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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1999
REGISTRATION NO. 333-84517
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SYNOPSYS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1546236
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(Address, including zip code, of
Registrant's principal executive offices)
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STEVEN K. SHEVICK
VICE PRESIDENT AND GENERAL COUNSEL
SYNOPSYS, INC.
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 962-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
TIMOTHY R. CURRY, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303
(650) 424-0160
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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ADDITION OF INFORMATION IN THE PROSPECTUS
The purpose of this Post-Effective Amendment No. 1 to the Registration
Statement on Form S-3 (Registration No. 333-84517) of Synopsys, Inc., a
Delaware Corporation, is to add the information under the captions "WHERE TO
FIND MORE INFORMATION ABOUT SYNOPSYS", "INFORMATION INCORPORATED BY REFERENCE";
and "USE OF PROCEEDS" contained on page 16 of the prospectus.
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DATED SEPTEMBER 3, 1999
PROSPECTUS
[LOGO]
SYNOPSYS, INC.
45,845 SHARES
COMMON STOCK
These shares may be offered and sold from time to time by certain
stockholders of the Company identified in this prospectus. See "Selling
Stockholders." The selling stockholders acquired the shares on June 21, 1999 in
connection with the acquisition by Synopsys, Inc. ("Synopsys") of all the
outstanding securities of Stanza Systems, Inc., a California corporation
("Stanza"), pursuant to that certain Securities Purchase Agreement by and among
Synopsys, Stanza and certain securityholders of Stanza, dated as of June 2, 1999
(the "Agreement").
The selling stockholders will receive all of the net proceeds from the sale
of the shares. These stockholders will pay all underwriting discounts and
selling commissions, if any, applicable to the sale of the shares. The Company
will not receive any proceeds from the sale of the shares.
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YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS
PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY.
Synopsys' common stock is quoted on the Nasdaq National Market under the
symbol "SNPS." On September 2, 1999, the last reported sale price of the common
stock was $58.31 per share.
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The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
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September 3, 1999
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Synopsys, Inc...............................................................................4
Risk Factors................................................................................4
Forward Looking Information.................................................................8
Management's Discussion and Analysis of Financial Condition and Results of Operations...... 9
Where to Find More Information About Synopsys..............................................16
Information Incorporated by Reference......................................................16
Use of Proceeds............................................................................16
Selling Stockholders.......................................................................17
Plan of Distribution.......................................................................18
Legal Matters..............................................................................19
Experts....................................................................................19
Index to Consolidated Financial Statements................................................F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell, and
seeking offers to buy, shares of Synopsys common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the shares.
In this prospectus, unless indicated otherwise, "Synopsys," the "Company,"
"we," "us," and "our" refer to Synopsys, Inc. and its subsidiaries.
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SYNOPSYS, INC.
Synopsys develops, markets, and supports electronic design automation (EDA)
products for designers of integrated circuits (ICs) and electronic systems.
Synopsys offers a range of design tools, verification tools and systems, design
reuse products and physical design tools that significantly improve designers'
productivity by offering improved time to market, reduced development and
manufacturing costs, and enhanced design quality of results when compared to
earlier generations of EDA products. Synopsys also provides training, support
and consulting services for its customers.
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties may also impair
our business operations.
If any of the following risks actually occur, our business, financial
condition, or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in such forward-looking statements as a result of a variety of factors,
including those set forth in the following risk factors and elsewhere in, or
incorporated by reference into, this prospectus. In evaluating an investment in
the shares you should consider carefully the following risk factors in addition
to the other information presented in this prospectus or incorporated by
reference into this prospectus.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our Revenue and Earnings May Be Subject to Fluctuation. Many unpredictable
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, the size of our backlog, 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:
o Our orders have been seasonal. Historically, our first fiscal quarter has
been our weakest. Our recently announced fiscal year change may affect the
seasonal pattern of our revenues and may make it difficult to compare fiscal
periods before and after the change.
o Our products are complex, and before buying them customers spend a great
deal of time reviewing and testing them. The sales cycle does not
necessarily match 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.
o 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.
o 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
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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.
o We are making changes to the license and pricing structure for our software
products. Although we believe that these changes have benefits for both
Synopsys and our customers, if customer reaction is not favorable, the
transition to the new structure could be disruptive to business and result
in the deferral or loss of sales.
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 Design Systems,
Inc. (Cadence), Mentor Graphics, Inc. (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, overall pricing for EDA products may be affected. In order to remain
successful against such competition, we must continue to enhance our current
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 to
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. No single EDA company currently offers its customers
industry-leading products in a complete design flow. We offer a wide range of
logic design tools and have recently expanded our offerings of physical design
tools, but we do not offer a complete physical design flow. Cadence and Avant!,
which dominate the market for physical design tools, each have acquired logic
synthesis technology in an effort to complete their design flows. (In addition,
Cadence's acquisition of logic design products has led to significant reductions
in purchases of our logic design software by Cadence, which was one of our ten
largest customers in fiscal 1998.) If we are unsuccessful in developing a
complete design flow on a timely basis, 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
synthesis revenues are expected to grow more slowly than our target for overall
revenue growth, although synthesis revenues were stronger than expected in the
third quarter. In order to meet our revenue plan, revenue from our non-synthesis
design creation products, certain high level verification products, deep
submicron products and professional services must grow faster than our overall
revenue growth target. During the third quarter of fiscal 1999, revenue from
design creation products and design verification products grew faster than the
overall corporate rate, revenue from deep submicron products grew more slowly
than the overall corporate growth rate and revenue from professional services
grew faster than the overall corporate growth rate, although below planned
growth. Among the products that we expect to be the most important contributors
to revenue growth are our PrimeTime(R) timing analysis, Formality(R) formal
verification, Module Compiler(TM) datapath synthesis, Chip Architect design
planning, FlexRoute top level routing, VCS(TM) Verilog simulation 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
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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 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. While
a number of market segments are growing at a healthy pace, the overall outlook
for the semiconductor industry remains uncertain. Over the past year, a number
of our customers have announced layoffs of their employees, restructurings or
the suspension of investment plans. The effect of such developments on demand
from these customers is difficult to predict, but, as a result of such actions,
their EDA budgets could be reduced, alone or as part of overall expense control
efforts. In addition, there have been a number of 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:
o 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.
o 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.
o 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.
