amortized asset
over its useful life may be recovered through estimated useful cash flows. A
review of the intangible assets has been completed and it has been determined
that the values are properly stated and no adjustments are required.
Amortization of intangible assets charged to operations fiscal 1999 was $7.9
million and was not material for fiscal 1998 or 1997.
Merger-Related and Other Costs. As a result of various business
combinations accounted for as pooling-of-interests in fiscal 1998 and 1997, the
Company incurred merger-related and other costs of $51.0 million and $11.4
million, respectively. These expenses related to transaction costs, employee
termination and transition costs, legal costs, write-off of equipment and other
assets, and redundant facility and other costs. As of September 30, 1999, there
was a balance of $0.4 million remaining in accrued liabilities which was
utilized for final settlement expenditures in October 1999.
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<PAGE> 21
In-process Research and Development. The following paragraphs contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, including statements and assumptions regarding percentage
of completion, expected product release dates, dates for which we expect to
begin generating benefits from projects, expected product capabilities and
product life cycles, costs and efforts to complete projects, growth rates,
royalty rates and projected revenue and expense information used by us to
calculate discounted cash flows and discounts rates. These forward-looking
statements involve risks and uncertainties, and the cautionary statements set
forth below and in "Factors that May Affect Future Results" identify important
factors that could cause actual results to differ materially from those
predicted in any such forward-looking statement.
Purchased in-process research and development (IPRD) of $21.2 million and
$33.1 million in fiscal 1999 and 1998 respectively, represents the write-off of
in-process technologies associated with our acquisitions of Gambit Automated
Design, Inc. (Gambit), Stanza Systems, Inc. (Stanza), Smartech, the rights to
CoverMeter, a software product owned by Advanced Technology Center, and Apteq
Design Systems, Inc. (Apteq), in fiscal 1999 and Systems Science, Inc. (SSI) and
two privately held companies in fiscal 1998 (collectively, the Acquired
Companies). At the date of each acquisition the projects associated with the
IPRD efforts had not yet reached technological feasibility and the research and
development in process had no alternative future uses. Accordingly, these
amounts were expensed on the respective acquisition dates of each of the
Acquired Companies. Also see Note 2, Business Combinations.
Valuation of IPRD. We calculated amounts allocated to IPRD using
established valuation techniques in the high technology industry and expensed
such amounts in the quarter that each acquisition was consummated because
technological feasibility had not been achieved and no alternative future uses
had been established. This approach gave consideration to relevant market sizes
and growth factors, expected industry trends, the anticipated nature and timing
of new product introductions by us and our competitors, individual product sales
cycles, and the estimated life of each products' underlying technology.
The fair value of the in-process technology was based on a discounted cash
flow model, similar to the traditional "Income Approach," which discounts
expected future cash flows to present value, net of tax. In discounting the
estimated cash flows, a discount rate of 25% was used based on the risks
associated with achieving such projected cash flows upon successful completion
of the acquired projects, expected incremental revenues and expenses associated
with the projects utilizing the acquired technology, and risks and uncertainties
in incorporating the acquired technology into the Company's development
projects. In developing cash flow projections, revenues were forecasted based on
relevant factors, including aggregate revenue growth rates for the business as a
whole, characteristics of the potential market for the technology and the
anticipated life of the technology. Projected annual revenues for the in-process
research and development projects were assumed to ramp up initially and decline
significantly at the end of the in-process technology's economic life. Operating
expenses and resulting profit margins were forecasted based on the
characteristics and cash flow generating potential of the acquired in-process
technology. Gross profit percentage and tax rate were assumed to approximate the
Company's corporate gross profit percentage average and its effective tax rate.
Associated risks include the inherent difficulties and uncertainties in
completing each project and thereby achieving technological feasibility, and
risks related to the impact of potential changes in the market conditions and
technology. We do not expect to achieve a material amount of expense reductions
or synergies; therefore, the valuation assumptions do not include significant
anticipated cost savings.
As of September 30, 1999, the Company's research and development
expenditures since the acquisitions of fiscal 1999 have not differed materially
from expectations. The projections the Company used in performing its valuations
with respect to each acquisition are still valid, in all material respects,
however, there can be no assurance that the projected results will be achieved.
With respect to the Company's acquisitions completed in fiscal 1998, management
believes that the projections the Company used in performing its valuations with
respect to each acquisition are still valid, in all material respects, however,
there can be no assurance that the projected results will be achieved.
Management expects to continue the development of each project and believes that
there is a reasonable chance of successfully completing such development
efforts. However, there is risk associated with the completion of the in-process
projects and there can be no assurance that any project will meet with either
technological or commercial success. Failure to successfully develop and
commercialize
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<PAGE> 22
these in-process projects would result in the loss of the expected economic
return inherent in the fair value allocation. Additionally, the value of other
intangible assets acquired may become impaired. The risks associated with the
research and development are still considered high and no assurance can be made
that upcoming products will meet market expectations. As of September 30, 1999,
and for each of the three fiscal years then ended, the impact upon our
consolidated results of operations or financial position with respect to the
success, or lack thereof, related to any acquisition, individually or in
aggregate, is not considered material.
Other Income, Net. Other income, net was $37.0 million, $26.0 million and
$24.4 million, or 5%, 4% and 4% of total revenue in fiscal 1999, 1998 and 1997,
respectively. Other income, net increased in each fiscal year primarily due to
higher average invested cash and short-term investment balances, which yielded
more interest income for fiscal 1999 compared to fiscal 1998. In addition, in
fiscal 1999, 1998 and 1997 other income, net increased due to gains realized on
sales of equity investments.
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates to its investment portfolio. The Company does not use
derivative financial instruments for speculative or trading purposes. The
Company places its investments in a mix of tax exempt and taxable instruments
that meet high credit quality standards, as specified in the Company's
investment policy. The policy also limits the amount of credit exposure to any
one issue, issuer and type of instrument. The Company does not anticipate any
material loss with respect to its investment portfolio.
The following table presents the carrying value and related
weighted-average interest rates for the Company's investment portfolio. The
carrying value approximates fair value at September 30, 1999. In accordance with
the Company's investment policy, all investments mature in fifteen months or
less.
Principal (Notional) Amounts in U.S. Dollars:
<TABLE>
<CAPTION>
CARRYING AVERAGE
AMOUNT INTEREST RATE
-------- -------------
<S> <C> <C>
(in thousands, except interest rates)
Cash equivalents -- fixed rate.............................. $ 24,964 3.66%
Short-term investments -- fixed rate........................ 418,745 3.97%
--------
Total investment securities............................ 443,709 3.95%
Money market funds -- variable rate......................... 157,966 3.69%
--------
Total interest bearing instruments..................... $601,675 3.88%
========
</TABLE>
(See Note 3 in accompanying notes to consolidated financial statements for
additional information on investment maturity dates, long-term debt and equity
price risk related to the Company's long-term investments.)
Foreign Currency Risk. At the present time, the Company hedges only those
currency exposures associated with certain assets and liabilities denominated in
nonfunctional currencies and does not generally hedge anticipated foreign
currency cash flows. Hedging activities are undertaken by the Company and are
intended to offset the impact of currency fluctuations on these balances. The
success of this activity depends upon estimations of intercompany balances
denominated in various currencies, primarily the Japanese yen, British pound
sterling, German mark, French franc and Italian lira. The Company had contracts
for the sale and purchase of foreign currencies with a notional value expressed
in U.S. dollars of $45.0 million. These contracts were denominated in currencies
which approximated the fair value of such contracts and their underlying
transactions as of September 30, 1999. Looking forward, the Company does not
anticipate any material adverse effect on its consolidated financial position,
results of operations, or cash flows resulting from the use of these
instruments. There can be no assurance in the future that these hedging
transactions will be effective.
The following table provides information about the Company's foreign
exchange forward contracts at September 30, 1999. Due to the short-term nature
of these contracts, the contract rate approximates the
22
<PAGE> 23
weighted-average contractual foreign currency exchange rate and the amount in
U.S. dollars approximates the fair value of the contract at September 30, 1999.
These forward contracts mature in approximately thirty days.
Short-Term Forward Contracts to Sell and Buy Foreign Currencies in U.S. Dollars
Related to Intercompany Balances:
<TABLE>
<CAPTION>
CONTRACT
AMOUNT RATE
------- --------
<S> <C> <C>
(in thousands, except for average contract rates)
Forward Contracts:
Japanese yen.............................................. $30,413 103.67
British pound sterling.................................... 671 .61
German mark............................................... 3,682 1.86
French franc.............................................. 9,841 6.25
Italian lira.............................................. 370 1,847.75
</TABLE>
The unrealized gains/losses on the outstanding forward contracts at
September 30, 1999 were immaterial to the Company's consolidated financial
statements. The realized gain/losses on these contracts as they matured was not
material to the Company's consolidated financial position, results of
operations, or cash flows for the periods presented.
Extraordinary Items. During the first quarter of fiscal 1998, the Company
recorded an extraordinary gain on extinguishment of debt of $1.9 million, net of
income tax expense of $1.0 million, related to the cancellation of certain
interest bearing notes issued by the Company to International Business Machines
Corporation (IBM).
During the fourth quarter of fiscal 1998, Synopsys completed the partial
spin-off of Viewlogic Systems, Inc. (VSI), a company that owns the printed
circuit board (PCB)/Systems business of Viewlogic. Synopsys' merger with
Viewlogic in December 1997 was accounted for as a pooling-of-interests. The
spin-off was accounted for as an extraordinary item, as provided by paragraph 60
of Accounting Principles Board Opinion No. 16 (APB 16), and Synopsys recorded an
extraordinary gain, net of income tax expense, of $26.5 million in fiscal 1998
in respect to the spin-off. Synopsys retained common stock equal to 14.9 percent
of the fully diluted equity in VSI.
The Company concluded that the disposition of VSI was consistent with its
treatment of the Synopsys-Viewlogic merger as a pooling-of-interests. A
condition of the pooling-of-interests treatment is that at the time of the
merger, management did not plan to dispose of any significant part of the assets
of the merged entity. The Company concluded that this condition was met because,
on the date of the Synopsys-Viewlogic merger, the Company did not plan to
dispose of the PCB/Systems business. The Company believed that there would be
synergies between the Company's "high-level" integrated circuit design products
and VSI's PCB design products. The ultimate decision to spin-off VSI was based
on changes in circumstances following the Synopsys-Viewlogic merger.
During the months following the merger, the Company came to realize that
certain of its assumptions and expectations regarding the operation of the
PCB/Systems business as part of Synopsys were not being fulfilled. The Company's
initial intent to retain VSI altered due to changes in circumstances as follows:
- A number of engineers working in the PCB/Systems business were hired by
competitors, and management became concerned that it would lose more if
the business remained part of Synopsys.
- Certain synergies anticipated from operation of the PCB/Systems business
as part of Synopsys did not materialize.
- The revenues of the PCB/Systems business grew more slowly than those of
Synopsys' other businesses. Management concluded that the reduction in
the Company's overall growth rate caused by the PCB/Systems business was
contributing to a market discounting of the Company's stock value.
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<PAGE> 24
- Managers of the PCB/Systems business concluded that the business could
grow faster if it was a stand-alone entity, which would allow them to
attract and retain key employees.
Accordingly, Synopsys has not changed its accounting for the Viewlogic
merger and has reported the gain on the VSI disposition as an extraordinary
item.
ACCOUNTING PRONOUNCEMENTS
During fiscal 1999, the Company early adopted Statement of Position (SOP)
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. This statement requires computer software costs incurred during
the application development stage to be capitalized and amortized to operations
over the software's estimated useful life. The effect of adopting SOP 98-1 for
fiscal 1999 was not material to the Company's consolidated financial position,
results of operations or cash flows.
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities, which
amends the effective date of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 137 establishes accounting and reporting
standards for derivative financial instruments and hedging activities and
requires the Company to recognize all derivatives as either assets or
liabilities on the balance sheet and measure them at fair value. Gains and
losses resulting from changes in fair value would be accounted for based on the
use of the derivative and whether it is designated and qualifies for hedge
accounting. The Company will adopt SFAS No. 137 as required for its fiscal 2001
Annual Report on Form 10-K. The Company has not determined the impact that SFAS
No. 137 will have on its financial statements and believes that such
determination will not be meaningful until closer to the date of the initial
adoption.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions, which amends
SOP 97-2 and supercedes SOP 98-4. The Company will adopt SOP 98-9 in fiscal
2000. The Company intends to modify certain aspects of its license and pricing
structure so that the impact of SOP 98-9 on its revenue recognition practices
will not be significant.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation, and major customers. The Company has adopted SFAS No. 131 as
required for its fiscal 1999 Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $704.2 million at
September 30, 1999, an increase of $99.6 million or 17% from fiscal 1998. The
increase is primarily a result of cash generated by operations of $223.3
million, and to a lesser extent, through financing and investing activities,
mainly the exercise of stock options and purchases of stock through the employee
stock purchase plan of $102.7 million and the sale of long-term investments of
$21.8 million. These cash flows were partially offset by cash outflows for
investing and financing activities, mainly capital expenditures of $65.8
million, acquisitions valued at $46.5 million, the repurchase of common stock of
$95.4 million and cash paid on debt obligations of $12.6 million.
Accounts receivable increased 23% during fiscal 1999, while sales grew by
12%. Days sales outstanding in receivables increased to 61 days as of September
30, 1999 from 59 days at September 30, 1998. As of September 30, 1999 and 1998,
the Company had sold $22.8 million and $12.6 million of its accounts receivable
to a financial institution.
At September 30, 1999, the Company had two foreign exchange lines of credit
available totaling $120.0 million, which expire in July and October 2000.
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<PAGE> 25
The Company's management believes that its current cash, cash equivalents,
short-term investments, lines of credit, and cash generated from operations will
satisfy its expected working capital and capital expenditure requirements for at
least the next twelve months.
YEAR 2000 READINESS
This section contains forward-looking statements. See "Factors That May
Affect Future Results."
Year 2000 Problem. The failure of a computer program to accurately
recognize and process date information beginning on January 1, 2000 is referred
to as a "Year 2000 problem." This may result in a system failure, miscalculation
or other malfunction.
Synopsys has potential Year 2000 problems both as a vendor of software and
as a user of software and other services. As a vendor, Synopsys could have Year
2000 issues either if our software products were not Year 2000 compliant or our
customers had Year 2000 issues that interfered with their purchases of Synopsys'
products. Our business could also be disrupted if any of the many systems we use
to perform key corporate functions -- such as financial accounting, billing,
payroll or license control, or the power, telecommunications and other services
they depend on -- were interrupted or damaged as a result of Year 2000 problems.
For the purposes of the following discussion, our efforts to identify,
assess, fix and test Year 2000 problems relating to our business are referred to
as our "Year 2000 Efforts."
State of Readiness. In general, Synopsys products are not date-sensitive,
and therefore are less likely to have Year 2000 problems. We have inspected or
tested all of our currently released products to determine whether they have
Year 2000 problems. None of our tested products experienced significant
date-related failures. In addition, we are operating a dedicated Year 2000 test
laboratory, which we use to test new products and maintain Year 2000 compliance
of future products.
Synopsys has taken a number of steps to determine whether the internal
computer systems and software we rely upon to run our business will have Year
2000 problems. Our efforts have covered both systems that are commonly thought
of as "information technology" (IT) systems, including accounting, data
processing, and telephone/PBX systems, as well as certain systems that are not
commonly thought of as IT systems, such as alarm systems and fax machines.
Our Year 2000 Efforts are being conducted primarily by Synopsys employees
and in Synopsys facilities. We began our Year 2000 Efforts in February 1997. As
of September 30, 1999, we had completed approximately 99% of the total effort
for the projects we believe are necessary to fully address potential Year 2000
issues relating to our internal computer systems and software. Our remaining
efforts are focused on upgrading certain desktop computers and servers for which
we delayed remediation work to enable us to provide support to customers using
Synopsys products on prior releases of their operating systems.
In addition to conducting an assessment of our products and internal
systems and software, we have conducted a survey of our most important vendors
and service providers. All such vendors have indicated that they are Year 2000
compliant.
Certain of our computer equipment and software has required replacement or
modification as a result of Year 2000 issues, including an upgrade to the
Windows operating system and related modifications affecting most of the desktop
computers used in our business. In certain instances, a replacement or
modification anticipated in the ordinary course of business was accelerated due
to Year 2000 issues.
Costs of Readiness. Synopsys has not incurred, and does not expect to
incur, material expense in connection with our Year 2000 Efforts. We currently
estimate that the total cost of our Year 2000 Efforts will not exceed $8.1
million, consisting of approximately $5.6 million for hardware, software and
external consultants (external costs), and approximately $2.5 million in direct
costs of employees working on our Year 2000 Efforts (internal costs). As of
September 30, 1999 we had incurred costs of approximately $5.5 million related
to our Year 2000 Efforts, including $3.5 million in external costs and $2.0
million in internal costs. The Company expects to incur additional depreciation
expenses of $2.1 million and additional personnel costs of approximately $0.5
million relating to its Year 2000 Efforts. However, should we encounter
unforeseen Year
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<PAGE> 26
2000 problems, either in our products or internal systems or in our customers'
or vendors' operations, the amount we spend on our Year 2000 Efforts number
could increase, perhaps by a material amount. The cost of our Year 2000 Efforts
is being funded from operating cash flows. These costs represent approximately
5.7% of our total actual and anticipated IT expenditures for the period from the
start of fiscal 1998 through March 31, 2000 (including employee expenses of our
IT department). Expansion and upgrade of our internal systems unrelated to our
Year 2000 Efforts have not been materially delayed or impacted by our Year 2000
Efforts.