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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. Failure to successfully recruit and retain
such personnel could have a material adverse effect on our business, financial
condition and results of operations.
Uncertainty Regarding Intellectual Property Rights. 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, 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
stockholders 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. In addition, if we are not able to identify and
fix Year 2000 problems relating to the computer systems and software we rely on
to run our business, or if our telecommunications, power supply or another
important service or product were to malfunction due to Year 2000-related
problems, we could experience a disruption in our business, which could have a
material adverse impact on our business, financial condition and results of
operations.
Change in Financial Accounting Standards. We prepare our financial statements
in conformity with generally accepted accounting principles (GAAP). GAAP are
subject to interpretation by the AICPA, the SEC and various bodies formed to
interpret and create appropriate accounting policies. A change in these policies
could have a significant effect on our reported results, and might even affect
our reporting of transactions completed before a change is announced.
For example, recent developments in the way the SEC views in-process research
and development (IPRD) charges has made it difficult to predict with confidence
the financial statement effects of acquisitions accounted for by the purchase
method of accounting. The Financial Accounting Standards Board (FASB), an
accounting standards group working under the aegis of the SEC, is considering
whether to recommend the elimination of IPRD charges altogether. FASB also is
planning to issue a proposal to eliminate pooling-of-interests accounting
treatment for acquisitions. Each of these changes may affect the Company's
future merger and acquisition activity by affecting the Company's accounting for
such transactions. Future mergers and acquisitions (and, depending upon the
effective date of any changes, perhaps already-completed transactions) would
result in a relatively greater amount of goodwill on the Company's balance
sheet, and of the corresponding amortization expense in the Company's income
statement. In response to these developments, we have begun to report "earnings
before goodwill" in addition to the other measures of earnings required under
GAAP.
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Accounting policies affecting many other aspects of our business, including
rules relating to software revenue recognition, employee stock purchase plans
and stock option grants have recently been revised or are under review by one or
more accounting authorities. Changes to these rules, or the questioning of
current practices, may have a significant adverse effect on our reported
financial results or in the way we conduct our business.
FORWARD LOOKING INFORMATION
This prospectus, including the information incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act). Our actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below. In particular, the
section of this prospectus captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and such section of any
subsequently filed Exchange Act reports may contain forward-looking statements.
In addition, passages containing the words "expects," "plans," "projects,"
"believes," "anticipates," "target" and similar words are forward-looking
statements. In connection with forward-looking statements which appear in these
or other disclosures, prospective purchasers of the shares offered hereby should
carefully consider the factors set forth in this prospectus under "Risk Factors"
and such section of any subsequently filed Exchange Act reports.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" from Synopsys' Form 10-K filed December 23,
1998, as modified to include the financial position and results of operations of
Everest Design Automation, Inc. (Everest) for all periods covered. The Company
acquired Everest on November 21, 1998 in a merger accounted for as a
pooling-of-interests. This discussion speaks as of the date contained in such
Form 10-K and has not been otherwise modified or updated. The Company disclaims
any intent or obligation to modify this discussion to reflect events or
developments subsequent to the date of such previously filed discussion. You
should refer to Synopsys' Quarterly Reports on Form 10-Q for quarterly periods
subsequent to September 30, 1998 as well as various Current Reports on Form 8-K
filed after such date for current information about Synopsys' financial
condition and results of operations.
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein as well as the
section entitled "Factors That May Affect Future Results." Except for the
historical information presented, the following discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below in "Factors That May Affect Future Results." In addition,
past results and trends should not be used by investors to anticipate future
results and trends.
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
As of or For The Years Ended September 30,(1)
(In thousands, except per share data) 1998 1997 1996 1995 1994
- ---------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue $717,940 $646,956 $525,599 $410,644 $328,644
Income before provision for income taxes and
extraordinary items (2) 116,861 132,793 40,228 59,126 31,319
Extraordinary items, net of income tax expense 28,404 -- -- -- --
Provision for income taxes 55,819 51,043 23,426 22,771 17,210
Net income 89,446 81,750 16,802 36,355 14,109
Earnings per share (3) 1.34 1.30 0.28 0.64 0.30
Basic 1.29 1.24 0.27 0.59 0.24
Diluted
Working capital 504,759 336,675 238,942 221,425 138,748
Total assets 951,633 769,499 584,853 446,443 336,897
Long-term debt 13,138 9,191 15,974 63 --
Stockholders' equity 664,941 502,445 350,547 287,362 195,297
</TABLE>
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(1) Amounts and per share data for periods presented have been retroactively
restated to reflect the merger of Everest in a pooling-of-interests
transaction effective November 21, 1998.
(2) Includes charges of $33.1 million, $5.5 million, $64.5 million, $12.5
million and $5.9 million for the years ended September 30, 1998, 1997,
1996, 1995 and 1994, respectively, for in-process research and development
and other costs. Includes merger-related and other costs of $51.0 million,
$11.4 million and $7.4 million for the years ended September 30, 1998, 1997
and 1994, respectively.
(3) The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128) on October 1, 1997. Earnings per share amounts for all periods
presented have been restated to conform to SFAS 128 requirements.
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RESULTS OF OPERATIONS
Mergers. Subsequent to fiscal 1998, the Company acquired Everest, a
developer of integrated circuit routing software and related technology. The
Company exchanged approximately 1.4 million shares of its common stock for all
the outstanding stock of Everest 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 rescinded the
Company's stock repurchase program in order to comply with pooling-of-interests
accounting rules.
In December 1997, the Company issued approximately 11.3 million shares of
its common stock in exchange for all the outstanding shares of common stock of
Viewlogic Systems, Inc. (Viewlogic), a worldwide supplier of electronic design
automation (EDA) software. In addition, options to acquire Viewlogic's common
stock were exchanged for options to acquire approximately 2.8 million shares of
the Company's common stock. The merger 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
Viewlogic for all periods presented. On October 2, 1998, the Company sold
Viewlogic Systems, Inc. (VSI), the printed circuit board (PCB)/Systems 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% of
the fully diluted equity in the new company (See Extraordinary Items).
In February 1997, the Company issued approximately 10.3 million shares of
its common stock in exchange for all the outstanding shares of common stock of
EPIC Design Technology, Inc. (EPIC), a developer of design automation tools for
deep submicron design in the area of integrated circuit power, timing, and
reliability analysis. In addition, options to acquire EPIC's common stock were
exchanged for options to acquire approximately 1.5 million shares of the
Company's common stock. The EPIC merger 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
EPIC for all periods presented.
Acquisitions. In July 1998, the Company acquired Systems Science, Inc.
(SSI), a developer of advanced tools for electronic design verification and
test. The acquisition was accounted for as a purchase 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 $47.1 million was allocated to the
acquired assets and liabilities based on their estimated fair values as of the
date of the acquisition. This includes allocations of $18.2 million to goodwill
and other intangible assets, which are being amortized on a straight-line basis,
generally over a five-year period. Approximately $28.9 million was allocated to
in-process research and development and other costs and charged to operations.
In October 1997, the Company acquired two small privately held companies in
the EDA industry, each of which has been accounted for as a purchase. The
purchase price, acquisition costs and net liabilities assumed for these
acquisitions totaled approximately $4.2 million, which was allocated to
in-process research and development and other costs and charged to operations.
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.
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 11% to
$717.9 million in fiscal 1998 from $647.0 million in fiscal 1997 and by 23% from
$525.6 million in fiscal 1996 compared to fiscal 1997. The percentage of the
Company's total revenue attributable to software and system products decreased
to 60% in fiscal 1998 from 63% in fiscal 1997 and 66% in fiscal 1996, primarily
due to an increase in the Company's base of installed software and the
associated increase in maintenance and support, customer training, and
consulting revenue.
10
<PAGE> 12
Product revenue increased by 6% to $431.0 million in fiscal 1998 from $408.3
million in fiscal 1997 and by 18% from $346.1 million in fiscal 1996 compared to
fiscal 1997. For each of the years, these increases were primarily due to
increased worldwide licensing and sales of the Company's EDA software products.
Service revenue increased by 20% to $287.0 million in fiscal 1998 from $238.7
million in fiscal 1997 and by 33% from $179.5 million in fiscal 1996 compared to
fiscal 1997. 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.
In fiscal 1998, the Company adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition." The provisions of SOP 97-2 have been applied to
transactions entered into beginning October 1, 1997 (See Note 1 of Notes to
Consolidated Financial Statements). The effect of the adoption of SOP 97-2 was
not material.
Revenue from international operations was $279.8 million, $262.2 million and
$221.5 million, or 39%, 41% and 42% of total revenue in fiscal 1998, 1997 and
1996, respectively. 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 during fiscal 1998. The decrease in international revenue as a
percentage of total revenue in fiscal 1997 compared to fiscal 1996 was due
primarily to a decrease in revenue in Japan, which was attributable to a decline
in the value of the yen versus the U.S. dollar.
Cost of Revenue. Cost of product revenue includes cost of production
personnel, product packaging, documentation, amortization of capitalized
software development costs, 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 1998 compared to 6% of total
revenue in fiscal 1997 and 5% of total revenue in fiscal 1996. 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 8% of total revenue in both fiscal 1998 and 1997 and 7% in
fiscal 1996. The increase in cost of service from fiscal 1996 was due to the
Company's investment in the infrastructure required to expand its training and
consulting business during fiscal 1998 and 1997.
Research and Development. Research and development expenses increased by 7%
to $156.7 million in fiscal 1998 from $146.8 million in fiscal 1997 and by 22%
from $120.0 million in fiscal 1996 compared to fiscal 1997, net of capitalized
software development costs. Research and development expenses represented 22%,
23% and 23% of total revenue in fiscal 1998, 1997 and 1996, respectively. The
increase in absolute dollars reflects the Company's ongoing research and
development efforts in a wide variety of areas, which the Company believes are
essential to developing best-in-class EDA solutions and maintaining
technological leadership. A significant portion of the increase for each fiscal
year was due to the addition of personnel and personnel-related costs. 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
1999, the Company expects that research and development expenses as a percentage
of total revenue will be at or slightly below the fiscal 1998 level.
Sales and Marketing. Sales and marketing expenses increased by 2% to $245.4
million in fiscal 1998 from $240.6 million in fiscal 1997 and by 17% from $204.9
million in fiscal 1996 compared to fiscal 1997. Sales and marketing expenses
represented 34%, 37% and 39% of total revenue in fiscal 1998, 1997 and 1996,
respectively. Total expenses increased in absolute dollars in each fiscal year
primarily from 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. 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 expects that for
fiscal 1999, sales and marketing expenses as a percentage of total revenue will
be below the fiscal 1998 level.
11
<PAGE> 13
General and Administrative. General and administrative expenses remained
relatively constant at $47.2 million in fiscal 1998 compared to $47.3 million in
fiscal 1997. General and administrative expenses increased in absolute dollars
by 13% from $42.0 million in fiscal 1996 compared to fiscal 1997. As a
percentage of total revenue, general and administrative expenses were 7%, 7% and
8% in fiscal 1998, 1997 and 1996, 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. In fiscal 1997, general and
administrative expenses increased primarily due to an increase in personnel and
personnel-related costs necessary to support the Company's infrastructure. The
Company expects that for fiscal 1999, general and administrative expenses as a
percentage of total revenue will be slightly below the fiscal 1998 level.
Merger-Related and Other Costs. As a result of various business combinations
accounted for as a 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, 1998, there was a
balance of $3.5 million in accrued liabilities for expected future cash
expenditures, which are expected to be paid in the next six months.
In-Process Research and Development and Other Costs. During fiscal 1998, the
Company acquired three businesses for an aggregate total of $51.3 million. Of
the aggregate purchase price, $33.1 million was allocated to in-process research
and development and other costs and charged to operations. Each of these
business combinations was accounted for as a purchase.
Other Income, Net. Other income, net was $26.0 million, $24.4 million and
$11.6 million, or 4%, 4% and 2% of total revenue in fiscal 1998, 1997 and 1996,
respectively. Other income, net increased in each fiscal year primarily due to
higher average invested cash and short-term investment balances. In addition, in
fiscal 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 primarily to its investment portfolio and long-term debt.