Contingency Plans. Synopsys has analyzed the operational problems that
would be reasonably likely to result from the failure by us or vendors to
achieve Year 2000 compliance on a timely basis. The most reasonably likely worst
case scenario we have identified is a disruption of our core operational
functions for one week. In conjunction with our overall crisis planning efforts,
we have developed a plan to address this scenario and to reduce the risk of
other Year 2000-related problems. Under this plan, the Company will (1)
partially shut down certain internal systems during the Year 2000 rollover and
(2) use standby electric generators to power key systems in case of a public
utility power outage. While we do not anticipate that this scenario will have a
material adverse effect on our business, we are not able to predict the
likelihood or the effects of the worst case scenario with certainty.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our Revenue and Earnings May Fluctuate. Many factors affect our revenue and
earnings, which makes it difficult to achieve predictable revenue and earnings
growth. Among these factors are customer product and service demand, product
license terms, and the timing of revenue recognition on products and services
sold. The following specific factors could affect our revenues and earnings in a
particular quarter or over several quarterly or annual periods:
- Our orders have been seasonal. Historically, our first fiscal quarter has
been our weakest, with a book-to-bill ratio less than 1. The recent
change in our fiscal year (see note 1 in accompanying notes to
consolidated financial statements) may affect the seasonal pattern of our
revenues.
- Our products are complex, and before buying them customers spend a great
deal of time reviewing and testing them. Our customers' evaluation and
purchase cycles do not necessarily match our quarterly periods, and if by
the end of any quarter we have not sold enough new licenses, our orders
and revenues could be below our plan. Like many companies in the software
industry, in the past we have received a disproportionate volume of
orders in the last week of a quarter, and recognized a disproportionate
amount of revenue in the last week of a quarter. In addition, a large
proportion of our business is attributable to our largest customers. As a
result, if any order, and especially a large order, is delayed beyond the
end of a fiscal period, our orders and revenue for that period could be
below our plan.
- The accounting rules we are required to follow permit us to recognize
revenue only when certain criteria are met. Orders for certain of our
products and services yield revenue over multiple quarters (often
extending beyond the current fiscal year) or upon completion of
performance rather than at the time of sale. In addition, the specific
terms agreed to with a customer may have the effect of requiring deferral
of revenue in whole or in part or, alternatively, of permitting us to
accelerate the recognition of revenue for products to be used over
multiple years. A number of our recent transactions have involved
multi-year licenses with respect to which a significant portion of the
revenue was recognized in the initial quarter (consistent with relevant
accounting rules). Therefore, for a given quarter it is possible for us
to fall short in our revenue and/or earnings plan even while orders and
backlog remain on plan or, conversely, to meet our revenue and/or
earnings plan by drawing on backlog and deferred revenue while orders are
under plan.
- We recently introduced a new license and pricing structure for our
software products. Although we believe that these changes have benefits
for both Synopsys and our customers, it is possible that customer
reaction will be unfavorable or that the transition to the new structure
will be disruptive to business, resulting in the deferral or loss of
sales.
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Our Industry is Highly Competitive. The EDA industry is highly competitive.
We compete against other EDA vendors, and with customers' internally developed
design tools and internal design capabilities, for a share of the overall EDA
budgets of our potential customers. In general, competition is based on product
quality and features, post-sale support, price and, as discussed below, the
ability to offer a complete design flow. Our competitors include companies that
offer a broad range of products and services, such as Cadence Mentor and Avant!,
as well as companies, including numerous start-up companies, that offer products
focused on a discrete phase of the integrated circuit design process. Synopsys'
competitors continue to offer aggressive discounts on their products, in
particular on synthesis and Verilog simulation products. If this behavior
continues, average prices for our products may fall. In order to compete
successfully, we must continue to enhance our products and bring to market new
products that address the needs of our customers. We also will have to expand
our consulting services business. The failure to enhance existing products,
develop and/or acquire new products or expand our ability to offer consulting
services could have a material adverse effect on our business, financial
condition and results of operations.
Technology advances and customer requirements are fueling a change in the
nature of competition among EDA vendors. Increasingly, EDA companies compete on
the basis of "design flows" involving integrated logic and physical design tools
rather than on the basis of individual "point" tools performing a discrete phase
of the design process. The need to offer products linking logic and physical
design will become increasingly important, as IC complexity is increasing, chip
production moves increasingly to 0.18 micron and below, and system-on-a-chip
designs become more prevalent. We offer a wide range of logic design tools but
have only recently introduced our first physical design tools. We are working on
completing our design flow, although for the foreseeable future will not be able
to offer such a flow to customers. The market for physical design tools is
dominated by Cadence and Avant! Both companies have acquired logic synthesis
technology and are offering products linking synthesis to their physical design
products. If we are unsuccessful in developing a complete design flow on a
timely basis or in convincing customers to adopt our physical design products
and methodology, our competitive position could be significantly weakened.
Our Revenue Growth Depends on Our Non-Synthesis Products. Historically,
much of our growth has been attributable to the strength of our logic synthesis
products. Opportunities for growth in market share in this area are limited, and
revenues from our synthesis products are expected to grow more slowly than our
target for overall revenue growth. In order to meet our revenue plan, revenue
from our non-synthesis design creation products, certain high level verification
products, physical design products, deep submicron products and professional
services must grow faster than our overall revenue growth target. Among the
products that we expect to be the most important contributors to revenue growth
are our PrimeTime(R) timing analysis, VCS(TM) Verilog simulation, Formality(R)
formal verification, Module Compiler(TM) datapath synthesis, Chip Architect
design planning, FlexRoute top-level routing, Physical Compiler and EPIC(R) deep
submicron analysis and verification products. If revenue growth for these
products fails to meet our goals, it is unlikely that we will meet our overall
revenue growth target.
In order to sustain revenue growth over the long term, we will have to
introduce new products that are accepted by a broad range of customers and to
significantly expand our consulting services business. Product success is
difficult to predict. The introduction of new products and growth of a market
for such products cannot be assured. In the past we, like all companies, have
had products that have failed to meet our revenue expectations. Expanding
revenue from consulting services will require us to recruit, hire and train a
large number of skilled employees, and to implement management controls on
bidding and executing on consulting engagements. The consulting business is
significantly different from the software business, however, and increasing
consulting orders and revenue while maintaining an adequate level of profit can
be difficult. There can be no assurance that we will be successful in expanding
revenue from existing or new products at the desired rate or in expanding our
services business, and the failure to do so would have a material adverse effect
on our business, financial condition and results of operations.
Businesses We Acquire May Not Perform as Projected. We have acquired or
merged with a number of companies in recent years, including EPIC Design
Technology, Inc., Viewlogic, Systems Science, Inc., Everest, Gambit, Smartech,
Stanza and Apteq, and as part of our efforts to increase revenue and expand our
product and services offerings we may acquire additional companies. In addition
to direct costs, acquisitions
27
<PAGE> 28
pose a number of risks, including potential dilution of earnings per share,
delays and other problems of integrating the acquired products and employees
into our business, the failure to realize expected synergies or cost savings,
the failure of acquired products to achieve projected sales, the drain on
management time for acquisition-related activities, possible adverse effects on
customer buying patterns due to uncertainties resulting from an acquisition, and
assumption of unknown liabilities. While we attempt to review proposed
acquisitions carefully and negotiate terms that are favorable to Synopsys, there
is no assurance that any individual acquisition will have the projected effect
on our performance.
Our Business Depends on the Semiconductor and Electronics Businesses. Our
business has benefited from the rapid worldwide growth of the semiconductor
industry. Purchases of our products are largely dependent upon the commencement
of new design projects by semiconductor manufacturers and their customers and
the increasing complexity of designs. While a number of semiconductor market
segments are growing at a healthy pace, the overall outlook for the
semiconductor industry remains uncertain. Renewed growth in the semiconductor
industry will not necessarily lead to increases in purchases of Synopsys
products. In addition, demand may be affected by mergers in the semiconductor
and systems industries, which may reduce the aggregate level of purchases of our
products and services by the combined companies. Slower growth in the
semiconductor and systems industries, a reduced number of design starts,
tightening of customers' operating budgets or continued consolidation among our
customers may have a material adverse effect on our business, financial
condition and results of operations.
Continued Stagnation of International Economies Will Adversely Affect Our
Performance. International revenue is vulnerable to changes in foreign currency
exchange rates and in regional or worldwide economic or political conditions.
Since the beginning of the Asian economic crisis, international revenue has
declined significantly as a percentage of overall revenue, as Asian customers
have deferred their investments in semiconductor facilities and technology. It
will be difficult to sustain our overall growth rate if revenue from Asia
remains stagnant or grows slowly. In particular:
- If the Japanese economy remains weak, revenue from Japan and the rest of
Asia will be adversely affected. In addition, the yen-dollar exchange
rate remains subject to unpredictable fluctuations. Weakness of the yen
could adversely affect revenue from Japan during future quarters.
- Korea's ongoing economic weakness has had, and is likely to continue to
have a significant adverse effect on our orders and revenue from Korea.
In addition, two of our four largest Korean customers have merged, which
may result in a lower level of orders from the combined company than we
might have received if the two companies remained separate.
- Asian countries other than Japan and Korea also have experienced economic
and currency problems. If such conditions persist, orders and revenues
from the Asia Pacific region would be adversely affected.
Our Success Depends on Recruiting and Retaining Key Personnel. Our success
is dependent on technical and other contributions of key employees. We
participate in a dynamic industry, with significant start-up activity, and our
headquarters is in Silicon Valley, where skilled technical, sales and management
employees are in high demand. There are a limited number of qualified EDA
engineers, and the competition for such individuals is intense. Experience at
Synopsys is highly valued in the EDA industry, and our employees are recruited
aggressively by our competitors and by start-up companies, including those in
internet-related businesses. Our salaries are competitive in the market, but
under certain circumstances, start-up companies can offer more attractive stock
option packages. As a result, we have experienced, and may continue to
experience, significant employee turnover. In addition, there can be no
assurance that we can continue to recruit and retain key personnel or that it
can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. Failure to successfully recruit and retain
such personnel could have a material adverse effect on our business, financial
condition and results of operations.
Dependence on Proprietary Technology. Our success is dependent, in part,
upon our proprietary technology and other intellectual property rights. There
can be no assurance that our competitors will not independently develop or
acquire similar techniques or gain access to our proprietary technology or that
we can protect our rights to our technology. We rely on confidentiality
agreements with collaborators, employees,
28
<PAGE> 29
vendors and consultants to protect our proprietary technology. There can be no
assurance that these agreements will not be breached, that we would have
adequate remedies for any breach or that our trade secrets will not otherwise
become known or be independently developed by competitors. Failure to obtain or
maintain patent or trade secret protection, for any reason, could have a
material adverse effect on our business, financial condition and results of
operations.
Fixed Operating Expenses. Our operating expenses are based in part on our
expectations of future revenue, and expense levels are generally committed in
advance of revenue. We expect to continue to increase operating expenses in
order to generate and support continued growth in revenue. If we were
unsuccessful in generating such revenue, our business, financial condition and
results of operations could be materially adversely affected. Net income in a
given quarter or fiscal year may be disproportionately affected by a reduction
in revenue growth because only a small portion of our expenses varies with
revenue.
Anti-Takeover Provisions. We have adopted a number of provisions that could
have anti-takeover effects. The Board of Directors has adopted a Preferred
Shares Rights Plan, commonly referred to as a "poison pill." In addition, the
Board of Directors has the authority, without further action by its
stockholders, to issue additional shares of Common Stock and to fix the rights
and preferences of, and to issue authorized but undesignated shares of Preferred
Stock. These and other provisions of Synopsys' 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 Synopsys, including transactions in which the
shareholders of the Company might otherwise receive a premium for their shares
over then current market prices.
Year 2000 Problems. We are uncertain as to the Year 2000 readiness of our
customers, and if one or more important customers were to experience Year
2000-related problems that interfered with their purchases of Synopsys products,
our revenues could be reduced, perhaps materially. In addition, if our plan to
address failures caused by Year 2000 problems, including disruptions of our
power supply, increased hacker or computer virus activity or internal systems
failures not remediated by our Year 2000 efforts, proved unsuccessful, our
business, financial condition and results of operations could be materially and
adversely affected.
EUROPEAN MONETARY UNIT
The Company's sales to European customers are primarily U.S. dollar based.
However, the Company does recognize the emergence of a new monetary unit and the
potential importance of such a new monetary unit to its customers residing in
the European union. The Company's information systems are capable of functioning
in multiple currencies. The Company has already started to make system changes
to make all infrastructures capable of operations in the European Monetary Unit.
The Company does not expect to incur significant expenses for these system
changes. The Company does not expect any disruption in operations due to the
European Monetary Unit implementation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information relating to quantitative and qualitative disclosure about
market risk is set forth in Synopsys' 1999 Annual Report on Form 10-K under the
captions "Interest Rate Risk" and "Foreign Currency Risk" in Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
"Foreign Exchange Hedging" in Note 1 of the Notes to Consolidated Financial
Statements.