The Company does not use derivative financial instruments for speculative or
trading purposes. The Company places its investments in 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 expect any material loss with
respect to its investment portfolio.
The table below 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, 1998. In accordance with the Company's
investment policy, all investments mature in fifteen months or less. All of the
long-term investments mature in December 1999.
Principal (National) Amounts in U.S. Dollars:
<TABLE>
<CAPTION>
Carrying Average Interest
(in thousands, except interest rates) Amount Rate
- ------------------------------------- -------- ----------------
<S> <C> <C>
Cash equivalents - fixed rate $ 23,806 3.47%
Short-term investments - fixed rate 440,082 3.83%
Long-term investments - variable rate 255 3.99%
--------
Total investment securities 464,143 3.81%
Money market funds - variable rate 37,699 3.69%
--------
Total interest bearing instruments $501,842 3.80%
========
</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. The Company entered into foreign exchange forward
contracts to reduce its exposure to currency fluctuations on intercompany
foreign currency denominated balance sheet positions during fiscal 1998. The
objective of these contracts is to neutralize the impact of the foreign currency
exchange rate movements on the
12
<PAGE> 14
Company's operating results. The Company's accounting policy for these
instruments is based on the Company's designation of such instruments as hedging
transactions. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company had $38.4 million of short-term
foreign exchange forward contracts denominated in Japanese, Italian, German,
French, and British currencies which approximated the fair value of such
contracts and their underlying transactions as of September 30, 1998. There can
be no assurance that these strategies will be effective or that transaction
losses can be minimized or forecasted accurately.
The following table provides information about the Company's foreign
exchange forward contracts at September 30, 1998. Due to the short-term nature
of these contracts, the contract rate approximates the weighted-average
contractual foreign currency exchange rate and the amount in U.S. dollars
approximates the fair value of the contract at September 30, 1998. These forward
contracts matured in approximately thirty days from December 23, 1998.
Short-Term Forward Contracts to Sell and Buy Foreign Currencies in U.S. Dollars
Related to Intercompany Balances:
<TABLE>
<CAPTION>
(in thousands, except for average contract rates) Amount Contract Rate
- ------------------------------------------------- --------- -------------
<S> <C> <C>
Forward Contracts:
Japanese yen $ 23,143 135.72
British pound sterling 1,010 1.70
German mark 4,835 1.67
French franc 8,565 5.60
Italian lira 867 1,658.20
</TABLE>
The unrealized gain (loss) on the outstanding forward contracts at September
30, 1998 was immaterial to the Company's consolidated financial statements. The
realized gain (loss) 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. APB 16
(paragraph 48(c)) states that a condition of 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:
o 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.
13
<PAGE> 15
o Certain synergies anticipated from operation of the PCB/Systems business as
part of Synopsys did not materialize.
o 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.
o 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. In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 130 establishes new standards
for reporting and displaying comprehensive income and its components. Synopsys
will adopt SFAS 130 as required for its first quarterly filing of fiscal 1999.
SFAS 131 requires disclosure of certain information regarding operating
segments, products and services, geographic areas of operation, and major
customers. Management is in the process of evaluating the effects of this change
on its reporting segments. Synopsys will adopt SFAS 131 as required for its
fiscal 1999 annual report.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 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 be required to implement SFAS 133 for its fiscal
2000. The Company has not determined the impact that SFAS 133 will have on its
financial statements and believes that such determination will not be meaningful
until closer to the date of initial adoption.
Liquidity and Capital Resources. Cash, cash equivalents and short-term
investments were $604.6 million at September 30, 1998, an increase of $168.9
million from fiscal 1997. The increase is primarily a result of cash generated
by operations of $142.1 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 $68.2 million, the sale of VSI
for $51.9 million and the sale of long-term investments of $15.2 million. These
cash flows were partially offset by cash outflows for investing and financing
activities, mainly capital expenditures of $58.1 million, acquisitions of three
businesses of $30.4 million, the repurchase of common stock of $12.4 million and
cash paid on debt obligations of $7.6 million.
Accounts receivable increased 6% during fiscal 1998, while sales grew by
11%. Days sales outstanding in receivables decreased to 59 days as of September
30, 1998 from 62 days at September 30, 1997. As of September 30, 1998, the
Company had sold $12.6 million of its accounts receivable to a financial
institution.
At September 30, 1998, the Company had two foreign exchange lines of credit
available totaling $70.0 million, which expire in October 1998 and July 1999.
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.
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
14
<PAGE> 16
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.
15
<PAGE> 17
WHERE TO FIND MORE INFORMATION ABOUT SYNOPSYS
We file annual, quarterly and special reports, proxy statements, and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our web site at http://www.synopsys.com or at the SEC's web site at
http://www.sec.gov. Our website is not a part of and is not incorporated by
reference into this prospectus.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents that we have previously filed with the SEC or
documents that we will file with the SEC in the future. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below, and
any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act, until the selling stockholders sell all the shares. This
prospectus is part of a Registration Statement we filed with the SEC
(Registration No. 333-84517). The documents we incorporate by reference
are:
1. Synopsys' Annual Report on Form 10-K for the fiscal year ended
September 30, 1998;
2. Synopsys' Quarterly Reports on Form 10-Q for the fiscal quarters
ended January 2, 1998, April 3, 1999 and July 3, 1999.
3. Synopsys' Proxy Statement for its 1999 Annual Meeting of
Stockholders dated January 19, 1999.
4. Synopsys' Current Reports on Form 8-K dated November 16, 1998,
January 25, 1999, April 23, 1999 and July 23, 1999.
5. The description of Synopsys' common stock contained in its
Registration Statement on Form 8-A as filed on January 24, 1992.
We also incorporate by reference all documents we subsequently file
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
registered have been sold or which deregisters all securities then remaining
unsold.
Any statement contained herein, or in a document incorporated or deemed to
be incorporated by reference in this Registration Statement or prospectus shall
be deemed to be modified or superseded for purposes of the Registration
Statement or this prospectus to the extent that a statement contained herein, in
a prospectus supplement or in any other document subsequently filed with the
Commission which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this prospectus.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Synopsys, Inc., 700 East Middlefield
Road, Mountain View, California 94043; telephone number (650) 962-5000.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the
selling stockholders.
16
<PAGE> 18
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Synopsys' common stock by each selling stockholder. All information
contained in the table below is based on beneficial ownership as of July 3,
1999. Unless otherwise noted, none of the selling stockholders has held any
position or office or had a material relationship with Synopsys or any of its
affiliates within the past three years other than as a result of the ownership
of Synopsys' common stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (2) SHARES OFFERED AFTER OFFERING (2)
--------------------- -------------- ------------------
NUMBER % NUMBER %
------ --- ------ ---
SELLING STOCKHOLDERS (1)
<S> <C> <C> <C> <C> <C>
Chenmin Hu (3)..................................... 19,051 * 17,013 2,038 *
Yuan Xu (4)........................................ 936 * 936 0 *
Changsheng Ying (5)................................ 16,649 * 14,611 2,038 *
Geoffrey Ying (6).................................. 15,323 * 13,285 2,038 *
</TABLE>
- ---------------
* Less than 1%.
(1) The selling stockholders acquired the shares in connection with the
acquisition by Synopsys of the outstanding securities of Stanza (the
"Stanza Acquisition"). All of the shares offered hereby are being offered
by the selling stockholders. Pursuant to the terms of the Agreement,
Synopsys undertook to use its best efforts to effect the registration of
the shares issued to the selling stockholders. The number of shares
beneficially owned by the selling stockholders includes an aggregate of
6,294 shares of common stock that have been deposited in escrow pursuant to
the terms of the Agreement to secure the respective indemnification
obligations of the selling stockholders thereunder (the "Escrowed Shares").
One-half of the Escrowed Shares will be released from escrow on June 21,
2000 and the remaining one-half will be released from escrow on June 21,
2001, to the extent authorized under the agreement relating to the Escrowed
Shares.
(2) Applicable percentage ownership is based on 70,673,546 shares of common
stock outstanding as of July 3, 1999, including the issuance of a total of
45,845 shares in connection with the Stanza Acquisition. Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of common
stock subject to options that are presently exercisable or exercisable
within 60 days of July 3, 1999 are deemed to be beneficially owned by the
person holding such options for the purpose of computing the percentage of
ownership of such person but are not treated as outstanding for the purpose
of computing the percentage of any other person. To the extent that any
shares are issued upon exercise of options, warrants or other rights to
acquire the Company's capital stock that are presently outstanding or
granted in the future or reserved for future issuance under the Company's
stock plans, there will be further dilution to new public investors.
(3) Mr. Hu is the beneficial owner of a total of 19,051 shares of common stock,
2,038 of which are issuable within 60 days of July 3, 1999 upon the
exercise of options granted to Mr. Hu pursuant to Stanza's 1998 Stock Plan
and 2,274 of which are Escrowed Shares.
(4) Mr. Xu is the beneficial owner of a total of 936 shares of common stock, 94
of which are Escrowed Shares.
(5) Mr. Ying is the beneficial owner of a total of 16,649 shares of common
stock, 2,038 of which are issuable within 60 days of July 3, 1999 upon the
exercise of options granted to Mr. Ying pursuant to Stanza's 1998 Stock
Plan and 2,030 of which are Escrowed Shares.
(6) Mr. Ying is the beneficial owner of a total of 15,323 shares of common
stock, 2,038 of which are issuable within 60 days of July 3, 1999 upon the
exercise of options granted to Mr. Ying pursuant to Stanza's 1998 Stock
Plan and 1,896 of which are Escrowed Shares.
17
<PAGE> 19
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time to
time by the selling stockholders. Such sales may be made on the Nasdaq National
Market, in the over-the-counter market or otherwise, at prices and under terms
then prevailing or at prices related to the then current market price, or in
negotiated transactions. The shares may be sold by means of one or more of the
following: (a) a block trade in which the broker-dealer so engaged will attempt
to sell the shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction; (b) purchases by a broker-dealer as
principal and resale by such broker-dealer for its account pursuant to this
prospectus; (c) an over-the-counter distribution in accordance with the rules of
the Nasdaq National Market; (d) ordinary brokerage transactions in which the
broker solicits purchasers; and (e) privately negotiated transactions. In
effecting sales, broker-dealers engaged by the selling stockholders may arrange
for other broker-dealers to participate in resales.
In connection with distributions of the shares or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with the selling stockholders. The selling stockholders may also sell the
shares short and redeliver the shares to close out such short positions. The
selling stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the shares
registered hereunder, which the broker-dealer may resell or otherwise transfer
pursuant to this prospectus. The selling stockholders may also loan or pledge
shares registered hereunder to a broker-dealer, and the broker-dealer may sell
the shares so loaned or upon a default the broker-dealer may effect sales of the
pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders in amounts
to be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act, in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
Synopsys has advised the selling stockholders that the anti-manipulation
rules under the Exchange Act may apply to sales of shares in the market and to
the activities of the selling stockholders and their affiliates. In addition,
Synopsys will make copies of this prospectus available to the selling
stockholders and has informed them of the need for delivery of copies of this
prospectus to purchasers at or prior to the time of any sale of the shares
offered hereby.
All costs, expenses and fees in connection with the registration of the
shares will be borne by Synopsys. Commissions and discounts, if any,
attributable to the sales of the shares will be borne by the selling
stockholders. The selling stockholders may agree to indemnify any broker-dealer
or agent that participates in transactions involving sales of the shares against
certain liabilities, including liabilities arising under the Securities Act.
Synopsys will not receive any proceeds from the sale of the shares.
Synopsys may suspend the use of this prospectus if, in the reasonable
judgment of Synopsys, a development has occurred or condition exists as a result
of which the Registration Statement or the prospectus does not contain material
non-public information which in the reasonable judgment of Synopsys is required
to be included in the Registration Statement or the Prospectus for sales of the
shares to be made hereunder. Synopsys is obligated in the event of such
suspension to amend the Registration Statement or the prospectus and to take all
actions necessary to ensure that the use of the prospectus may be resumed as
soon as practicable. In addition, the Selling Stockholders are not permitted to
use this prospectus for effecting resales during the following periods: (i)
during regular quarterly blackout periods under Synopsys' corporate insider
trading policy and (ii) during any special blackout periods imposed from time to
time upon Synopsys employees of the same class, or Synopsys employees with
knowledge of or potential knowledge of the same non-public information, as such
Selling Stockholder.