29
<PAGE> 30
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 September 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended September 30, 1999. 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 generally accepted auditing
standards. 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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Synopsys, Inc. and subsidiaries as of September 30, 1999 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended September 30, 1999 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
October 23, 1999
30
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SYNOPSYS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 285,314 $ 164,548
Short-term investments.................................... 418,871 440,082
---------- ---------
Cash and short-term investments........................ 704,185 604,630
Accounts receivable, net of allowances of
$10,523 and $13,210, respectively...................... 155,885 126,336
Prepaid expenses, deferred taxes and other................ 54,663 42,461
---------- ---------
Total current assets................................... 914,733 773,427
---------- ---------
Property and equipment, net................................. 126,204 99,998
Long-term investments....................................... 53,277 38,265
Intangible assets, net...................................... 57,393 20,230
Other assets................................................ 22,311 19,713
---------- ---------
Total assets...................................... $1,173,918 $ 951,633
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 8,814 $ 15,058
Accrued liabilities....................................... 109,781 102,354
Current portion of long-term debt......................... 8,610 7,783
Accrued income taxes...................................... 50,036 50,313
Deferred revenue.......................................... 110,285 93,160
---------- ---------
Total current liabilities.............................. 287,526 268,668
---------- ---------
Long-term debt.............................................. 11,642 13,138
Deferred compensation....................................... 9,154 4,886
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized;
no shares outstanding.................................. -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; 70,260,000 and 67,925,000 shares
outstanding, respectively.............................. 703 679
Additional paid-in capital................................ 530,528 423,975
Retained earnings......................................... 371,395 240,465
Treasury stock, at cost, 768,000 and
318,000 shares, respectively........................... (43,657) (11,184)
Accumulated other comprehensive income.................... 6,627 11,006
---------- ---------
Total stockholders' equity............................. 865,596 664,941
---------- ---------
Total liabilities and stockholders' equity........ $1,173,918 $ 951,633
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product.................................................... $505,847 $430,979 $408,256
Service.................................................. 300,251 286,961 238,700
-------- -------- --------
Total revenue.................................... 806,098 717,940 646,956
-------- -------- --------
Cost of revenue:
Product.................................................. 37,888 36,371 36,777
Service.................................................. 68,876 57,396 50,108
-------- -------- --------
Total cost of revenue............................ 106,764 93,767 86,885
-------- -------- --------
Gross margin............................................... 699,334 624,173 560,071
-------- -------- --------
Operating expenses:
Research and development................................. 167,085 156,663 146,849
Sales and marketing...................................... 241,639 245,376 240,606
General and administrative............................... 47,132 47,179 47,284
Amortization of intangible assets........................ 7,907 -- --
Merger-related and other costs........................... -- 51,009 11,400
In-process research and development...................... 21,176 33,069 5,500
-------- -------- --------
Total operating expenses......................... 484,939 533,296 451,639
-------- -------- --------
Operating income........................................... 214,395 90,877 108,432
Other income, net.......................................... 37,016 25,984 24,361
-------- -------- --------
Income before provision for income taxes
and extraordinary items.................................. 251,411 116,861 132,793
Provision for income taxes................................. 90,049 55,819 51,043
-------- -------- --------
Income before extraordinary items.......................... 161,362 61,042 81,750
Extraordinary items -- sale of business unit and gain
on extinguishment of debt, net of income tax expense..... -- 28,404 --
-------- -------- --------
Net income................................................. $161,362 $ 89,446 $ 81,750
======== ======== ========
Basic earnings per share:
Income before extraordinary items........................ $ 2.30 $ 0.92 $ 1.30
Extraordinary items...................................... -- 0.43 --
-------- -------- --------
Net income............................................... $ 2.30 $ 1.34 $ 1.30
======== ======== ========
Weighted average common shares........................... 70,118 66,568 62,852
======== ======== ========
Diluted earnings per share:
Income before extraordinary items........................ $ 2.20 $ 0.88 $ 1.24
Extraordinary items...................................... -- 0.41 --
-------- -------- --------
Net income............................................... $ 2.20 $ 1.29 $ 1.24
======== ======== ========
Weighted average common shares
and equivalents....................................... 73,422 69,524 65,925
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
SHARES PAID-IN RETAINED STOCK COMPREHENSIVE
OUTSTANDING AMOUNT CAPITAL EARNINGS COMPENSATION INCOME
------------ ------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996............. 61,570 $616 $263,141 $ 75,550 $(110) --
Comprehensive Income:
Net income........................... -- -- -- 81,750 -- $ 81,750
Other comprehensive income, net of
tax:
Unrealized gain on investments....... -- -- -- -- -- 9,183
Reclassification adjustment on
unrealized gains on investments.... -- -- -- -- -- (4,185)
Foreign currency translation
adjustment......................... -- -- -- -- -- (1,193)
--------
Other comprehensive income........... -- -- -- -- -- 3,805
--------
Comprehensive income................... -- -- -- -- -- $ 85,555
========
Acquisition of treasury stock.......... (440) (5) -- -- -- --
Issuance of common stock............... 906 9 1,129 -- -- --
Stock issued under stock option and
stock purchase plans................. 2,714 27 40,921 (5,872) -- --
Tax benefits associated with exercise
of stock options..................... -- -- 30,024 -- -- --
Amortization of deferred stock
compensation......................... -- -- -- -- 110 --
------ ---- -------- -------- -----
Balance at September 30, 1997.......... 64,750 647 335,215 151,428 -- --
Comprehensive Income:
Net income........................... -- -- -- 89,446 -- $ 89,446
Other comprehensive income, net of
tax:
Unrealized gain on investments....... -- -- -- -- -- 3,983
Reclassification adjustment on
unrealized gains on investments.... -- -- -- -- -- (9,018)
Foreign currency translation
adjustment......................... -- -- -- -- -- 886
--------
Other comprehensive income (loss).... -- -- -- -- -- (4,149)
--------
Comprehensive income................... -- -- -- -- -- $ 85,297
========
Acquisition of treasury stock.......... (353) (4) -- -- -- --
Issuance of common stock............... 485 5 5,903 -- -- --
Stock options assumed in connection
with acquisition..................... -- -- 7,636 -- -- --
Stock issued under stock option and
stock purchase plans................. 3,043 31 61,454 (409) -- --
Tax benefits associated with exercise
of stock options..................... -- -- 13,767 -- -- --
------ ---- -------- -------- -----
Balance at September 30, 1998.......... 67,925 679 423,975 240,465 -- --
Comprehensive Income:
Net income........................... -- -- -- 161,362 -- $161,362
Other comprehensive income, net of
tax:
Unrealized gain on investments....... -- -- -- -- -- 5,506
Reclassification adjustment on
unrealized gains on investment..... -- -- -- -- -- (9,539)
Foreign currency translation
adjustment......................... -- -- -- -- -- (346)
--------
Other comprehensive income (loss).... -- -- -- -- -- (4,379)
--------
Comprehensive income................... -- -- -- -- -- $156,983
========
Acquisition of treasury stock.......... (1,680) (17) 17 -- -- --
Stock options assumed in connection
with acquisition..................... 49 1 6,451 -- -- --
Stock issued under stock option and
stock purchase plans................. 3,966 40 70,236 (30,432) -- --
Tax benefits associated with exercise
of stock options..................... -- -- 29,849 -- -- --
------ ---- -------- -------- -----
Balance at September 30, 1999.......... 70,260 $703 $530,528 $371,395 $ -- --
====== ==== ======== ======== =====
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
INCOME (LOSS) STOCK TOTAL
------------- -------- --------
<S> <C> <C> <C>
Balance at October 1, 1996............. $11,350 $ -- $350,547
Comprehensive Income:
Net income........................... -- -- 81,750
Other comprehensive income, net of
tax:
Unrealized gain on investments....... -- -- 9,183
Reclassification adjustment on
unrealized gains on investments.... -- -- (4,185)
Foreign currency translation
adjustment......................... -- -- (1,193)
Other comprehensive income........... 3,805 -- --
Comprehensive income................... -- -- --
Acquisition of treasury stock.......... -- (9,489) (9,494)
Issuance of common stock............... -- -- 1,138
Stock issued under stock option and
stock purchase plans................. -- 9,489 44,565
Tax benefits associated with exercise
of stock options..................... -- -- 30,024
Amortization of deferred stock
compensation......................... -- -- 110
------- -------- --------
Balance at September 30, 1997.......... 15,155 -- 502,445
Comprehensive Income:
Net income........................... -- -- 89,446
Other comprehensive income, net of
tax:
Unrealized gain on investments....... -- -- 3,983
Reclassification adjustment on
unrealized gains on investments.... -- -- (9,018)
Foreign currency translation
adjustment......................... -- -- 886
Other comprehensive income (loss).... (4,149) -- --
Comprehensive income................... -- -- --
Acquisition of treasury stock.......... -- (12,403) (12,407)
Issuance of common stock............... -- -- 5,908
Stock options assumed in connection
with acquisition..................... -- -- 7,636
Stock issued under stock option and
stock purchase plans................. -- 1,219 62,295
Tax benefits associated with exercise
of stock options..................... -- -- 13,767
------- -------- --------
Balance at September 30, 1998.......... 11,006 (11,184) 664,941
Comprehensive Income:
Net income........................... -- -- 161,362
Other comprehensive income, net of
tax:
Unrealized gain on investments....... -- -- 5,506
Reclassification adjustment on
unrealized gains on investment..... -- -- (9,539)
Foreign currency translation
adjustment......................... -- -- (346)
Other comprehensive income (loss).... (4,379) -- --
Comprehensive income................... -- -- --
Acquisition of treasury stock.......... -- (95,355) (95,355)
Stock options assumed in connection
with acquisition..................... -- -- 6,452
Stock issued under stock option and
stock purchase plans................. -- 62,882 102,726
Tax benefits associated with exercise
of stock options..................... -- -- 29,849
------- -------- --------
Balance at September 30, 1999.......... $ 6,627 $(43,657) $865,596
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $161,362 $ 89,446 $ 81,750
Adjustments to reconcile net income to net cash
provided by operating activities:
Software sold in exchange for minority investment....... 500 -- --
Depreciation and amortization........................... 52,025 44,152 39,826
Tax benefit associated with stock options............... 29,849 13,767 30,024
Provision for doubtful accounts and sales returns....... (2,687) 8,431 2,574
Interest accretion on notes payable..................... 842 510 526
Deferred taxes.......................................... (5,111) (6,617) (20,811)
Gain on sale of long-term investments................... (19,578) (9,930) (15,856)
Non-cash merger-related and other costs................. -- 8,367 3,084
In-process research and development..................... 21,176 33,069 5,500
Extraordinary gains..................................... -- (28,404) --
Net changes in operating assets and liabilities:
Accounts receivable................................... (26,652) (25,754) (25,490)
Prepaid expenses and other current assets............. (3,232) (699) (3,134)
Intangible assets, net................................ 416 (5,639) (2,758)
Other assets.......................................... (2,870) (2,505) (3,191)
Accounts payable...................................... (6,289) (5,665) 5,535
Accrued liabilities................................... 2,715 15,226 4,810
Accrued income taxes.................................. (277) 1,147 16,424
Deferred revenue...................................... 16,854 9,377 7,020
Deferred compensation................................. 4,268 1,681 3,205
-------- --------- ---------
Net cash provided by operating activities.......... 223,311 139,960 129,038
-------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of long-term investments.............. 21,752 15,158 22,503
Proceeds from sale of business unit....................... -- 51,900 5,000
Purchases of long-term investments........................ (27,589) (1,998) (25,342)
Purchases and maturities of short-term investments........ 21,211 (127,849) (52,886)
Purchases of property and equipment....................... (65,816) (58,106) (61,322)
Purchase of technology.................................... -- -- (335)
Acquisitions (net of cash acquired)....................... (46,493) (30,354) --
-------- --------- ---------
Net cash used in investing activities.............. (96,935) (151,249) (112,382)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock, net................... 102,726 68,203 45,703
Purchases of treasury stock............................... (95,355) (12,407) (9,494)
Principal payments on debt obligations.................... (12,631) (7,627) (11,568)
-------- --------- ---------
Net cash (used) provided by financing activities... (5,260) 48,169 24,641
-------- --------- ---------
Effect of exchange rate changes on cash..................... (350) 361 (1,090)
-------- --------- ---------
Net increase in cash and cash equivalents................... 120,766 37,241 40,207
Cash and cash equivalents, beginning of year................ 164,548 127,307 87,100
-------- --------- ---------
Cash and cash equivalents, end of year...................... $285,314 $ 164,548 $ 127,307
======== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................ $ 944 $ 770 $ 769
Income taxes............................................ $ 63,141 $ 46,206 $ 25,215
Non-cash transactions:
Notes payable issued in connection with acquisition..... $ 11,120 $ 12,000 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. 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 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. The Company also provides consulting services to help its customers improve
their IC design processes and, where requested, to assist them with their IC
designs.
Change in Fiscal Year End. The Company has a fiscal year that ends on the
Saturday nearest September 30. Fiscal 1999 and 1997 were 52-week years while
fiscal 1998 was a 53-week year. For presentation purposes, the consolidated
financial statements and notes refer to the calendar month end. On July 15,
1999, the Board of Directors determined that Synopsys' fiscal 2000 and
subsequent fiscal years shall end on the Saturday nearest to October 31. As a
result, fiscal 2000 shall commence on October 31, 1999 and end on October 28,
2000. The period from October 3, 1999 through October 30, 1999 shall be a
transition period. Information for the transition period will be filed with
Synopsys' quarterly report on Form 10-Q for the first quarter of fiscal 2000.
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.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the recorded amounts of revenues, assets
and liabilities, disclosure of assets and liabilities at the date of the
financial statements and the recorded amounts of expenses during the reporting
period. A change in the facts and circumstances surrounding these estimates
could result in a change to the estimates and impact future operating results.
Cash Equivalents, Fair Values of Financial Instruments and Concentration of
Credit Risk. Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
investments and trade receivables.
All of the Company's cash equivalents and investments are classified as
available-for-sale and unrealized gains and losses are reported in stockholders'
equity as a component of accumulated other comprehensive income at fair value,
net of tax, if any. The fair value of investments is based on quoted market
prices. Realized gains and losses are included in other income, net. Cash
equivalents have remaining maturities of three months or less when acquired. 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.
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. As
of September 30, 1999 and 1998, the Company had sold approximately $22.8 million
and $12.6 million of its accounts receivable to a financial institution.
The fair value of the Company's cash, accounts receivable, long-term
investments, put/call and forward contracts relating to certain of the Company's
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 international subsidiaries is the foreign subsidiary's local currency.
Assets and liabilities of the Company's international operations are translated
into U.S. dollars at exchange rates in effect at the balance sheet date. Income
and
35
<PAGE> 36
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expense items are translated at average exchange rates for the period.
Accumulated net translation adjustments are reported in stockholders' equity as
a component of accumulated other comprehensive income. The associated tax
benefit for cumulative translation adjustment was $0.2 million and $0.7 million
in fiscal 1999 and 1997, and the associated tax expense was $0.5 million in
fiscal 1998, respectively. Foreign exchange transaction gains and losses were
not material for all periods presented and are included in the results of
operations.
Synopsys' international business is an important contributor to the
Company's revenue and net profits. However, the majority of Synopsys'
international sales are denominated in the U.S. dollar, and an increase in the
value of the U.S. dollar relative to foreign currencies could make products sold
internationally less competitive. The operating expenses of Synopsys' overseas
offices are paid in local currencies and are subject to the effect of
fluctuations in foreign currency exchange rates as compared to their respective
local currency. The effect of foreign exchange rate fluctuations did not
significantly impact the Company's operating results. Financial exposure may
nonetheless result, primarily from the timing of transactions and the movement
of foreign exchange rates.
Foreign Exchange Hedging. The Company operates internationally and thus is
exposed to potentially adverse movements in foreign currency rate changes. In
fiscal 1999, the Company entered into foreign exchange forward contracts to
reduce its exposure to foreign currency rate changes on intercompany foreign
currency denominated balance sheet positions. The objective of these contracts
is to neutralize the impact of foreign currency exchange rate movements on the
Company's operating results.
These contracts require the Company to exchange currencies at rates agreed
upon at the inception of the contracts. The hedge contracts reduce the exposure
to fluctuations in exchange rate movements because the gains and losses
associated with foreign 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
rate fluctuations.
The Company's accounting policies for these instruments are based on the
Company's designation of such instruments as hedging transactions. The criteria
the Company uses for designating an instrument as a hedge includes the
instrument's effectiveness in risk reduction. Gains and losses on these
contracts, all of which are designated and effective as hedges of existing
transactions, are recognized in operations in the period in which gains and
losses on the underlying transactions occur. The Company does not use derivative
financial instruments for speculative or trading purposes. In the event of
termination or extinguishment of a contract, associated gains and losses would
be recognized in operations in the period in which the contract was terminated
or extinguished.
These contracts contain credit risk in that the counterparty may be unable
to meet the terms of the agreements. The Company has limited these agreements to
major financial institutions to reduce such credit risk. Furthermore, the
Company monitors the potential risk of loss with any one financial institution
and does not expect any material loss as a result of default by the
counterparties.
Revenue Recognition. The Company recognizes revenue in accordance with SOP
97-2, Software Revenue Recognition, as amended by SOP 98-4. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements to
be allocated to each element based on the relative fair values of the elements.
The revenue allocated to software products, including time-based software
licenses, generally is recognized upon delivery of the products. The revenue
allocated to postcontract customer support (PCS) is recognized ratably over the
term of the support and revenue allocated to service elements is recognized as
the services are performed.
In accordance with SOP 97-2, the Company has analyzed all of the elements
included in its multiple-element arrangements and determined that the Company
has sufficient evidence of fair value to
36
<PAGE> 37
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
allocate revenue to the license and PCS components of certain of its time-based
product licenses. Accordingly, the portion of the time-based license fee
allocated to the license component is recognized upon delivery of the software
product and the portion of the fee allocated to PCS is recognized ratably over
the term of the support. Software subscriptions continue to be recognized on a
ratable basis.
Revenue consists of fees for licenses and subscriptions of the Company's
software products, sales of system products, maintenance and support, customer
training, and consulting. Cost of product revenue includes cost of production
personnel, product packaging, documentation, amortization of capitalized
software development costs and purchased technology, and costs of the Company's
systems products. Cost of service revenue includes personnel and the related
costs associated with providing training and consulting.
Accounts receivable include amounts due from customers for which revenue
has been recognized. Deferred revenue includes amounts received from customers
for which revenue has not been recognized.
Property and Equipment. Property and equipment are recorded at cost.
Depreciation and amortization of owned assets are provided using the
straight-line method over the estimated useful lives of property and equipment
of three to five years. Leasehold improvements are amortized using the
straight-line method over the remaining lease term or the economic useful life
of the related asset, whichever is shorter. Property and equipment detail is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
--------- --------
<S> <C> <C>
(in thousands)
Computer and other equipment................................ $ 173,088 $127,055
Furniture and fixtures...................................... 19,102 15,341
Land........................................................ 40,315 29,414
Leasehold improvements...................................... 26,662 23,579
--------- --------
259,167 195,389
Less accumulated depreciation and amortization.............. (132,963) (95,391)
--------- --------
$ 126,204 $ 99,998
========= ========
</TABLE>
Software Development Costs. Capitalization of computer software development
costs begins upon the establishment of technological feasibility, which is
generally the completion of a working prototype. Software development costs
capitalized were $1.0 million for 1999, $2.1 million for 1998 and $4.2 million
for 1997.
Amortization of computer software development costs is computed as the
greater of the ratio of current product revenue to the total of current and
anticipated product revenue or the straight-line method over the software's
estimated economic life of approximately two years. The Company recorded
amortization of $1.6 million for 1999, $2.2 million for 1998 and $3.7 million
for 1997, respectively.
Amortization of Intangible Assets. Amortization of intangible assets
consists of goodwill and goodwill-like assets such as assembled workforce.
Goodwill represents the excess of the aggregate purchase price over the fair
value of the tangible assets acquired by the Company and, under the Company's
accounting policies is being amortized over estimated useful lives ranging from
four to five years. The Company assesses the recoverability of goodwill by
determining whether the amortized asset over its useful life may be recovered
through estimated future cash flows. A review of the intangible assets has been
completed and it has been determined that the values are properly stated and no
adjustments are required. Amortization of intangible assets charged to
operations amounted to $7.9 million in fiscal 1999 and was not material in
fiscal 1998 and 1997, respectively.
37
<PAGE> 38
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accrued Liabilities. Accrued liabilities consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
(in thousands)
Payroll and related benefits................................ $ 79,478 $ 63,865
Accrued merger and acquisition costs........................ 371 3,513
Other accrued liabilities................................... 29,932 34,976
-------- --------
Total............................................. $109,781 $102,354
======== ========
</TABLE>
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. Deferred tax
assets are recognized for deductible temporary differences, net operating loss
carryforwards, and credit carryforwards if it is more likely than not that the
tax benefits will be realized. To the extent a deferred tax asset cannot be
recognized under the preceding criteria, a valuation allowance has been
established.
Earnings per Share. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common
shares and potential dilutive common shares outstanding during the period.
Potential dilutive common shares consist of employee stock options using the
treasury stock method.
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 for fiscal 1999, 1998 and
1997:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
(in thousands)
Weighted-average common shares used to calculate basic net
income per share............................................ 70,118 66,568 62,852
Stock options outstanding................................... 3,304 2,956 3,073
------ ------ ------
Weighted-average common shares used to calculate diluted net
income per share.......................................... 73,422 69,524 65,925
====== ====== ======
</TABLE>
Stock-Based Compensation. As permitted under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees," in accounting for stock-based awards to employees.
Reclassifications. Certain amounts reported in previous years have been
reclassified to conform to the fiscal 1999 presentation.
NOTE 2. BUSINESS COMBINATIONS
Pooling-of-Interests Combinations. In fiscal 1999, the Company issued
approximately 1.4 million shares of its common stock for all the outstanding
stock of Everest, a developer of integrated circuit routing and related
technology and reserved approximately 120,000 shares of its common stock for
issuance under Everest's stock option plan, which the Company assumed in the
transaction. The business combination was accounted for as a
pooling-of-interests, and accordingly, the Company's consolidated financial
statements have been restated to include the financial position and results of
Everest for all periods presented. The Board of Directors approved the
rescission of the Company's July 1998 stock repurchase program in order to
comply
38
<PAGE> 39
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with pooling-of-interests accounting guidance provided in the SEC Staff
Accounting Bulletin (SAB) No. 96. In fiscal 1998 and fiscal 1997, Everest issued
shares of its preferred stock for $5.9 million and $1.1 million, respectively.