Synopsys has agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until all the
shares have been sold.
18
<PAGE> 20
There can be no assurance that the selling stockholders will sell any or all
of the shares of common stock offered by them hereunder.
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been passed
upon for the Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of Synopsys, Inc. as of September 30,
1998 and 1997, and for each of the years in the three-year period September 30,
1998, have been included in this registration statement in reliance upon the
report of KPMG LLP, independent auditors, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of EPIC Design Technology, Inc. for
the year ended September 30, 1996 (none of which are presented herein) have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing elsewhere in this registration statement and have been included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
19
<PAGE> 21
SYNOPSYS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors...........................................................F-2
Consolidated Balance Sheets..............................................................F-3
Consolidated Statements of Income........................................................F-4
Consolidated Statements of Stockholders' Equity..........................................F-5
Consolidated Statements of Cash Flows....................................................F-6
Notes to Consolidated Financial Statements...............................................F-7
</TABLE>
F-1
<PAGE> 22
REPORT OF KPMG LLP, INDEPENDENT AUDITORS
To The Board of Directors and Stockholders of Synopsys, Inc.:
We have audited the accompanying consolidated balance sheets of Synopsys,
Inc. and subsidiaries as of September 30, 1998 and 1997, 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, 1998. 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 did not audit the consolidated
financial statements of EPIC Design Technology, Inc., a company acquired by
Synopsys, Inc. in a business combination accounted for as a pooling-of-interests
as described in Note 2 to the consolidated financial statements, which
statements reflect total revenues constituting 8% in fiscal 1996, of the related
consolidated total. Those consolidated statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for EPIC Design Technology, Inc., is based solely on the
report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
The accompanying consolidated financial statements give retroactive effect
to the merger of Synopsys, Inc. and Everest Design Automation, Inc. on November
20, 1998, which has been accounted for as a pooling-of-interests as described in
Note 2 to the consolidated financial statements.
In our opinion, based on our audits and the report of the other auditors,
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, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended September 30,
1998 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
July 30, 1999
F-2
<PAGE> 23
SYNOPSYS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 164,548 $ 127,307
Short-term investments 440,082 308,416
--------- ---------
Cash and short-term investments 604,630 435,723
Accounts receivable, net of allowances of
$13,210 and $8,213, respectively 126,336 119,030
Prepaid expenses, deferred taxes and other 42,461 36,580
--------- ---------
Total current assets 773,427 591,333
Property and equipment, net 99,998 92,093
Long-term investments 38,265 61,056
Other assets 39,943 25,017
--------- ---------
Total assets $ 951,633 $ 769,499
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,058 $ 21,447
Accrued liabilities 102,354 93,442
Current portion of long-term debt 7,783 8,964
Income taxes payable 50,313 33,282
Deferred revenue 93,160 97,523
--------- ---------
Total current liabilities 268,668 254,658
Long-term debt 13,138 9,191
Deferred compensation 4,886 3,205
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; no
shares outstanding -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
67,925,000 and 64,750,000 shares outstanding, respectively 679 647
Additional paid-in capital 423,975 335,215
Retained earnings 240,465 151,428
Treasury stock, at cost, 318,000 shares outstanding (11,184) --
Cumulative translation adjustment (666) (1,552)
Net unrealized gain on investments 11,672 16,707
--------- ---------
Total stockholders' equity 664,941 502,445
--------- ---------
Total liabilities and stockholders' equity $ 951,633 $ 769,499
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product $430,979 $408,256 $346,133
Service 286,961 238,700 179,466
-------- -------- --------
Total revenue 717,940 646,956 525,599
-------- -------- --------
Cost of revenue:
Product 36,371 36,777 28,752
Service 57,396 50,108 36,794
-------- -------- --------
Total cost of revenue 93,767 86,885 65,546
-------- -------- --------
Gross margin 624,173 560,071 460,053
-------- -------- --------
Operating expenses:
Research and development 156,663 146,849 120,005
Sales and marketing 245,376 240,606 204,920
General and administrative 47,179 47,284 41,999
Merger-related and other costs 51,009 11,400 --
In-process research and development and other costs 33,069 5,500 64,529
-------- -------- --------
Total operating expenses 533,296 451,639 431,453
-------- -------- --------
Operating income 90,877 108,432 28,600
Other income, net 25,984 24,361 11,628
-------- -------- --------
Income before provision for income taxes and extraordinary items 116,861 132,793 40,228
Provision for income taxes 55,819 51,043 23,426
-------- -------- --------
Net income before extraordinary items 61,042 81,750 16,802
Extraordinary items - gain on extinguishment of debt and sale of
business unit, net of income tax expense 28,404 -- --
-------- -------- --------
Net income $ 89,446 $ 81,750 $ 16,802
======== ======== ========
Basic earnings per share:
Net income before extraordinary items $ 0.92 $ 1.30 $ 0.28
Extraordinary items 0.42 -- --
-------- -------- --------
Net income $ 1.34 $ 1.30 $ 0.28
======== ======== ========
Weighted average common shares 66,568 62,852 60,162
======== ======== ========
Diluted earnings per share:
Net income before extraordinary items $ 0.88 $ 1.24 $ 0.27
Extraordinary items 0.41 -- --
-------- -------- --------
Net income $ 1.29 $ 1.24 $ 0.27
======== ======== ========
Weighted average common shares and equivalents 69,524 65,925 62,991
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Deferred
Common Stock Additional Stock Cumulative
---------------------- Paid-in Retained Compen- Translation
Shares Amount Capital Earnings sation Adjustment
--------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 59,140 $591 $ 218,875 $ 68,030 $ (203) $ (39)
Acquisition of treasury stock (778) (7)
Issuance of common stock in
connection with acquisition 545 5 14,506
Stock issued under stock option
and stock purchase plans 2,663 27 20,793 (9,282)
Tax benefits associated with
exercise of stock options 8,967
Amortization of deferred stock
compensation 93
Translation adjustment (320)
Adjustment to unrealized gain
on investments, net
Net income 16,802
--------- ----------- ---------- --------- ---------- ----------
Balance at September 30, 1996 61,750 616 263,141 75,550 (110) (359)
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
Translation adjustment (1,193)
Adjustment to unrealized gain
on investments, net
Net income 81,750
--------- ----------- ---------- --------- ---------- ----------
Balance at September 30, 1997 64,750 647 335,215 151,428 -- (1,552)
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
Translation adjustment 886
Adjustment to unrealized gain
on investments, net
Net income 89,446
------- -------- ---------- ---------- ---------- ----------
Balance at September 30, 1998 67,925 $ 679 $ 423,975 $ 240,465 $ -- $ (666)
======= ======== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Gain on Treasury
Investments Stock Total
----------- ----------- ---------
<S> <C> <C> <C>
Balance at September 30, 1995 $ 108 $ 287,362
Acquisition of treasury stock (14,817) (14,824)
Issuance of common stock in
connection with acquisition 14,511
Stock issued under stock option
and stock purchase plans 14,817 26,355
Tax benefits associated with
exercise of stock options 8,967
Amortization of deferred stock
compensation 93
Translation adjustment (320)
Adjustment to unrealized gain
on investments, net 11,601 11,601
Net income 16,802
---------- ---------- ---------
Balance at September 30, 1996 11,709 350,547
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
Translation adjustment (1,193)
Adjustment to unrealized gain
on investments, net 4,998 4,998
Net income 81,750
---------- ---------- ---------
Balance at September 30, 1997 16,707 -- 502,445
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
Translation adjustment 886
Adjustment to unrealized gain
on investments, net (5,035) (5,035)
Net income 89,446
---------- ---------- ---------
Balance at September 30, 1998 $ 11,672 $ (11,184) $ 664,941
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 89,446 $ 81,750 $ 16,802
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary gains (28,404) -- --
Depreciation and amortization 44,152 39,826 28,947
Interest accretion on notes payable 510 526 470
Provision for doubtful accounts and sales returns 8,431 2,574 624
Tax benefit associated with stock options 13,767 30,024 8,967
Deferred taxes (6,617) (20,811) (13,015)
Non-cash merger-related and other costs 8,367 3,084 --
In-process research and development and other costs 33,069 5,500 64,529
Gain on sale of long-term investments (9,930) (15,856) (1,173)
Net changes in operating assets and liabilities:
Accounts receivable (25,754) (25,490) (20,138)
Prepaid expenses and other (699) (3,134) (7,085)
Other assets (6,022) (1,738) (2,175)
Accounts payable and accrued liabilities 9,561 10,345 32,531
Income taxes payable 1,147 16,424 3,307
Deferred revenue 9,377 7,020 13,958
Deferred compensation 1,681 3,205 --
--------- --------- ---------
Net cash provided by operating activities 142,082 133,249 126,549
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of long-term investments 15,158 22,503 8,460
Proceeds from sale of business unit 51,900 5,000 --
Purchases of long-term investments (1,998) (25,342) (34,154)
Purchases and maturities of short-term investments (127,849) (52,886) (91,971)
Purchases of property and equipment (58,106) (61,322) (50,006)
Purchase of technology -- (335) (10,900)
Acquisitions (net of cash acquired) (30,354) -- 67
Capitalization of software development costs (2,122) (4,211) (3,696)
--------- --------- ---------
Net cash used in investing activities (153,371) (116,593) (182,200)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on debt obligations (7,627) (11,568) (8,396)
Proceeds from sale of common stock, net 68,203 45,703 26,355
Purchases of treasury stock (12,407) (9,494) (14,824)
--------- --------- ---------
Net cash provided by financing activities 48,169 24,641 3,135
--------- --------- ---------
Effect of exchange rate changes on cash 361 (1,090) (287)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 37,241 40,207 (52,803)
Cash and cash equivalents, beginning of year 127,307 87,100 139,903
--------- --------- ---------
Cash and cash equivalents, end of year $ 164,548 $ 127,307 $ 87,100
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 770 $ 769 $ 704
Income taxes $ 46,206 $ 25,215 $ 21,181
Non-cash transactions:
Purchase of technology for notes $ -- $ -- $ 28,500
Notes payable issued in connection with acquisition $ 12,000 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 27
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 electronic design automation (EDA) solutions to the global
electronics market. The Company provides comprehensive design technologies to
creators of advanced integrated circuits, electronic systems, and systems on a
chip. The Company also provides consulting services and support to its customers
to streamline overall design process and accelerate time-to-market.
Fiscal Year End. The Company has a fiscal year that ends on the Saturday
nearest September 30. Fiscal 1998 was a 53-week year. Fiscal 1997 and 1996 were
52-week years. For presentation purposes, the consolidated financial statements
and notes refer to the calendar month end.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
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 are reported at fair value with material unrealized gains
and losses, if any, included in stockholders' equity. The fair value of
investments is based on quoted market prices. Realized gains and losses are
included in other income, net. Cash equivalents have original maturities of
three months or less. 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, 1998, the Company had sold approximately $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 and 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 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 expense items are translated at average exchange rates for the period.
Accumulated net translation adjustments are reported as a separate component of
stockholders' equity. 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
F-7
<PAGE> 28
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 1998, 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' 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. During the first quarter of fiscal 1998, the Company
adopted Statement of Position (SOP) 97-2, "Software Revenue Recognition." The
provisions of SOP 97-2 have been applied to transactions entered into beginning
October 1, 1997. 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 connection with the adoption of 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 to 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. Prior to
the adoption of SOP 97-2, all revenue from time-based product licenses was
recognized ratably over the term of the license. 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 costs of the Company's systems products. Cost of
service revenue includes personnel and the related costs associated with
providing such service.
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.
F-8
<PAGE> 29
Property and Equipment. Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of property and equipment (three to five years).
Leasehold improvements are recorded at cost and 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,
--------------------------
(in thousands) 1998 1997
- -------------- --------- ---------
<S> <C> <C>
Computer and other equipment $ 127,055 $ 125,717
Furniture and fixtures 15,341 18,792
Land 29,414 10,450
Leasehold improvements 23,579 19,743
--------- ---------
195,389 174,702
Less accumulated depreciation and amortization (95,391) (82,609)
--------- ---------
$ 99,998 $ 92,093
========= =========
</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 $2.1 million, $4.2 million and $3.7 million in fiscal 1998,
1997 and 1996, respectively.