The Everest preferred shares are presented in the Consolidated Statements of
Stockholders' Equity in terms of equivalent shares of the Company's common
stock.
In fiscal 1998, the Company issued approximately 11.3 million shares of its
common stock for all of the outstanding stock of Viewlogic, a worldwide supplier
of EDA software. In addition, options to acquire Viewlogic's common stock were
exchanged for approximately 2.8 million shares of the Company's common stock. In
fiscal 1997, the Company issued approximately 10.3 million shares of its common
stock for all of the outstanding stock of Epic Design Technology, Inc. (EPIC), a
developer of design automation tools for deep submicron design in the area of
integrated circuit power. In addition, options to acquire EPIC's common stock
were exchanged for approximately 1.5 million shares of the Company's common
stock. These business combinations were accounted for as pooling-of-interests,
and accordingly, the Company's consolidated financial statements have been
restated to include the financial position and results of EPIC and Viewlogic for
all periods presented.
During fiscal 1998, the Company sold VSI, the PCB/Systems business design
segment of the Viewlogic business to a management-led buy-out group for $51.9
million in cash. As a result of the transaction, the Company recorded an
extraordinary gain of $26.5 million, net of income tax expense, in the fourth
quarter of fiscal 1998. The Company retained a minority investment of 14.9%
(fully diluted) in the new company. VSI has announced that it has agreed to
merge with Summit Design, Inc.
The following information represents revenue and net income (loss) of the
separate enterprises through the periods preceding the business combinations and
the combined results following the business combinations.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
Total revenue:
Synopsys................................................. $806,098 $639,658 $469,277
Everest.................................................. -- -- --
Viewlogic................................................ -- 78,282 147,811
EPIC..................................................... -- -- 29,868
-------- -------- --------
Combined................................................... $806,098 $717,940 $646,956
======== ======== ========
Net income (loss):
Synopsys(1).............................................. $162,123 $ 90,157 $ 69,490
Everest.................................................. (761) (2,256) (236)
Viewlogic................................................ -- 1,545 9,592
EPIC..................................................... -- -- 2,904
-------- -------- --------
Combined................................................... $161,362 $ 89,446 $ 81,750
======== ======== ========
</TABLE>
- ---------------
(1) Includes extraordinary gains of $28.4 million, net of income tax expense, in
fiscal 1998.
39
<PAGE> 40
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recorded merger-related and other costs of $51.0 million and
$11.4 million in fiscal 1998 and 1997. The following table presents the
components of merger-related and other costs recorded in fiscal 1998, along with
charges against the reserves through September 30, 1999:
<TABLE>
<CAPTION>
NON-CASH
TOTAL AMOUNTS WRITE-OFF RESERVE
CHARGE PAID OF ASSETS BALANCE
------- -------- --------- -------
<S> <C> <C> <C> <C>
(in thousands)
Transaction costs................................... $ 9,245 $ (9,154) $ -- $ 91
Employee termination and transition costs........... 10,975 (10,830) -- 145
Write-off of equipment and other assets............. 8,367 -- (8,367) --
Legal and other settlements......................... 6,894 (6,885) -- 9
Redundant facility and other costs.................. 15,528 (15,402) -- 126
------- -------- ------- ----
Total..................................... $51,009 $(42,271) $(8,367) $371
======= ======== ======= ====
</TABLE>
Purchase Combinations. During the three years ended September 30, 1999,
1998 and 1997, the Company made a number of purchase acquisitions. Pro forma
results of operations have not been presented since the effects of the
acquisitions were 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. The purchase price of each transaction was allocated to the
acquired assets and liabilities based on their estimated fair values as of the
date of the respective acquisitions.
The excess purchase price over the estimated value of the net tangible
assets acquired was allocated to various intangible assets, consisting primarily
of developed technology and goodwill, as well as goodwill-like assets such as
assembled workforce. The values assigned to developed technologies related to
each acquisition were based upon future discounted cash flows related to the
existing product's projected income streams. The values of the assembled
workforces were based upon the cost to replace those workforces. Amounts
allocated to developed technology, workforce and goodwill are being amortized on
a straight-line basis, generally over four to five-year periods.
The amounts allocated to purchased 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. Research and development
costs to bring the products from the acquired companies to technological
feasibility are not expected to have a material impact on the Company's future
results of operations or cash flows.
In fiscal 1999, the Company acquired Gambit, a privately held provider of
place and route software and physical design services, Stanza, a privately held
company with physical layout editor expertise and technology, Smartech, a
privately held design services firm with expertise in the design of wireless
communication devices and the rights to CoverMeter, a Verilog code coverage
tool, from Advanced Technology Center of Massachusetts. The Company also
completed the acquisition of Apteq which has an expertise in analog simulation
and Verilog-A product.
In fiscal 1998, the Company acquired SSI, a developer of tools for
electronic design verification and test, and two small privately held companies
in the EDA industry. The acquisitions were accounted for as purchases with the
Company exchanging a combination of cash of $26.0 million and notes of $12.0
million. In addition, the Company reserved approximately 318,000 shares of its
common stock for issuance under SSI's stock option plan, which the Company
assumed in the acquisition. The total purchase price of $51.3 million was
allocated to the acquired assets and liabilities based on their estimated fair
values as of the date of the acquisition. Approximately $33.1 million was
allocated to in-process research and development and other costs
40
<PAGE> 41
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and charged to operations because the acquired technology had not reached
technological feasibility and had no alternative uses.
A summary of the Company's purchase transactions that included in-process
research and development charges, if any, is included in the following table:
<TABLE>
<CAPTION>
ENTITY OR PRODUCT NAME CONSIDERATION IPRD CHARGE FORM OF CONSIDERATION
---------------------- ------------- ----------- ---------------------
<S> <C> <C> <C>
FISCAL 1999:
(in millions)
Gambit $41.3 $13.9 $29.2 million cash, notes payable of $8.0
million, reserve of 78,000 shares of common
stock for issuance under Gambit's stock option
plan.
Stanza 15.4 4.1 $11.0 million cash, issuance of 46,000 shares
of common stock and reserve of 21,000 shares of
common stock for issuance under Stanza's 1998
stock option plan.
Smartech 9.7 -- $5.8 million cash, $3.9 million (not included
in purchase price) placed in an escrow
contingent on continued employment of certain
employees.
CoverMeter 4.5 2.4 $2.3 million cash, notes payable of $2.2
million.
Apteq 2.0 0.8 $1.0 million cash, notes payable of $0.6
million and $0.4 million assumption of debt.
</TABLE>
NOTE 3. FINANCIAL INSTRUMENTS
Cash equivalents and investments. All cash equivalents, short-term
investments, and non-current investments have been classified as
available-for-sale securities and consist of the following:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1999
(in thousands)
Classified as current assets:
Taxable commercial paper...................... $111,321 $ -- $ -- $111,321
Money market funds............................ 157,966 -- -- 157,966
Tax-exempt municipal obligations.............. 178,273 -- -- 178,273
Money market preferred stock.................. 67,208 -- -- 67,208
Municipal auction rate preferred stock........ 14,522 -- -- 14,522
Certificate of deposit........................ 47,414 -- -- 47,414
Federal Note.................................. 24,971 -- -- 24,971
-------- ------- ------- --------
601,675 -- -- 601,675
Classified as non-current assets:
Equity securities............................. 40,517 12,760 -- 53,277
-------- ------- ------- --------
Total securities...................... $642,192 $12,760 $ -- $654,952
======== ======= ======= ========
</TABLE>
41
<PAGE> 42
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998
(in thousands)
Classified as current assets:
Tax-exempt commercial paper................... $ 23,806 $ -- $ -- $ 23,806
Money market funds............................ 37,699 -- -- 37,699
Tax-exempt municipal obligations.............. 282,542 26 -- 282,568
Money market preferred stock.................. 122,975 -- -- 122,975
Municipal auction rate preferred stock........ 34,078 -- -- 34,078
Certificate of deposit........................ 461 -- -- 461
-------- ------- ------- --------
501,561 26 -- 501,587
Classified as non-current assets:
Tax-exempt municipal obligations.............. 253 2 -- 255
Equity securities............................. 19,820 22,111 (3,921) 38,010
-------- ------- ------- --------
20,073 22,113 (3,921) 38,265
-------- ------- ------- --------
Total securities...................... $521,634 $22,139 $(3,921) $539,852
======== ======= ======= ========
</TABLE>
The associated tax expense for unrealized gains was $3.7 million, $2.2
million and $5.2 million in fiscal 1999, 1998 and 1997, respectively. The
associated tax benefit for reclassification adjustment was $6.4 million, $5.1
million and $2.4 million in fiscal 1999, 1998 and 1997, respectively.
Short-term investments include tax-exempt municipal obligations which have
underlying maturities of less than one year or contain put options that are
either supported by a letter of credit from a top-rated bank or insurance
company or are over-collateralized for redemption at par at the reset date.
Therefore, the underlying maturity for certain items may exceed one year. At
September 30, 1999, the underlying maturities of the short-term investments are
$389.6 million within one year, $14.9 million within five to ten years and
$197.2 million after ten years.
At September 30, 1999, $182.8 million and $418.9 million are classified as
cash equivalents and short-term investments, respectively. At September 30,
1998, $61.5 million and $440.1 million are classified as cash equivalents and
short-term investments, respectively. Realized gains and losses on sales of
short-term investments have not been material. During fiscal 1999 and 1998, the
Company realized gains on sales of long term investments of $19.6 million and
$13.9 million, which are included in other income, net.
Strategic investments. In May 1996, the Company purchased 1,207,000 shares,
approximately 9.9 percent of the outstanding shares of Cooper and Chyan
Technology, Inc. (CCT), for $14.50 per share, pursuant to a strategic
relationship between the companies. In April 1997, the Company purchased an
additional 86,000 shares for $15.00 per share and the investment was classified
as available-for-sale. In May 1997, CCT and Cadence consummated a merger,
whereby each share of CCT was converted to 0.85 shares of Cadence stock.
In June 1997, the Company, through the sale of Arkos Design, Inc. ("Arkos")
acquired $9.5 million of Quickturn warrants and common stock. In May 1999,
Quickturn and Cadence consummated a merger, whereby each share of Quickturn was
converted into 1.27 shares of Cadence stock. At the time of the conversion, the
Company recognized a realized loss of $0.3 million, which is included in other
income, net. As of September 30, 1999, the Company owns 2,335,190 shares of
Cadence stock.
42
<PAGE> 43
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company entered into a put and call contract in the fourth quarter of
fiscal 1998 for the sale of 425,000 Cadence shares with prices and expiration
dates as follows:
<TABLE>
<CAPTION>
DATE SHARES PUT STRIKE CALL STRIKE
---- ------- ---------- -----------
<S> <C> <C> <C>
December 15, 1999........................................... 105,000 $27.31 $33.78
March 15, 2000.............................................. 105,000 $27.31 $34.50
June 15, 2000............................................... 105,000 $27.31 $35.37
September 15, 2000.......................................... 110,000 $26.60 $35.28
</TABLE>
As of September 30, 1999, the fair market value of the puts and calls,
based on a quoted market price of $13.44, was $11.0 million, which has been
recorded in unrealized gains on investments in the stockholders' equity as a
component of accumulated other comprehensive income.
During fiscal 1998, the Company had an investment in Artisan Components
(Artisan) of 594,300 shares. The Company entered into a forward contract for the
sale of its Artisan shares which expired in fiscal 1999. During fiscal 1999, the
Company realized gains on the sale of its Artisan shares of $7.9 million, which
is included in other income.
Foreign exchange hedging. The Company has two foreign exchange lines of
credit available totaling $120.0 million, which expire in July and October 2000.
The Company had $45.0 million of short-term foreign exchange forward contracts
outstanding which approximated the fair value of such contracts and their
underlying transactions at September 30, 1999. These contracts are denominated
in Japanese, Italian, German, French and British currencies. The outstanding
forward contracts have maturities that expire in approximately one month. The
gains and losses on forward exchange contracts are included in earnings when the
underlying foreign currency denominated transaction is recognized. Gains and
losses related to these instruments at September 30, 1999 were not material. In
addition, the Company has not terminated or extinguished any foreign exchange
forward contracts. The Company does not anticipate any material adverse effect
on its consolidated financial position, results of operations, or cash flows
resulting from the use of these instruments.
Long-term debt. During fiscal 1999, in connection with the acquisition of
Apteq, the Company issued $0.6 million in notes, which bear interest at 5.0%,
and are payable upon the earlier of achievement of certain milestones or at
maturity in fiscal 2006. The note was recorded at fair value of $0.6 million,
using a discount rate commensurate with the risks involved. As of September 30,
1999, the note had a balance of $0.6 million, all of which is included in
long-term debt.
During fiscal 1999, in connection with the acquisition of Gambit, the
Company issued $8.0 million in notes, which bear interest at the U.S. Treasury
T-bill Rate at set quarterly periods, and are payable upon the earlier of
achievement of certain milestones or at maturity in fiscal 2006. The notes were
recorded at fair value of $8.0 million, using a discount rate commensurate with
the risks involved. As of September 30, 1999, the notes had a balance of $8.0
million, of which $4.8 million is included in long-term debt.
During fiscal 1996, the Company and IBM entered into a six-year Joint
Development and License Agreement Concerning EDA Software and Related
Intellectual Property (the IBM Agreement). In accordance with the IBM Agreement,
the Company paid IBM $11.0 million in cash and issued $30.0 million in notes,
which bear interest at 3%, and are payable to IBM upon the earlier achievement
of scheduled milestones or at maturity in fiscal 2006. During fiscal 1998, the
Company recorded an extraordinary gain on extinguishment of debt of $1.9
million, net of income tax expense of $1.0 million, related to the cancellation
of certain interest bearing notes issued by the Company to IBM. During fiscal
1999, the Company settled the remaining balance of the long-term debt related to
the modified IBM Joint and Development and License Agreement and dissolved the
original agreement which resulted in no extraordinary gain.
The fair value of the Company's long-term debt approximates the carrying
amount.
43
<PAGE> 44
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company leases its domestic and international facilities under
cancelable, non-cancelable and month-to-month operating leases and certain
office equipment under operating leases. Rent expense was $23.5 million, $25.5
million and $25.2 million in 1999, 1998 and 1997, respectively.
Future minimum lease payments as of September 30, 1999 are as follows:
(in thousands)
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
-------------------
<S> <C>
2000........................................................ $ 28,032
2001........................................................ 24,264
2002........................................................ 20,375
2003........................................................ 13,586
2004........................................................ 10,010
Thereafter.................................................. 26,477
--------
Total minimum payments required................... $122,744
========
</TABLE>
NOTE 5. STOCKHOLDERS' EQUITY
Stock Repurchase Program. In June 1999, the Board of Directors authorized a
stock repurchase program under which Synopsys' common stock with a market value
of up to $200.0 million may be acquired in the open market over a seven month
period. The repurchased shares are to be used for the issuance of Synopsys'
employee stock plans and for other corporate purposes. During fiscal 1999, the
Company purchased 1,680,000 shares at an average price of $56.76 per share.
In July 1998, the Board of Directors authorized the repurchase of up to
3,250,000 shares of the Company's outstanding common stock in the open market
over the following 24 months. The repurchased shares were to be used for
issuance under the Company's employee stock plans and for other corporate
purposes. During fiscal 1998, the Company purchased approximately 353,000 shares
at an average price of $35.00. In October 1998, the Company announced that it
had rescinded the stock repurchase program to comply with pooling-of-interests
accounting guidance provided in the SEC SAB No. 96 (See Note 2).
Preferred Shares Rights Plan. The Company has adopted a number of
provisions that could have anti-takeover effects. In September 1997, the Board
of Directors adopted 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 shareholders of the Company might otherwise receive a
premium for their shares over then current market prices. The rights expire on
October 24, 2007.
Employee Stock Purchase Plan. Under the Company's 1992 Employee Stock
Purchase Plan (ESPP) 4,650,000 shares have been authorized for issuance as of
September 30, 1999. 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 1999, 1998 and 1997, shares totaling 460,438, 433,036 and 457,877,
respectively, were issued under the plan at average prices of $31.73, $27.61 and
$26.96 per share, respectively. As of September 30, 1999, 2,418,983 shares of
common stock are reserved for the ESPP.
44
<PAGE> 45
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Option Plans. Under the Company's 1992 Stock Option Plan (the 1992
Plan), the Board of Directors may grant either incentive or non-qualified stock
options to purchase shares of the Company's stock to eligible individuals at not
less than 100% of the fair market value of those shares on the grant date. The
stock options issued to new employees typically vest 25% after one year with the
remaining options vesting on a pro rata basis over the following 36 months,
while stock options issued to existing employees typically vest on a pro rata
basis over 48 months. Stock options expire ten years from the date of grant. As
of September 30, 1999, 3,940,615 shares of common stock are reserved for future
grants.
Under the Company's Non-Statutory Stock Option Plan (the 1998 Plan),
3,116,736 shares of common stock have been reserved for issuance for granting of
non-qualified stock options to employees excluding officers and directors.
Exercisability, option price and other terms are determined by the Board of
Directors, but the option price shall not be less than the fair value of the
stock at the date of grant. Stock options currently expire no later than ten
years and generally vest at the rate of 25% after one year from the date of
grant, and then ratably over the following 36 months. At September 30, 1999,
345,980 shares of common stock are reserved for future grants.
Under the Company's 1994 Non-Employee Directors Stock Option Plan (the
Directors Plan), a total of 300,000 shares have been reserved for issuance.
Pursuant to the Directors Plan, each non-employee member of the Board of
Directors is automatically granted an option to purchase 20,000 shares of the
Company's common stock upon initial appointment or election to the Board, 10,000
shares of the Company's common stock upon reelection to the Board, and 5,000
shares of the Company's common stock annually for service on Board committees,
subject to a limit of two committee-service grants per year. 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 after one year from the date of grant, and then ratably over the
following 36 months. Stock options granted upon reelection to the Board and
committee-service grants vest 100% after the first year of continuous service.
As of September 30, 1999, 9,334 shares of common stock are reserved for future
grants.
The Company has assumed certain option plans in connection with business
combinations (See Note 2). 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.
45
<PAGE> 46
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additional information concerning stock option activity under the various
plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at September 30, 1996........................... 11,316,975 $22.38
Granted and assumed....................................... 8,142,696 $28.84
Exercised................................................. (2,777,096) $12.94
Canceled.................................................. (4,302,151) $34.34
----------
Outstanding at September 30, 1997........................... 12,380,424 $24.61
Granted and assumed....................................... 4,654,557 $32.40
Exercised................................................. (2,803,421) $18.12
Canceled.................................................. (2,003,247) $26.48
----------
Outstanding at September 30, 1998........................... 12,228,313 $28.83
Granted and assumed....................................... 4,999,572 $49.10
Exercised................................................. (3,507,057) $25.00
Canceled.................................................. (1,026,001) $34.09
----------
Outstanding at September 30, 1999........................... 12,694,827 $37.44
==========
Options Exercisable at:
September 30, 1997........................................ 4,042,590 $20.40
September 30, 1998........................................ 5,239,779 $24.08
September 30, 1999........................................ 4,620,131 $29.41
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- ----------------- ----------- --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.11 - $28.19.. 3,175,738 6.26 $21.98 2,099,351 $20.60
$28.25 - $35.50.. 3,276,076 7.86 $33.24 1,552,049 $33.16
$35.30 - $44.63.. 2,557,423 8.73 $39.62 666,138 $39.23
$45.00 - $55.75.. 2,623,460 9.48 $50.42 302,593 $49.65
$56.75 - $60.50.. 1,062,130 9.88 $59.40 -- $ --
---------- ---- ------ --------- ------
$ 0.11 - $60.50.. 12,694,827 8.14 $37.44 4,620,131 $29.41
========== ==== ====== ========= ======
</TABLE>
Stock-Based Compensation. Under APB 25, the Company generally recognizes no
compensation expense with respect to stock-based awards to employees. Pro forma
information regarding net income and net income per share is required by SFAS
No. 123 for awards granted after September 30, 1995, as if the Company had
accounted for its stock-based awards to employees under the fair value method of
SFAS No. 123. The weighted-average estimated fair value of stock options issued
during fiscal 1999, 1998 and 1997 was $22.88, $20.32 and $12.87 per share,
respectively. The weighted-average estimated fair value of shares granted under
the ESPP during fiscal 1999, 1998 and 1997 was $13.76, $11.70 and $10.74 per
share, respectively. The fair value method of the Company's stock-based awards
to employees was estimated using the Black-Scholes option pricing model. The
fair value of the Company's stock-based awards to employees
46
<PAGE> 47
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
was estimated assuming no expected dividends and the following weighted-average
assumptions, for fiscal 1999, 1998 and 1997:
<TABLE>
<CAPTION>
STOCK OPTION PLANS
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected life (in years)................................... 4.3 5.3 5.4
Risk-free interest rate.................................... 5.3% 5.3% 6.3%
Volatility................................................. 51.5% 55.0% 55.1%
</TABLE>
<TABLE>
<CAPTION>
ESPP
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected life (in years)................................... 1.25 1.25 0.9
Risk-free interest rate.................................... 5.1 % 5.5 % 5.8%
Volatility................................................. 51.5 % 55.0 % 55.1%
</TABLE>
For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is generally amortized over the options' vesting
period of four years (for options) and the six-month purchase period (for stock
purchases under the ESPP). The Company's pro forma net income and earnings per
share data, under SFAS No. 123 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands, except per share amounts)
Net income
As reported under APB 25................................. $161,362 $ 89,446 $ 81,750
Pro forma under SFAS No. 123............................. $ 90,698 $ 44,680 $ 53,878
Earnings per share -- basic
As reported under APB 25................................. $ 2.30 $ 1.34 $ 1.30
Pro forma under SFAS No. 123............................. $ 1.29 $ 0.67 $ 0.86
Earnings per share -- diluted
As reported under APB 25................................. $ 2.20 $ 1.29 $ 1.24
Pro forma under SFAS No. 123............................. $ 1.26 $ 0.64 $ 0.82
</TABLE>
NOTE 6. 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:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
United States.............................................. $244,632 $110,998 $122,284
Foreign.................................................... 6,779 5,863 10,509
-------- -------- --------
$251,411 $116,861 $132,793
======== ======== ========
</TABLE>
47
<PAGE> 48
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
(in thousands)
Current:
Federal............................................. $54,744 $40,452 $26,998
State............................................... 7,821 5,555 4,562
Foreign............................................. 2,746 2,662 5,875
------- ------- -------
65,311 48,669 37,435
------- ------- -------
Deferred:
Federal............................................. (3,909) (6,003) (14,325)
State............................................... (558) (858) (2,062)
Foreign............................................. (644) 244 (29)
------- ------- -------
(5,111) (6,617) (16,416)
------- ------- -------
Charge equivalent to the federal and state tax
benefit related to employee stock options...... 29,849 13,767 30,024
------- ------- -------
Provision for income taxes....................... $90,049 $55,819 $51,043
======= ======= =======
</TABLE>
The provision for income taxes differs from the amount obtained by applying
the statutory federal income tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
(in thousands)
Statutory federal tax................................. $87,994 $40,901 $46,477
State tax, net of federal benefit..................... 10,756 6,121 6,712
Tax credits........................................... (5,703) (1,665) (3,717)
Tax benefit from foreign sales corporation............ (6,044) (3,826) (2,920)
Tax exempt income..................................... (6,745) (5,911) (3,797)
Equity method for investments......................... -- -- 744
Foreign tax in excess of U.S. statutory tax........... 1,457 872 1,501
Non-deductible merger and acquisition expenses........ 3,182 7,379 6,884
In-process research and development expenses.......... 6,583 9,888 1,921
Other................................................. (1,431) 2,060 2,673
Valuation allowance................................... -- -- (5,435)
------- ------- -------
$90,049 $55,819 $51,043
======= ======= =======
</TABLE>
48
<PAGE> 49
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A net deferred tax asset of $35.6 million and $30.5 million is included in
prepaid expenses, deferred taxes, and other at September 30, 1999 and 1998,
respectively. The tax effects of temporary differences and carryforwards which
give rise to significant portions of the deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1999 1998
------- -------
<S> <C> <C>
(in thousands)
Deferred tax assets:
Tax credit carryovers....................................... $ 29 $ 220
Deferred compensation....................................... 1,352 --
Deferred revenue............................................ 13,356 4,346
Joint venture and acquisition costs......................... -- 4,882
Reserves and other expenses not currently deductible........ 18,788 23,333
Depreciation and amortization............................... 4,717 4,187
Unrealized foreign exchange losses.......................... 147 269
Other....................................................... 2,727 1,187
------- -------
Deferred tax assets......................................... 41,116 38,424
Deferred tax liabilities:
Unrealized gain on securities investments................... (5,104) (7,287)
Net capitalized software development costs.................. (438) (674)
------- -------
Deferred tax liabilities.................................... (5,542) (7,961)
------- -------
Net deferred tax assets..................................... $35,574 $30,463
======= =======
</TABLE>
At September 30, 1999, 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.
NOTE 7. SEGMENT DISCLOSURE
In 1999, Synopsys adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 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 No. 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.
49
<PAGE> 50
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The disaggregated financial information reviewed by the CODM is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
(in thousands)
Revenue:
Product............................................... $ 505,847 $ 430,979 $ 408,256
Service............................................... 300,251 286,961 238,700
--------- --------- ---------
Total revenue................................. $ 806,098 $ 717,940 $ 646,956
Gross margin............................................ $ 699,334 $ 624,173 $ 560,071
Direct contribution margin.............................. $ 500,710 $ 430,701 $ 405,174
Amortization of intangible assets....................... $ 7,907 $ -- $ --
</TABLE>
Reconciliation of the Company's segment profit and loss to the Company's income
before provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
(in thousands)
Direct contribution margin.............................. $ 500,710 $ 430,701 $ 405,174
Merger-related costs and in-process research and
development........................................... (21,176) (84,078) (16,900)
Indirect spending....................................... (265,139) (255,746) (279,842)
--------- --------- ---------
Operating income........................................ $ 214,395 $ 90,877 $ 108,432
========= ========= =========
</TABLE>
Direct contribution margin is the difference between gross margin and the
direct costs of developing and supporting Synopsys products and services. The
direct costs include all costs associated with developing, maintaining, and
marketing the software products and services of each business unit.
Indirect spending are all costs necessary to support the Company's products
and services other than direct costs. This includes all other spending necessary
to support the Companies product and service offerings, which includes but is
not limited to selling costs, administrative costs, material costs, advanced
research and development, infrastructure and facilities costs, communications
costs, and other related support activities necessary to operate Synopsys as an
ongoing concern.
50
<PAGE> 51
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue and long-lived assets related to operations in United States and
other geographic areas are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
Revenue:
United States............................................ $590,254 $506,566 $456,669
Europe................................................... 126,358 128,347 109,760
Japan.................................................... 102,824 111,149 117,019
Other.................................................... 46,046 40,260 35,394
Transfers between geographic areas....................... (59,384) (68,382) (71,886)
-------- -------- --------
Consolidated.......................................... $806,098 $717,940 $646,956
======== ======== ========
Long-lived assets:
United States............................................ $114,526 $ 89,809 $ 84,634
Other.................................................... 11,678 10,189 7,459
-------- -------- --------
Consolidated.......................................... $126,204 $ 99,998 $ 92,093
======== ======== ========
</TABLE>
Transfers between geographic areas represent both intercompany product and
service revenue accounted for at prices representative of unaffiliated party
transactions and export shipments directly to customers. Corporate assets
consist primarily of cash and investments. No one customer accounted for more
than ten percent of the Company's consolidated revenue in fiscal 1999, 1998 and
1997, respectively.
51
<PAGE> 52
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER
31 31 30 30
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
1999:
Revenue......................................... $180,226 $190,186 $207,360 $228,326
Gross margin.................................... 158,520 165,494 177,074 198,246
Income before income taxes and extraordinary
items......................................... 59,398 48,934 65,146 77,933
Net income...................................... 40,391 26,621 41,355 52,995
Earnings per share
Basic......................................... 0.58 0.38 0.58 0.75
Diluted....................................... 0.56 0.36 0.56 0.72
Market stock price range:(1)
High.......................................... $ 54.25 $ 60.56 $ 57.25 $ 64.44
Low........................................... $ 28.38 $ 45.88 $ 42.13 $ 53.38
1998:
Revenue......................................... $174,212 $170,105 $179,606 $194,017
Gross margin.................................... 150,720 148,815 156,280 168,358
Income (loss) before income taxes and
extraordinary items (2)....................... (4,415) 38,325 51,695 31,256
Net income (loss)............................... (6,620) 25,174 33,834 37,058
Earnings (loss) per share
Basic......................................... (0.10) 0.38 0.50 0.54
Diluted....................................... (0.10) 0.37 0.48 0.53
Market stock price range:(1)
High.......................................... $ 46.06 $ 36.00 $ 45.81 $ 42.44
Low........................................... $ 35.06 $ 29.50 $ 30.97 $ 26.13
</TABLE>
- ---------------
(1) The 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 September 30, 1999, there were
approximately 520 shareholders of record. To date, the Company has paid no
cash dividends on its capital stock, and has no current intention to do so.
(2) Includes merger-related and other costs of $36.0 million, $11.9 million and
$3.1 million, for the first, second and third quarters of fiscal 1998,
respectively. Includes in-process research and development and other costs
of $4.2 million and $28.9 million in the first and fourth quarters of fiscal
1998, respectively.
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors is included under the caption
"Proposal One -- Election of Directors" in Synopsys' Notice of Annual Meeting
and Proxy Statement for Synopsys' annual meeting of stockholders to be held on
March 3, 2000 (the "Proxy Statement") and is incorporated herein by reference.
Information with respect to Executive Officers is included under the heading
"Executive Officers of the Company" in Part I hereof after Item 4.
Information regarding delinquent filers pursuant to Item 405 of Regulation
S-K is included under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" under the caption "Additional Information" in the Proxy Statement
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the heading
"Executive Compensation" under the caption "Proposal One -- Election of
Directors" in the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the heading
"Security Ownership of Certain Beneficial Owners and Management" under the
caption "Proposal One -- Election of Directors" in the Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
"Proposal One -- Election of Directors" in the Proxy Statement and is
incorporated herein by reference.
PART IV
ITEM 14. 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:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. 30
Consolidated Balance Sheets................................. 31
Consolidated Statements of Income........................... 32
Consolidated Statements of Stockholders' Equity............. 33
Consolidated Statements of Cash Flows....................... 34
Notes to Consolidated Financial Statements.................. 35
</TABLE>
53
<PAGE> 54
2. FINANCIAL STATEMENT SCHEDULE
The following schedule of the Company is included herein:
Valuation and Qualifying Accounts and Reserves (Schedule II)
All other schedules are omitted because they are not applicable or the
amounts are immaterial or the required information is presented in the
consolidated financial statements or notes thereto.
The following documents are included in Exhibit 23 hereto:
<TABLE>
<S> <C>
Exhibit 23.1 Report on Financial Statement Schedule of Synopsys, Inc.
Exhibit 23.2 Consent of KPMG LLP, Independent Auditors
</TABLE>
3. EXHIBITS
See Item 14(c) below.
(b) REPORTS ON FORM 8-K
Report on Form 8-K, filed on July 23, 1999 for the purpose of filing the
Company's press release announcing its financial results for the quarter and
nine months ended July 3, 1999, including condensed consolidated statements of
income and balance sheets, and reporting a change in the Company's fiscal year
end.
Report on Form 8-K, filed on October 28, 1999 for the purpose of filing the
Company's press release announcing its financial results for the quarter and
fiscal year ended October 2, 1999, including condensed consolidated statements
of income and balance sheets.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
2.1 Agreement and Plan of Merger dated October 14, 1997, by the
Company, Post Acquisition Corp. and Viewlogic Systems,
Inc.(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 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)
10.6 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 March 29, 1991, 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)
10.15 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)
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.16 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)
10.21 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)
10.25 Amendment No. 5 to Lease, dated October 4, 1995, to Lease
Agreement dated August 17, 1990, between the Company and
John Arrillaga, Trustee, or his successor trustee, UTA dated
July 20, 1997 (Arrillaga Family Trust), and Richard T.
Peery, Trustee, or his successor trustee, UTA dated July 20,
1997 (Richard T. Peery Separate Property Trust), as
amended(8)
10.26 Amendment No. 3 to Lease, dated October 4, 1995, to Lease
Agreement dated June 16, 1992, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July
20, 1997 (Arrillaga Family Trust), and Richard T. Peery,
Trustee, or his successor trustee, UTA dated July 20, 1997
(Richard T. Peery Separate Property Trust), as amended(8)
10.27 Amendment No. 2 to Lease, dated October 4, 1995, to Lease
Agreement dated June 23, 1993, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July
20, 1997 (Arrillaga Family Trust), and Richard T. Peery,
Trustee, or his successor trustee, UTA dated July 20, 1997
(Richard T. Peery Separate Property Trust), as amended(8)
Lease dated January 2, 1996 between the Company and
Tarigo-Paul, a California Limited Partnership(9)
10.29 1992 Stock Option Plan, as amended and restated(10)(11)
10.30 Employee Stock Purchase Program, as amended and restated(11)
10.31 International Employee Stock Purchase Plan, as amended and
restated(11)
10.32 Synopsys deferred compensation plan dated September 30,
1996(11)(12)
10.33 1994 Non-Employee Directors Stock Option Plan, as amended
and restated(10)(11)
10.34 Form of Executive Employment Agreement dated October 1,
1997(11)(13)
10.35 Schedule of Executive Employment Agreements(13)
10.36 1998 Nonstatutory Stock Option Plan(11)(14)
21.1 Subsidiaries of the Company
23.1 Report on Financial Statement Schedule
23.2 Consent of KPMG LLP, Independent Auditors
24.1 Power of Attorney (see page 57)
27.1-
27. Financial Data Schedules
</TABLE>
- ---------------
(1) Incorporated by reference to Annex A to the form of prospectus contained in
the Registration Statement on Form S-4 (File No. 333-39713) of Synopsys,
Inc. as filed with the Securities and Exchange Commission on November 7,
1997
(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 as filed with the Securities and
Exchange Commission on December 13, 1999
(4) Incorporated by reference from exhibit of the same number filed with the
Company's Registration Statement on Form S-1 (File No. 33-45138) which
became effective February 24, 1992
55
<PAGE> 56
(5) Incorporated by reference from exhibit of the same number filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1992
(6) Incorporated by reference from exhibit of the same number filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1993
(7) Incorporated by reference from exhibit of the same number filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1995
(8) Incorporated by reference from exhibit of the same number filed with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1995
(9) Incorporated by reference from exhibit of the same number filed with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1996
(10) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-8 (file No. 333-77597), as filed with the Securities
and Exchange Commission on May 3, 1999
(11) Compensatory plan or agreement in which an executive officer participates
(12) Incorporated by reference from exhibit to the Registration Statement on
Form S-4 (File No. 333-21129) of Synopsys, Inc. as filed with the
Securities and Exchange Commission on February 5, 1997
(13) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended January 3, 1998
(14) Incorporated by reference to exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-90643) as filed with the Securities and
Exchange Commission on November 9, 1999
56
<PAGE> 57
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 day of December 22, 1999.
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/ DAVID SUGISHITA
------------------------------------
David Sugishita
Senior Vice President, Finance and
Operations, and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Aart J. de Geus and David Sugishita, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof. 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ AART J. DE GEUS Chief Executive Officer December 22, 1999
- -------------------------------------------------------- and Director
Aart J. de Geus
/s/ CHI-FOON CHAN President, Chief Operating December 22, 1999
- -------------------------------------------------------- Officer and Director
Chi-Foon Chan
/s/ ANDY D. BRYANT Director December 22, 1999
- --------------------------------------------------------
Andy D. Bryant
/s/ DEBORAH A. COLEMAN Director December 22, 1999
- --------------------------------------------------------
Deborah A. Coleman
/s/ HARVEY C. JONES, JR. Director December 22, 1999
- --------------------------------------------------------
Harvey C. Jones, Jr.
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ WILLIAM W. LATTIN Director December 22, 1999
- --------------------------------------------------------
William W. Lattin
Director December , 1999
- --------------------------------------------------------
A. Richard Newton
/s/ SASSON SOMEKH Director December 22, 1999
- --------------------------------------------------------
Sasson Somekh
/s/ STEVEN C. WALSKE Director December 22, 1999
- --------------------------------------------------------
Steven C. Walske
</TABLE>
58
<PAGE> 59
SCHEDULE II
SYNOPSYS, INC.
------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED BALANCE AT
BEGINNING CHARGED TO TO OTHER END OF
OF PERIOD EXPENSE(1) ACCOUNTS(2) DEDUCTIONS(3) PERIOD
---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
and Sales Returns:
1999............................ $13,210 $2,007 $ 911 $5,605 $10,523
1998............................ $ 8,213 $8,431 $(2,098) $1,336 $13,210
1997............................ $ 5,138 $5,242 $ (75) $2,092 $ 8,213
</TABLE>
- ---------------
(1) Includes $830 charged to other income in fiscal 1997.
(2) Fiscal 1998 includes a $2,049 reduction due to the sale of Viewlogic
Systems, Inc. Other amounts are translation and other adjustments.
(3) Accounts written off, net of recoveries.
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
2.1 Agreement and Plan of Merger dated October 14, 1997, by the
Company, Post Acquisition Corp. and Viewlogic Systems,
Inc.(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 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)
10.6 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 March 29, 1991, 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)
10.15 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)
10.16 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)
10.21 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)
10.25 Amendment No. 5 to Lease, dated October 4, 1995, to Lease
Agreement dated August 17, 1990, between the Company and
John Arrillaga, Trustee, or his successor trustee, UTA dated
July 20, 1997 (Arrillaga Family Trust), and Richard T.
Peery, Trustee, or his successor trustee, UTA dated July 20,
1997 (Richard T. Peery Separate Property Trust), as
amended(8)
10.26 Amendment No. 3 to Lease, dated October 4, 1995, to Lease
Agreement dated June 16, 1992, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July
20, 1997 (Arrillaga Family Trust), and Richard T. Peery,
Trustee, or his successor trustee, UTA dated July 20, 1997
(Richard T. Peery Separate Property Trust), as amended(8)
10.27 Amendment No. 2 to Lease, dated October 4, 1995, to Lease
Agreement dated June 23, 1993, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July
20, 1997 (Arrillaga Family Trust), and Richard T. Peery,
Trustee, or his successor trustee, UTA dated July 20, 1997
(Richard T. Peery Separate Property Trust), as amended(8)
Lease dated January 2, 1996 between the Company and
Tarigo-Paul, a California Limited Partnership(9)
10.29 1992 Stock Option Plan, as amended and restated(10)(11)
10.30 Employee Stock Purchase Program, as amended and restated(11)
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.31 International Employee Stock Purchase Plan, as amended and
restated(11)
10.32 Synopsys deferred compensation plan dated September 30,
1996(11)(12)
10.33 1994 Non-Employee Directors Stock Option Plan, as amended
and restated(10)(11)
10.34 Form of Executive Employment Agreement dated October 1,
1997(11)(13)
10.35 Schedule of Executive Employment Agreements(13)
10.36 1998 Nonstatutory Stock Option Plan(11)(14)
21.1 Subsidiaries of the Company
23.1 Report on Financial Statement Schedule
23.2 Consent of KPMG LLP, Independent Auditors
24.1 Power of Attorney (see page 57)
27.1-
27. Financial Data Schedules
</TABLE>
- ---------------
(1) Incorporated by reference to Annex A to the form of prospectus contained in
the Registration Statement on Form S-4 (File No. 333-39713) of Synopsys,
Inc. as filed with the Securities and Exchange Commission on November 7,
1997
(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 as filed with the Securities and
Exchange Commission on December 13, 1999
(4) Incorporated by reference from exhibit of the same number filed with 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 of the same number filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1992
(6) Incorporated by reference from exhibit of the same number filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1993
(7) Incorporated by reference from exhibit of the same number filed with the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1995
(8) Incorporated by reference from exhibit of the same number filed with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1995
(9) Incorporated by reference from exhibit of the same number filed with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1996
(10) Incorporated by reference from exhibit to the Company's Registration
Statement on Form S-8 (file No. 333-77597), as filed with the Securities
and Exchange Commission on May 3, 1999
(11) Compensatory plan or agreement in which an executive officer participates
(12) Incorporated by reference from exhibit to the Registration Statement on
Form S-4 (File No. 333-21129) of Synopsys, Inc. as filed with the
Securities and Exchange Commission on February 5, 1997
(13) Incorporated by reference from exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended January 3, 1998
(14) Incorporated by reference to exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-90643) as filed with the Securities and
Exchange Commission on November 9, 1999
<PAGE> 1
Exhibit 10.30
SYNOPSYS, INC
EMPLOYEE STOCK PURCHASE PLAN
(As Amended through August 1, 1999)
I. PURPOSE
The Synopsys, Inc. Employee Stock Purchase Plan (the "Plan") is intended to
provide Eligible Employees of the Company and one or more of its Corporate
Affiliates with the opportunity to acquire a proprietary interest in the Company
through the periodic application of their payroll deductions to the purchase of
shares of the Company's common stock.
II. DEFINITIONS
For purposes of plan administration, the following terms shall have the
meanings indicated.
Base Salary means all compensation paid as wages, salaries, commissions,
overtime, and bonuses, but excluding all of the following items (even if
included in taxable income): reimbursements, car allowances or other expense
allowances, severance pay, fringe benefits (cash and noncash), moving expenses,
deferred compensation, income attributable to stock options, restricted stock
grants, SARs and other equity-related incentive programs, and welfare benefits.
Code means the Internal Revenue Code of 1986, as amended from time to time.
Company means Synopsys, Inc., a Delaware corporation, and any corporate
successor to all or substantially all of the assets or voting stock of Synopsys,
Inc. which shall by appropriate action adopt the Plan.
Common Stock means shares of the Company's common stock.
Corporate Stock means shares of the Company's common stock.
Corporate Affiliate means any company which is a parent or subsidiary
corporation of the Company (as determined in accordance with Code Section 424),
including any parent or subsidiary
corporation which becomes such after the Effective Date.
Effective Date means the first day of the initial offering period scheduled
to commence upon the later of (i) February 1, 1992 or (ii) the effective date of
the S-8 Registration Statement covering the share of Common Stock issuable under
the Plan. However, for any Corporate Affiliate which becomes a participating
Company in the Plan after the first day of the initial offering period, a
subsequent Effective Date shall be designated with respect to participation by
its Eligible Employees.
Eligible Employee means any person who is engaged, on a regularly-scheduled
basis of more than twenty (20) hours per week and more than five (5) months per
calendar year, in the rendition of personal services to the Company or any other
Participating Company for earnings considered wages under Section 3121(a) of the
Code.
Enrollment Date has the meaning ascribed to it in Section V.A.
Participant means any Eligible Employee of a Participating Company who is
actively participating in the Plan.
Participating Company means the Company and such Corporate Affiliate or
Affiliates as may be designated from time to time by the Board.
Semi-Annual Entry Date means (i) during 1999 and each preceding calendar year
within an offering period in effect under the Plan, the first business day of
May and the first business day of November and (ii) during 2000 and all
subsequent calendar years within an offering period under the Plan, the first
business day of March
<PAGE> 2
and the first business day of September. The earliest Semi-Annual Entry Date
under the Plan shall be November 2, 1992.
Semi-Annual Period of Participation means each period for which the
Participant actually participates in an offering period in effect under the
Plan. There shall be a maximum of four (4) periods of participation within each
offering period. Except as otherwise designated by the Plan Administrator, each
such period shall commence on the applicable Semi-Annual Entry Date.
Semi-Annual Purchase Date means (i) during 1999 and each preceding year on
which shares of Common Stock are automatically purchased for Participants under
the Plan, the last business day of April and October, and (ii) during 2000 and
each subsequent year on which shares of Common Stock are automatically purchased
for Participants under the Plan, the last business day of February and August.
III. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company or a
committee that will satisfy Rule 16b-3 of the Securities and Exchange
Commission, as in effect with respect to the Company from time to time (in
either case, the "Board"). The Board may from time to time select a committee or
persons (the "Plan Administrator") to be responsible for any transactions not
subject to Rule 16b-3. Subject to the express provisions of the Plan, to the
overall supervision of the Board, and to the limitations of Section 423 of the
Code, the Plan Administrator may administer and interpret the Plan in any manner
it believes to be desirable (including the designation of a brokerage firm at
which accounts for the holding of shares purchased under the Plan must be
established by each employee desiring to participate in the Plan), and any such
interpretation shall be final and binding on all parties who have an interest in
the Plan.
IV. OFFERING PERIODS
The Plan shall be implemented in a series of offering periods. Each offering
period shall be of a duration of twenty-four (24) months or less as designated
by the Plan Administrator prior to the start date of any offering period, except
that offering periods that include the Semi-Annual Entry Date on November 1,
1999 shall be of a duration of twenty-two (22) months. Within each offering
period, there shall be a maximum of four (4) Semi-Annual Periods of
Participation.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee will be automatically enrolled in the Plan in the
offering period that begins on the first Semi-Annual Entry Date following the
commencement of employment; thereafter, any Eligible Employee may enroll or
re-enroll in the Plan in the offering period that begins as of any Semi-Annual
Entry Date, or such other days as may be established by the Board from time to
time (each, an "Enrollment Date"). To participate, an Eligible Employee must
complete, sign, and submit to the Company an enrollment form prescribed by the
Plan Administrator. Any enrollment form received by the Company by the 15th day
of the month preceding an Enrollment Date (or by the Enrollment Date in the case
of employees hired after such 15th day), or such other date established by the
Plan Administrator from time to time, will be effective on that Enrollment Date.
Enrollment or re-enrollment by a Participant in the Plan on an Enrollment Date
will constitute the grant by the Company to the Participant of an option to
purchase shares of Common Stock from the Company under the Plan. At the end of
each offering period, each Participant who has not withdrawn from the Plan will
automatically be re-enrolled in the Plan in the offering period that begins on
the Enrollment Date immediately following the date on which the option expires.
Furthermore, except as may otherwise be determined by the Plan Administrator,
each Participant who has not withdrawn from the Plan will automatically be
re-enrolled in the Plan in each offering period that begins on an Enrollment
Date on which the fair market value per share of the Company's Common Stock is
lower than the fair market value per share of the Company's Common Stock on the
Enrollment Date for the offering period in which the Participant is then
enrolled. Notwithstanding anything in the Plan to the contrary, if the fair
market value (the "Authorization Date FVM") on the date (the "Authorization
Date") on which additional shares of Common Stock are authorized for issuance
hereunder by the Company's shareholders is higher than the fair market value at
the beginning of any Offering Period that commenced prior to the Authorization
Date, then, with respect to any of such authorized shares available to be issued
on Purchase Dates relating to such Offering Period, the Authorization Date FMV
shall be used instead of the fair market value on the Enrollment Date for the
purposes of the preceding sentence, provided that the Plan Administrator, in its
discretion, may waive application of this sentence with respect to the first
Purchase Date occurring after the Authorization Date.
<PAGE> 3
B. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be zero percent (0%) or any
whole multiple of one percent (1%) of the Base Salary paid to the Participant
during each Semi-Annual Period of Participation within the offering period, up
to a maximum of ten percent (10%). The deduction rate so authorized shall
continue in effect for the entire Semi-Annual Period of Participation and for
each successive Semi-Annual Period of Participation unless (i) the Participant
shall change the rate for a subsequent Semi-Annual Period of Participation by
filing the appropriate form with the Plan Administrator prior to the
commencement of that Semi-Annual Period of Participation or (ii) the Participant
shall change the rate within a Semi-Annual Period of Participation by filing the
appropriate form with the Plan Administrator. The new rate shall become
effective as soon as practicable following the filing of such form. A
Participant may not increase or decrease the deduction rate more than once per
Semi-Annual Period of Participation in addition to fixing the rate at the
beginning of the Semi-Annual Period of Participation. Payroll deductions,
however, will automatically cease upon the termination of the Participant's
purchase right in accordance with Article VII below.
C. In no event may any Participant's payroll deductions for any one
Semi-Annual Period of Participation exceed Seven Thousand Five Hundred Dollars
($7,500.00).
VI. STOCK SUBJECT TO PLAN
A. The Common Stock purchasable by Participants under the Plan shall, solely
in the discretion of the Plan Administrator, be made available from either
authorized but unissued shares of the Common Stock or from shares of Common
Stock reacquired by the Company, including shares of Common Stock purchased on
the open market. The total number of shares which may be issued under the Plan
shall not exceed 5,050,000 shares, less any shares sold under the Synopsys, Inc.
International Employee Stock Purchase Plan (subject to adjustment under Section
VI.B below). Such share reserve includes the increase of 1,500,000 shares
approved by the Board in December 1998 and approved by the stockholders in March
1999.
B. In the event any change is made to the Company's outstanding Common Stock
by reason of any stock dividend, stock split, combination of shares or other
change affecting such outstanding Common Stock as a class without receipt of
consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during each Semi-Annual Period of Participation, (iii) the class and
maximum number of shares purchasable in the aggregate by all Participants on any
one purchase date under the Plan and (iv) the class and number of shares and the
price per share of the Common Stock subject to each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.
VII. PURCHASE RIGHTS
An Employee who participates in the Plan for a particular offering period
shall have the right to purchase shares of Common Stock, in a series of
successive installments during such offering period, upon the terms and
conditions set forth below and shall execute a purchase agreement embodying such
terms and conditions and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.
Purchase Price. Common Stock shall be issuable on each Semi-Annual Purchase
Date at a purchase price equal to 85 percent of the lower of (i) the fair market
value per share on the Participant's Enrollment Date or (ii) the fair market
value per share on the Semi-Annual Purchase Date. Notwithstanding anything in
the Plan to the contrary, if the Authorization Date FVM is higher than the fair
market value at the beginning of any Offering Period that commenced prior to the
Authorization Date, then, with respect to any of such authorized shares
available to be issued on Purchase Dates relating to such Offering Period, the
Authorization Date FMV shall be used instead of the fair market value on the
Enrollment Date for the purposes of clause (i) of the preceding sentence,
provided that the Plan Administrator, in its discretion, may waive application
of this sentence with respect to the first Purchase Date occurring after the
Authorization Date.
Valuation. For purposes of determining the fair market value per share of
Common Stock on any relevant date, the following procedures shall be in effect:
(i) If such fair market value is to be determined on any date on
or after the date the Common Stock is first registered under
Section 12(g) of the Securities Exchange Act of 1934, then the
<PAGE> 4
fair market value shall be the closing selling price on that
date, as officially quoted on the Nasdaq National Market System.
If there is no quoted selling price for such date, then the
closing selling price on the next preceding day for which there
does exist such a quotation shall be determinative of fair market
value.
(ii) If such fair market value is to be determined on any date
prior to the time of such Section 12(g) registration of the
Common Stock, then the fair market value of the Common Stock on
such date shall be determined by the Plan Administrator, after
taking into account such factors as the Plan Administrator deems
appropriate.
Number of Purchasable Shares. The number of shares purchasable per
Participant on each Semi-Annual Purchase Date shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the corresponding Semi-Annual Period of Participation
by the purchase price in effect for the Semi-Annual Purchase Date. However, no
Participant may, during any Semi-Annual Purchase Period, purchase more than
2,000 shares of Common Stock, subject to periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under the Plan to any
Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Corporate Affiliates.
Payment. Payment for the Common Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin on the first pay day coincident with or immediately
following the Participant's Enrollment Date and shall (unless sooner terminated
by the Participant) continue through the pay day ending with or immediately
prior to the last day of the offering period.
The amounts so collected shall be credited to the Participant's book account
under the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from a Participant may be
commingled with the general assets of the Company and may be used for general
corporate purposes.
Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last five (5)
business days of the Semi-Annual Period of Participation,
terminate his/her outstanding purchase right under the Plan by
filing the prescribed notification form with the Plan
Administrator. No further payroll deductions shall be collected
from the Participant with respect to the terminated purchase
right, and any payroll deductions collected for the Semi-Annual
Period of Participation in which such termination occurs shall,
at the Participant's election, be immediately refunded or held
for the purchase of shares on the next Semi-Annual Purchase Date.
If no such election is made, then such funds shall be refunded as
soon as possible after the close of such Semi-Annual Period of
Participation.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering
period for which such terminated purchase right was granted. In
order to resume participation in any subsequent offering period,
such individual must re-enroll in the Plan in accordance with
Section V.A.
(iii) Should a Participant cease to remain an Eligible Employee
while his/her purchase right remains outstanding or should there
otherwise occur a change in such individual's employee status so
that he/she is no longer an Eligible Employee while holding such
purchase right, then such purchase right shall immediately
terminate upon such termination of service or change in status
and all sums previously collected from the Participant during the
Semi-Annual Period of Participation in which the purchase right
so terminates shall be promptly refunded to the Participant.
However, should the Participant die or become permanently
disabled while in service or should the Participant cease
employment by reason of a leave of absence, then the Participant
(or the person or persons to whom the rights of the deceased
<PAGE> 5
Participant under the Plan are transferred by will or the laws of
inheritance) shall have the election, exercisable up until the
end of the Semi-Annual Period of Participation in which the
Participant dies or becomes permanently disabled or in which the
leave of absence commences, to (i) withdraw all the funds
credited to the Participant's account at the time of his/her
cessation of service or at the commencement of such leave or (ii)
have such funds held for the purchase of shares of Common Stock
at the next Semi-Annual Purchase Date. If no such election is
made, then such funds shall automatically be held for the
purchase of shares of Common Stock at the next Semi-Annual
Purchase Date. In no event, however, shall any further payroll
deductions be added to the Participant's account following
his/her cessation of service or the commencement of such leave.
Should the Participant return to active service following a leave
of absence, then his/her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave
began, provided such return to service occurs prior to the end of
the offering period in which such leave began. For purpose of the
Plan: (i) the Participant shall be considered to remain in
service for so long as such Participant remains in the active
employ of the Company or one or more other Participating
Companies and (ii) the Participant shall be deemed to be
permanently disabled if he/she is unable to engage in any
substantial gainful employment, by reason of any medically
determinable physical or mental impairment expected to result in
death or to be of continuous duration of at least twelve (12)
months.
Stock Purchase. Shares of Common Stock shall automatically be purchased on
behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded or set aside for refund in accordance with the
"Termination of Purchase Right" provisions above) on each Semi-Annual Purchase
Date. The purchase shall be effected by applying each Participant's payroll
deductions for the Semi-Annual Period of Participation ending on such
Semi-Annual Purchase Date (together with any carryover deductions from the
preceding Semi-Annual Period of Participation) to the purchase of whole shares
of Common Stock (subject to the limitation on the maximum number of purchasable
shares set forth above) at the purchase price in effect for such Semi-Annual
Period of Participation. Any payroll deductions not applied to such purchase
because they are not sufficient to purchase a whole share shall be held for the
purchase of Common Stock in the next Semi-Annual Period of Participation.
However, any payroll deductions not applied to the purchase of Common Stock by
reason of the limitation on the maximum number of shares purchasable by the
Participant for that Semi-Annual Period of Participation shall be promptly
refunded to the Participant.
Proration of Purchase Rights. Not more than 500,000 shares of Common Stock,
subject to periodic adjustment under Section VI.B, may be purchased in the
aggregate by all Participants on any one Semi-Annual Purchase Date. Should the
total number of shares of Common Stock which are to be purchased pursuant to
outstanding purchase rights on any particular date exceed either (i) the maximum
limitation on the number of shares purchasable in the aggregate on such date or
(ii) the number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares on a
uniform and non-discriminatory basis, and the payroll deductions for each
Participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, shall be refunded to such
Participant.
Rights as Stockholder. A Participant shall have no stockholder rights with
respect to the shares subject to his/her outstanding purchase right until the
shares are actually purchased on the Participant's behalf in accordance with
the applicable provisions of the Plan. No adjustments shall be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
Assignability. No purchase right granted under the Plan shall be assignable
or transferable by the Participant other than by will or by the laws of descent
and distribution following the participant's death, and during the Participant'
s lifetime the purchase right shall be exercisable only by the Participant.
Change in Ownership. Should the Company or its stockholders enter into an
agreement to dispose of all or substantially all of the assets or outstanding
capital stock of the Company by means of:
(i) A sale, merger or other reorganization in which the Company
will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which
the Company is incorporated), or
<PAGE> 6
(ii) a reverse merger in which the Company is the surviving
corporation but in which more than fifty percent (50%) of the
Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to the
reverse merger, then all outstanding purchase rights under the
Plan shall automatically be exercised immediately prior to the
consummation of such sale, merger, reorganization or reverse
merger by applying the payroll deductions of each Participant for
the Semi-Annual Period of participation in which such transaction
occurs to the purchase of whole shares of Common Stock at
eighty-five percent (85%) of the lower of (i) the fair market
value of the Common Stock on the Participant's Enrollment Date
for the offering period in which such transaction occurs or (ii)
the fair market value of the Common Stock immediately prior to
the consummation of such transaction. However, the applicable
share limitations of Articles VII and VIII shall continue to
apply to any such purchase, and the clause (i) amount above shall
not, for any Participant whose Enrollment Date for the offering
period is other than the start date of such offering period, be
less than the fair market value of the Common Stock on such start
date.
The Company shall use its best efforts to provide at least ten (10) days'
advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall, following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under this Plan if and to the extent
such accrual, when aggregated with (I) rights to purchase Common Stock accrued
under any other purchase right outstanding under this Plan and (II) similar
rights accrued under other employee stock purchase plans (within the meaning of
Section 423 of the Code) of the Company or its Corporate Affiliates, would
otherwise permit such Participant to purchase more than $25,000 worth of stock
of the Company or any Corporate Affiliate (determined on the basis of the fair
market value of such stock on the date or dates such rights are granted to the
Participant) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the right to acquire
Common Stock pursuant to each purchase right outstanding under the Plan shall
accrue as follows:
(i) The right to acquire Common Stock under each such purchase
right shall accrue in a series of successive semi-annual
installments as and when the purchase right first becomes
exercisable for each semi-annual installment on the last business
day of each Semi-Annual Period of Participation for which the
right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire
$25,000 worth of Common Stock (determined on the basis of the
fair market value on the date or dates of grant) pursuant to one
or more purchase rights held by the Participant during such
calendar year.
(iii) If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular
Semi-Annual Period of Participation, then the payroll deductions
which the Participant made during that Semi-Annual Period of
Participation with respect to such purchase right shall be
promptly refunded.
C. In the event there is any conflict between the provisions of this Article
VIII and one or more provisions of the Plan or any instrument issued thereunder,
the provisions of this Article VIII shall be controlling.
IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS
The Plan is designed to qualify as an employee stock purchase plan under Code
Section 423.
<PAGE> 7
X. AMENDMENT AND TERMINATION
A. The Board may amend, alter, suspend, discontinue, or terminate the Plan at
any time, including amendments to outstanding options/purchase rights. However,
the Board may not, without the approval of the Company's stockholders:
(i) Increase the number of shares issuable under the Plan or the
maximum number of shares which may be purchased per Participant
or in the aggregate during any one Semi-Annual Period of
Participation under the Plan, except that the Plan Administrator
shall have the authority, exercisable without such stockholder
approval, to effect adjustments to the extent necessary to
reflect changes in the Company's capital structure pursuant to
Section VI.B;
(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to Participants
under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
B. The Board may elect to terminate any or all outstanding purchase rights at
any time. In the event the Plan is terminated, the Board may also elect to
terminate outstanding purchase rights either immediately or upon completion of
the purchase of shares on the next Semi-Annual Purchase Date, or may elect to
permit purchase rights to expire in accordance with their terms (and
participation to continue through such expiration dates). If purchase rights are
terminated prior to expiration, all funds contributed to the Plan that have not
been used to purchase shares shall be returned to the Participants as soon as
administratively feasible.
IX. GENERAL PROVISIONS
A. The Plan shall become effective on the designated Effective Date, provided
that no offering period shall commence, and no shares of Common Stock shall be
issued hereunder, until (i) the Plan shall have been approved by the
stockholders and (ii) the Company shall have complied with all applicable
requirements of the Securities Act of 1933 (as amended), all applicable listing
requirements of any securities exchange on which shares of the Common Stock are
listed and all other applicable requirements established by law or regulation.
In the event such stockholder approval is not obtained, or such Company
compliance is not effected, within twelve (12) months after the date on which
the Plan is adopted by the Board, the Plan shall terminate and have no further
force of effect.
B. All costs and expenses incurred in the administration of the Plan shall be
paid by the Company.
C. Neither the action of the Company in establishing the Plan, nor any action
taken under the Plan by the Board or the Plan Administrator, nor any provision
of the Plan itself shall be construed so as to grant any person the right to
remain in the employ of the Company or any of its Corporate Affiliates for any
period of specific duration, and such person's employment may be terminated at
any time, with or without cause.
D. The provisions of the Plan shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
<PAGE> 1
Exhibit 10.31
SYNOPSYS, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
(As Amended August 1, 1999)
I. PURPOSE
The Synopsys, Inc. International Employee Stock Purchase Plan (the "Plan") is
intended to provide Eligible Employees of designated subsidiaries of the Company
with the opportunity to acquire a proprietary interest in the Company through
the periodic application of their payroll deductions to the purchase of shares
of the Company's common stock.
II. DEFINITIONS
For purposes of plan administration, the following terms shall have the
meanings indicated:
Base Salary means all compensation paid as wages, salaries, commissions,
overtime, and bonuses, but excluding all of the following items (even if
included in taxable income): reimbursements, car allowances or other expense
allowances, severance pay, fringe benefits (cash and noncash), moving expenses,
deferred compensation, income attributable to stock options, restricted stock
grants, SARs and other equity-related incentive programs, and welfare benefits.
Code means the Internal Revenue Code of 1986, as amended from time to time.
Company means Synopsys, Inc., a Delaware corporation, and any corporate
successor to all or substantially all of the assets or voting stock of Synopsys,
Inc. which shall by appropriate action adopt the Plan.
Common Stock means shares of the Company's common stock.
Corporate Affiliate means any company which is a parent or subsidiary
corporation of the Company (as determined in accordance with Code Section 424),
including any parent or subsidiary
corporation which becomes such after the Effective Date.
Effective Date means the first day of the initial offering period scheduled
to commence on May 3, 1993. However, for any Subsidiary which becomes a
Participating Subsidiary in the Plan after the first day of the initial offering
period, a subsequent Effective Date shall be designated with respect to
participation by its Eligible Employees.
Eligible Employee means any person who is engaged, on a regularly-scheduled
basis of more than twenty (20) hours per week and more than five (5) months per
calendar year, in the rendition of personal services to any Participating
Subsidiary for earnings considered wages under Section 3121(a) of the Code, but
shall not include persons prohibited by the laws of the nation of their
residence or employment from participating in the Plan.
Enrollment Date has the meaning ascribed to it in Section V.A.
Participant means any Eligible Employee of a Participating Subsidiary who is
actively participating in the Plan.
Participating Subsidiary means a Subsidiary of the Company that has been
designated as a Participating Subsidiary by the Board.
Semi-Annual Entry Date means (i) during 1999 and each preceding calendar year
within an offering period in effect under the Plan, the first business day of
May and the first business day of November and (ii) during 2000 and all
subsequent calendar years within an offering period under the Plan, the first
business day of March
<PAGE> 2
and the first business day of September. The earliest Semi-Annual Entry Date
under the Plan shall be May 3, 1993.
Semi-Annual Period of Participation means each period for which the
Participant actually participates in an offering period in effect under the
Plan. There shall be a maximum of four (4) periods of participation within each
offering period. Except as otherwise designated by the Plan Administrator, each
such period shall commence on the applicable Semi-Annual Entry Date.
Semi-Annual Purchase Date means (i) during 1999 and each preceding year on
which shares of Common Stock are automatically purchased for Participants under
the Plan, the last business day of April and October, and (ii) during 2000 and
each subsequent year on which shares of Common Stock are automatically purchased
for Participants under the Plan, the last business day of February and August.
Subsidiary shall mean any corporation described in Section 425(e) or (f) of
the Code.
III. ADMINISTRATION
The Plan shall be administered by the Board of Directors or a committee that
will satisfy Rule 16b-3 of the Securities and Exchange Commission, as in effect
with respect to the Company from time to time (in either case, the "Board"). The
Board may from time to time select a committee or persons (the "Plan
Administrator") to be responsible for any transactions.
IV. OFFERING PERIODS
The Plan shall be implemented in a series of offering periods. Each offering
period shall be of a duration of twenty-four (24) months or less as designated
by the Plan Administrator prior to the start date of any offering period, except
that offering periods that include the Semi-Annual Entry Date on November 1,
1999 shall be of a duration of twenty-two (22) months. Within each offering
period, there shall be a maximum of four (4) Semi-Annual Periods of
Participation.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee of a Participating Subsidiary shall be eligible to
participate in the Plan in accordance with the following provisions:
- The Board may at any time designate one or more Subsidiaries as
participating in the Plan. The names of all Participating Subsidiaries
shall be shown on Exhibit A to the Plan, which shall be amended from
time to time to reflect additions and deletions of Participating
Subsidiaries; failure to show a Participating Subsidiary on Exhibit A
shall not, however, prevent otherwise eligible employees of that
Subsidiary from participating in the Plan. No Subsidiary participating
in the Company's Employee Stock Purchase Plan effective May 3, 1993
may be designated for participation in the Plan.
- Each Eligible Employee will be automatically enrolled in the Plan in
the offering period that begins on the first Semi-Annual Entry Date
following the commencement of employment; thereafter, any Eligible
Employee may enroll or re-enroll in the Plan in the offering period
that begins as of any Semi-Annual Entry Date, or such other days as
may be established by the Board from time to time (each, an
"Enrollment Date"). To participate, an Eligible Employee must
complete, sign, and submit to the Company an enrollment form
prescribed by the Plan Administrator. Any enrollment form received by
the Company by the 15th day of the month preceding an Enrollment Date
(or by the Enrollment Date in the case of employees hired after such
15th day), or such other date established by the Plan Administrator
from time to time, will be effective on that Enrollment Date.
Enrollment or re-enrollment by a Participant in the Plan on an
Enrollment Date will constitute the grant by the Company to the
Participant of an option to purchase shares of Common Stock from the
Company under the Plan. At the end of each offering period, each
Participant who has not withdrawn from the Plan will automatically be
re-enrolled in the Plan in the offering period that begins on the
Enrollment Date immediately following the date on which the option
expires. Furthermore, except as may otherwise be determined by the
Plan Administrator, each Participant who has not withdrawn from the
Plan will automatically be re-enrolled in the Plan in each offering
period that begins on an Enrollment Date on which the fair
<PAGE> 3
market value per share of the Company's Common Stock is lower than
the fair market value per share of the Company's Common Stock on the
Enrollment Date for the offering period in which the Participant is
then enrolled. Notwithstanding anything in the Plan to the contrary,
if the fair market value (the "Authorization Date FVM") on the date
(the "Authorization Date") on which additional shares of Common Stock
are authorized for issuance hereunder by the Company's shareholders
is higher than the fair market value at the beginning of any Offering
Period that commenced prior to the Authorization Date, then, with
respect to any of such authorized shares available to be issued on
Purchase Dates relating to such Offering Period, the Authorization
Date FMV shall be used instead of the fair market value on the
Enrollment Date for the purposes of the preceding sentence, provided
that the Plan Administrator, in its discretion, may waive application
of this sentence with respect to the first Purchase Date occurring
after the Authorization Date.
- An individual who becomes an Eligible Employee immediately following
termination of such employee's participation in the Synopsys, Inc.
Employee Stock Purchase Plan shall, for purposes of participation in
the Plan, have a deemed Enrollment Date corresponding to such
employee's most recent Enrollment Date under the Synopsys, Inc.
Employee Stock Purchase Plan.
B. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be zero percent (0%) or any
whole multiple of one percent (1%) of the Base Salary paid to the Participant
during each Semi-Annual Period of Participation within the offering period, up
to a maximum of ten percent (10%). The deduction rate so authorized shall
continue in effect for the entire Semi-Annual Period of Participation and for
each successive Semi-Annual Period of Participation unless (i) the Participant
shall change the rate for a subsequent Semi-Annual Period of Participation by
filing the appropriate form with the Plan Administrator prior to the
commencement of that Semi-Annual Period of Participation or (ii) the Participant
shall change the rate within a Semi-Annual Period of Participation by filing the
appropriate form with the Plan Administrator. The new rate shall become
effective as soon as practicable following the filing of such form. A
Participant may not increase or decrease the deduction rate more than once per
Semi-Annual Period of Participation in addition to fixing the rate at the
beginning of the Semi-Annual Period of Participation. Payroll deductions,
however, will automatically cease upon the termination of the Participant's
purchase right in accordance with Article VII below.
C. In no event may any Participant's payroll deductions for any one
Semi-Annual Period of Participation exceed Seven Thousand Five Hundred Dollars
($7,500.00) calculated on the Purchase Date following conversion of accumulated
withholdings into U.S. Dollars.
D. It is intended that all eligible employees shall have substantially
equivalent rights and privileges with respect to the Plan; notwithstanding any
other provision of the Plan, however, the Plan Administrator may make such
changes in the terms of eligibility and participation from Subsidiary to
Subsidiary that it determines, in its discretion, to be necessary or desirable
to reflect or comply with local laws or conditions.
VI. STOCK SUBJECT TO PLAN
A. The Common Stock purchasable by Participants under the Plan shall, solely
in the discretion of the Plan Administrator, be made available from either
authorized but unissued shares of the Common Stock or from shares of Common
Stock reacquired by the Company, including shares of Common Stock purchased on
the open market. The total number of shares which may be issued under the Plan
shall not exceed 5,050,000 shares, less any shares sold under the Synopsys, Inc.
Employee Stock Purchase Plan (subject to adjustment under Section VI.B below).
Such share reserve includes the increase of 1,500,000 shares approved by the
Board in December 1998 and approved by the stockholders in March 1999.
B. In the event any change is made to the Company's outstanding Common Stock
by reason of any stock dividend, stock split, combination of shares or other
change affecting such outstanding Common Stock as a class without receipt of
consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during each Semi-Annual Period of Participation, (iii) the class and
maximum number of shares purchasable in the aggregate by all Participants on any
one purchase date under the Plan and (iv) the class and number of shares and the
price per share of the Common Stock subject to each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.
<PAGE> 4
VII. PURCHASE RIGHTS
An Employee who participates in the Plan for a particular offering period
shall have the right to purchase shares of Common Stock, in a series of
successive installments during such offering period, upon the terms and
conditions set forth below and shall execute such agreements and documents
embodying such terms and conditions and such other provisions (not inconsistent
with the Plan) as the Plan Administrator may deem advisable.
Purchase Price. Common Stock shall be issuable on each Semi-Annual Purchase
Date at a purchase price equal to eighty-five percent (85%) of the lower of (i)
the fair market value per share on the Participant's Enrollment Date or (ii)
the fair market value per share on the Semi-Annual Purchase Date.
Notwithstanding anything in the Plan to the contrary, if the Authorization Date
FVM is higher than the fair market value at the beginning of any Offering Period
that commenced prior to the Authorization Date, then, with respect to any of
such authorized shares available to be issued on Purchase Dates relating to such
Offering Period, the Authorization Date FMV shall be used instead of the fair
market value on the Enrollment Date for the purposes of clause (i) of the
preceding sentence, provided that the Plan Administrator, in its discretion, may
waive application of this sentence with respect to the first Purchase Date
occurring after the Authorization Date.
Valuation. The fair market value per share of Common Stock on any relevant
date shall be the closing selling price of the Common Stock on that date, as
officially quoted on the Nasdaq National Market System. If there is no quoted
selling price for such date, then the closing selling price on the next
preceding day for which there does exist such a quotation shall be determinative
of fair market value.
Number of Purchasable Shares. The number of shares purchasable per
Participant on each Semi-Annual Purchase Date shall be the number of whole
shares obtained by dividing the amount collected, after conversion into U.S.
Dollars on the Purchase Date, from the Participant through payroll deductions
during the corresponding Semi-Annual Period of Participation by the purchase
price in effect for the Semi-Annual Purchase Date. However, no Participant may,
during any one Semi-Annual Purchase Period, purchase more than 2,000 shares of
Common Stock, subject to periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under the Plan to any
Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Corporate Affiliates.
Payment. Payment for the Common Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin on the first pay day coincident with or immediately
following the Participant's Enrollment Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of the offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan in local currency, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from a
Participant may be commingled with the general assets of the Company and/or any
Participating Subsidiary and may be used for general corporate purposes. Upon
disposition of shares acquired by exercise of purchase right, the Participant
shall pay, or make provision adequate to the Company and the Participating
Subsidiary for payment of, all federal, state, and other tax (and similar)
withholdings that the Company or the Participating Subsidiary determines, in its
discretion, are required due to the disposition, including any such withholding
that the Company or the Participating Subsidiary determines, in its discretion,
is necessary to allow the Company or the Participating Subsidiary to claim tax
deductions or other benefits in connection with the disposition. A Participant
shall make such similar provisions for payment that the Company or the
Participating Subsidiary determines, in its discretion, are required due to the
exercise of purchase right, including such provisions as are necessary to allow
the Company or the Participating Subsidiary to claim tax deductions or other
benefits in connection with the exercise of purchase right.
Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last five (5)
business days of the Semi-Annual Period of Participation,
terminate his/her outstanding purchase right under the Plan by
filing the prescribed notification form with the Plan
Administrator. No further payroll deductions
<PAGE> 5
shall be collected from the Participant with respect to the
terminated purchase right, and any payroll deductions collected
for the Semi-Annual Period of Participation in which such
termination occurs shall, at the Participant's election, be
immediately refunded or held for the purchase of shares on the
next Semi-Annual Purchase Date. If no such election is made, then
such funds shall be refunded as soon as possible after the close
of such Semi-Annual Period of Participation.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering
period for which such terminated purchase right was granted. In
order to resume participation in any subsequent offering period,
such individual must enroll in the Plan in accordance with
Section V.A.
(iii) Should a Participant cease to remain an Eligible Employee
while his/her purchase right remains outstanding or should there
otherwise occur a change in such individual's employee status so
that he/she is no longer an Eligible Employee while holding such
purchase right, then such purchase right shall immediately
terminate upon such termination of service or change in status
and all sums previously collected from the Participant during the
Semi-Annual Period of Participation in which the purchase right
so terminates shall be promptly refunded to the Participant.
However, should the Participant die or become permanently
disabled while in service or should the Participant cease
employment by reason of a leave of absence, then the Participant
(or the person or persons to whom the rights of the deceased
Participant under the Plan are transferred by will or the laws of
inheritance) shall have the election, exercisable up until the
end of the Semi-Annual Period of Participation in which the
Participant dies or becomes permanently disabled or in which the
leave of absence commences, to (i) withdraw all the funds
credited to the Participant's account at the time of his/her
cessation of service or at the commencement of such leave or (ii)
have such funds held for the purchase of shares of Common Stock
at the next Semi-Annual Purchase Date. If no such election is
made, then such funds shall automatically be held for the
purchase of shares of Common Stock at the next Semi-Annual
Purchase Date. In no event, however, shall any further payroll
deductions be added to the Participant's account following
his/her cessation of service or the commencement of such leave;
provided, however, that if a Participant's employment is
terminated because of a transfer of employment to the Company or
any subsidiary of the Company other than a Participating
Subsidiary, any outstanding purchase right shall not terminate
until the occurrence of the earlier of (x) the last Semi-Annual
Purchase Date in the offering period or (y) enrollment of the
Participant in the Company's Employee Stock Purchase Plan. While
a purchase right remains outstanding, the Company or other
subsidiary to which the participant is transferred shall effect
payroll deductions authorized by the Participant and shall remit
them to the Participating Subsidiary that employed the
Participant at the time of the transfer for purposes of acquiring
shares of Common Stock under the Plan. Following approval by the
Company and the Participating Subsidiary, the Participant may, in
lieu of payroll deduction, pay a corresponding amount to the
Participating Subsidiary if such amount is received on or before
the relevant Purchase Date. Should the Participant return to
active service following a leave of absence, then his/her payroll
deductions under the Plan shall automatically resume at the rate
in effect at the time the leave began, provided such return to
service occurs prior to the end of the offering period in which
such leave began. For purpose of the Plan: (i) the Participant
shall be considered to remain in service for so long as such
Participant remains in the active employ of the Company or one or
more other Participating Subsidiaries and (ii) the Participant
shall be deemed to be permanently disabled if he/she is unable to
engage in any substantial gainful employment, by reason of any
medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of at least
twelve (12) months.
Stock Purchase. Shares of Common Stock shall automatically be purchased on
behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded or set aside for refund in accordance with the
Termination of Purchase Right provisions above) on each Semi-Annual Purchase
Date. The purchase shall be effected by applying each Participant's payroll
deductions after conversion to U.S. Dollars for the Semi-Annual Period of
Participation ending on such semiannual Purchase Date (together with any
carryover deductions from the preceding Semi-Annual Period of Participation) to
the purchase of whole shares of Common Stock (subject to the limitation on the
maximum number of purchasable shares as set forth above) at the purchase price
in effect for such Semi-Annual Period of Participation. Any payroll deductions
not applied
<PAGE> 6
to such purchase because they are not sufficient to purchase a whole share shall
be held in local currency for the purchase of Common Stock in the next
Semi-Annual Period of Participation. However, any payroll deductions not applied
to the purchase of Common Stock by reason of the limitation on the maximum
number of shares purchasable by the Participant for that Semi-Annual Period of
Participation shall be promptly refunded to the Participant.
Proration of Purchase Rights. Not more than 500,000 shares of Common Stock,
subject to periodic adjustment under Section VI.B, may be purchased in the
aggregate by all participants under the Plan and under the Synopsys, Inc.
Employee Stock Purchase Plan on any one Semi-Annual Purchase Date. Should the
total number of shares of Common Stock which are to be purchased pursuant to
outstanding purchase rights on any particular date exceed either (i) the maximum
limitation on the number of shares purchasable in the aggregate on such date or
(ii) the number of shares then available for issuance under the Plan and the
Synopsys, Inc. Employee Stock Purchase Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and non-discriminatory
basis (including, to the extent practicable vis a vis participants in the
Synopsys, Inc. Employee Stock Purchase Plan) and the payroll deductions for each
Participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, shall be refunded to such
Participant.
Rights as Stockholder. A Participant shall have no stockholder rights with
respect to the shares subject to his/her outstanding purchase right until the
shares are actually purchased on the Participant's behalf in accordance; with
the applicable provisions of the Plan. No adjustments shall be made for
dividends, distributions, or other rights for which the record date is prior to
the date of such purchase.
Assignability. No purchase right granted under the Plan shall be assignable
or transferable by the Participant other than by will or by the laws of descent
and distribution following the Participant's death, and during the Participant'
s lifetime the purchase right shall be exercisable only by the Participant.
Change in Ownership. Should the Company or its stockholders enter into an
agreement to dispose of all or substantially all of the assets or outstanding
capital stock of the Company by means of:
(i) A sale, merger or other reorganization in which the Company
will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which
the Company is incorporated), or
(ii) a reverse merger in which the Company is the surviving
corporation but in which more than fifty percent (50%) of the
Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to the
reverse merger,
then all outstanding purchase rights under the Plan shall automatically be
exercised immediately prior to the consummation of such sale, merger,
reorganization or reverse merger by applying the payroll deductions of each
Participant, after conversion into U.S. Dollars on the date of purchase, for the
Semi-Annual Period of Participation in which such transaction occurs to the
purchase of whole shares of Common Stock at eighty-five percent (85%) of the
lower of (i) the fair market value of the Common Stock on the Participant's
Enrollment Date into the offering period in which such transaction occurs or
(ii) the fair market value of the Common Stock immediately prior to the
consummation of such transaction. However, the applicable share limitations of
Sections VII and VIII shall continue to apply to any such purchase, and the
clause (i) amount above shall not, for any Participant whose Enrollment Date for
the offering period is other than the start date of such offering period, be
less than the fair market value of the Common Stock on such start date.
The Company shall use its best efforts to provide at least ten (10) days'
advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall, following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under this Plan if and to the extent
such accrual, when aggregated with (i) rights to purchase Common Stock accrued
under any other purchase right outstanding under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Section 423 of the Code) of the
<PAGE> 7
Company and its Corporate Affiliates would otherwise permit such Participant to
purchase more than $25,000 worth of stock of the Company or any Corporate
Affiliate (determined on the basis of the fair market value of such stock on the
date or dates such rights are granted to the Participant) for each calendar year
such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the right to acquire
Common Stock pursuant to each purchase right outstanding under the Plan shall
accrue as follows:
(i) The right to acquire Common Stock under each such purchase
right shall accrue in a series of successive semi-annual
installments as and when the purchase right first becomes
exercisable for each semi-annual installment on the last business
day of each Semi-Annual Period of Participation for which the
right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire
$25,000 worth of Common Stock (determined on the basis of the
fair market value on the date or dates of grant) pursuant to one
or more purchase rights held by the Participant during such
calendar year.
(iii) If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular
Semi-Annual Period of Participation, then the payroll deductions
which the Participant made during that Semi-Annual Period of
Participation with respect to such purchase right shall be
promptly refunded.
C. In the event there is any conflict between the provisions of this Section
VIII and one or more provisions of the Plan or any instrument issued thereunder,
the provisions of this Section VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
A. The Board may amend, alter, suspend, discontinue, or terminate the Plan at
any time, including amendments to outstanding options/purchase rights. However,
the Board may not, without the approval of the Company's stockholders:
(i) Increase the number of shares issuable under the Plan or the
maximum number of shares which may be purchased per Participant
or in the aggregate during any one Semi-Annual Period of
Participation under the Plan, except that the Plan Administrator
shall have the authority, exercisable without such stockholder
approval, to effect adjustments to the extent necessary to
reflect changes in the Company's capital structure pursuant to
Section VI.B;
(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to Participants
under the Plan or materially modify the requirements for
eligibility to participate in the Plan.
B. The Board may elect to terminate any or all outstanding purchase rights at
any time. In the event the Plan is terminated, the Board may also elect to
terminate outstanding purchase rights either immediately or upon completion of
the purchase of shares on the next Semi-Annual Purchase Date, or may elect to
permit purchase rights to expire in accordance with their terms (and
participation to continue through such expiration dates). If purchase rights are
terminated prior to expiration, all funds contributed to the Plan that have not
been used to purchase shares shall be returned to the Participants as soon as
administratively feasible.
X. GENERAL PROVISIONS
A. The Plan shall become effective on the date on which it is adopted by the
Board, provided the Company has complied with all applicable requirements
established by law or regulation.
B. All costs and expenses incurred in the administration of the Plan shall be
paid by the Company.
<PAGE> 8
C. Neither the action of the Company in establishing the Plan, nor any action
taken under the Plan by the Board or the Plan Administrator, nor any provision
of the Plan itself shall be construed so as to grant any person the right to
remain in the employ of the Company or any of its Corporate Affiliates for any
period of specific duration, and such person's employment may be terminated at
any time, with or without cause.
D. The provisions of the Plan shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
E. If the Plan Administrator in its discretion so elects, it may retain a
brokerage firm, bank, or other financial institution to assist in the purchase
of shares, delivery of reports, or other administrative aspects of the Plan. If
the Plan Administrator so elects, each Participant shall (unless prohibited by
the laws of the nation of his or her employment or residence) be deemed upon
enrollment in the Plan to have authorized the establishment of an account on his
or her behalf at such institution. Shares purchased by a Participant under the
Plan shall be held in the account in the name in which the share certificate
would otherwise be issued pursuant to Section VII.
<PAGE> 9
Schedule A
Companies Participating in
International Employee Stock Purchase
Plan As of the Effective Date
Subsidiary Name
---------- ----
Germany Synopsys GmbH
France Synopsys SARL
United Kingdom Synopsys (Northern Europe) Ltd.
Japan Nihon Synopsys Co., Ltd.
Korea Synopsys Korea, Inc.
<PAGE> 1
Exhibit 21.1
SYNOPSYS, INC.
Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Advanced Test Technologies, Inc. U.S.A.
Apteq Design Systems, Inc. U.S.A.
Archer Systems, Inc. U.S.A.
Chronologic Simulation, Inc. U.S.A.
CIDA Technology, Inc. U.S.A.
CSW Land Development Corporation U.S.A.
Eagle Design Automation, Inc. U.S.A.
Electronic Design Automation Services Europe Netherlands
Epic International, Inc. U.S.A.
Everest Design Automation, Inc. U.S.A.
Gambit Automated Design, Inc. U.S.A.
Maude Avenue Land Corporation U.S.A.
Nihon Synopsys Co., Ltd. Japan
Quad Design Technology, Inc. U.S.A.
Radiant Design Tools, Inc. U.S.A.
Silerity, Inc. U.S.A.
Stanza Systems, Inc. U.S.A.
Sunrise Test Systems, Inc. U.S.A.
Synopsys Consulting SARL France
Synopsys Finland OY Finland
Synopsys GmbH Germany
Synopsys Holding Co. U.S.A.
Synopsys (India) Pvte. Ltd. India
Synopsys International, Inc. Barbados
Synopsys International Limited Ireland
Synopsys Ireland Limited Ireland
Synopsys Ireland Resources Ireland
Synopsys Italia, SRL Italy
Synopsys Korea, Inc. Korea
Synopsys Leasing Company U.S.A.
Synopsys (Northern Europe) Ltd. United Kingdom
Synopsys SARL France
Synopsys Scandinavia AB Sweden
Synopsys Services SARL France
Synopsys Singapore Pte. Ltd. Singapore
Synthesis and Optimisation Systems Ltd. Israel
Systems Science, Inc. U.S.A.
The CAE Company Netherlands
Viewlogic Asia Corporation U.S.A.
Viewlogic Benelux Netherlands
Viewlogic Europe BV Netherlands
</TABLE>
<PAGE> 1
EXHIBIT 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
Synopsys, Inc.:
Under the date of October 23, 1999, we reported on the consolidated balance
sheets of Synopsys, Inc. and subsidiaries as of September 30, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1999.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Mountain View, California
October 23, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Synopsys, Inc.:
We consent to the incorporation by reference in registration statement Nos.
33-82804, 33-78560, 33-76206, 33-92144, 333-04410, 333-22663, 333-42069,
333-45181, 333-50947, 333-60783, 333-68011, 333-68883, 333-77127, 333-77597,
333-84279, 333-84517 and 333-90643 on Form S-8 and S-3 of Synopsys, Inc. of our
reports dated October 23, 1999, relating to the consolidated balance sheets of
Synopsys, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended September 30, 1999, and the
related consolidated financial statement schedule, which reports appear in this
Annual Report on Form 10-K of Synopsys, Inc.
KPMG LLP
Mountain View, California
December 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> SEP-30-1998
<PERIOD-END> SEP-30-1999
<CASH> 285,314
<SECURITIES> 418,871
<RECEIVABLES> 166,408
<ALLOWANCES> 10,523
<INVENTORY> 0
<CURRENT-ASSETS> 914,733
<PP&E> 259,167
<DEPRECIATION> 132,963
<TOTAL-ASSETS> 1,173,918
<CURRENT-LIABILITIES> 287,526
<BONDS> 11,642
0
0
<COMMON> 703
<OTHER-SE> 864,893
<TOTAL-LIABILITY-AND-EQUITY> 1,173,918
<SALES> 806,098
<TOTAL-REVENUES> 806,098
<CGS> 106,764
<TOTAL-COSTS> 106,764
<OTHER-EXPENSES> 484,728
<LOSS-PROVISION> 211
<INTEREST-EXPENSE> 4,296
<INCOME-PRETAX> 251,411
<INCOME-TAX> 90,049
<INCOME-CONTINUING> 161,362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,362
<EPS-BASIC> 2.30
<EPS-DILUTED> 2.20
</TABLE>