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. Amortization amounted to
$2.2 million, $3.7 million and $3.2 million in fiscal 1998, 1997 and 1996,
respectively.
Goodwill. Goodwill represents the excess of the aggregate purchase price
over the fair value of the tangible and intangible assets acquired in various
acquisitions and is being amortized over the estimated useful life of 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. Amortization of goodwill charged to operations was
not material in fiscal 1998, 1997 and 1996, respectively.
Accrued Liabilities. Accrued liabilities consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
(in thousands) 1998 1997
- -------------- -------- --------
<S> <C> <C>
Payroll and related benefits $ 63,865 $ 55,723
Accrued merger and acquisition costs 3,513 1,237
Other accrued liabilities 34,976 36,482
-------- --------
Total $102,354 $ 93,442
======== ========
</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. On October 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." In
accordance with SFAS 128, 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 dilutive potential common shares outstanding during the period.
Dilutive potential common shares consist of employee stock options using the
treasury stock method. All earnings per share amounts for all periods presented
have been restated to conform to SFAS 128 requirements.
F-9
<PAGE> 30
Stock-Based Compensation. As permitted under Statement of Financial
Accounting Standards No. 123 (SFAS 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.
Effect of New Accounting Standards. In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 130 establishes new
standards for reporting and displaying comprehensive income and its components.
Synopsys will adopt SFAS 130 as required for its first quarterly filing of
fiscal 1999. SFAS 131 requires disclosure of certain information regarding
operating segments, products and services, geographic areas of operation, and
major customers. Management is in the process of evaluating the effects of this
change on its reporting segments. Synopsys will adopt SFAS 131 as required for
its fiscal 1999 annual report.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 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 be required to implement SFAS 133 for its fiscal
2000. The Company has not determined the impact that SFAS 133 will have on its
financial statements and believes that such determination will not be meaningful
until closer to the date of initial adoption.
Reclassifications. Certain amounts reported in previous years have been
reclassified to conform to the fiscal 1998 presentation.
NOTE 2. BUSINESS COMBINATIONS
Mergers. Subsequent to fiscal 1998, the Company issued approximately 1.4
million shares of its common stock for all the outstanding stock of Everest
Design Automation, Inc. (Everest), a developer of integrated circuit routing and
related technology. In addition, options to acquire Everest's common stock were
exchanged for options to acquire approximately 120,000 shares of the Company's
common stock. In December 1997, the Company issued approximately 11.3 million
shares of its common stock in exchange for all the outstanding shares of common
stock of Viewlogic Systems, Inc. (Viewlogic), a worldwide supplier of EDA
software. In addition, options to acquire Viewlogic's common stock were
exchanged for options to acquire approximately 2.8 million shares of the
Company's common stock. In February 1997, the Company issued approximately 10.3
million shares of its common stock in exchange for all the outstanding shares of
common stock of EPIC Design Technology, Inc. (EPIC), a developer of design
automation tools for deep submicron design in the area of integrated circuit
power, timing, and reliability analysis. In addition, options to acquire EPIC's
common stock were exchanged for options to acquire approximately 1.5 million
shares of the Company's common stock. These mergers 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, Viewlogic and Everest for all periods presented.
F-10
<PAGE> 31
The following information shows 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,
-------------------------------------------
(in thousands) 1998 1997 1996
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Total revenue:
Synopsys $ 639,658 $ 469,277 $ 353,500
Everest -- -- --
Viewlogic 78,282 147,811 128,180
Epic -- 29,868 43,919
--------- --------- ---------
Combined $ 717,940 $ 646,956 $ 525,599
========= ========= =========
Net income (loss):
Synopsys (1) $ 90,157 $ 69,490 $ 23,700
Everest (2,256) (236) --
Viewlogic 1,545 9,592 2,780
Epic -- 2,904 (9,678)
--------- --------- ---------
Combined $ 89,446 $ 81,750 $ 16,802
========= ========= =========
</TABLE>
(1) Includes extraordinary gains of $28.4 million, net of income tax expense, in
fiscal 1998.
The Company recorded merger-related and other costs of $51.0 million during
fiscal 1998. 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, 1998:
<TABLE>
<CAPTION>
NON-CASH
TOTAL AMOUNTS WRITE-OFF RESERVE
(in thousands) CHARGE PAID OF ASSETS BALANCE
- -------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
Transaction costs $ 9,245 $ (8,292) $ -- $ 953
Employee termination and transition costs 10,975 (10,593) -- 382
Write-off of equipment and other assets 8,367 -- (8,367) --
Legal and other settlements 6,894 (6,869) -- 25
Redundant facility and other costs 15,528 (13,375) -- 2,153
-------- -------- ---------- --------
Total $ 51,009 $(39,129) $ (8,367) $ 3,513
======== ======== ========== ========
</TABLE>
In connection with the EPIC merger, the Company recorded merger-related
costs of $11.4 million, which included transaction costs of $4.7 million, and
costs associated with integrating the operations of the two companies of $6.7
million. Included in integration charges were redundant facility costs of $0.7
million, computer and other equipment abandonment and removal costs of $5.2
million, contract termination charges and other related expenses of $0.3 million
and other expenses of $0.5 million. Of the $11.4 million of merger-related
expenses, $8.3 million related to cash expenditures while $3.1 million related
to non-cash write-off of assets. As of September 30, 1998, all cash expenditures
associated with this merger had been paid, and there was no remaining balance in
the accrual.
During fiscal 1998, the Company sold VSI, the PCB/Systems 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.
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.
Acquisitions. In July 1998, the Company acquired Systems Science, Inc.
(SSI). The acquisition was accounted for as a purchase with the Company
exchanging a combination of cash of $26.0 million and notes of $12.0 million.
F-11
<PAGE> 32
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 $47.1 million was allocated to the
acquired assets and liabilities based on their estimated fair values as of the
date of the acquisition. This includes allocations of $18.2 million to goodwill
and other intangible assets, which are being amortized on a straight-line basis,
generally over a five-year period. Approximately $28.9 million was allocated to
in-process research and development and other costs and charged to operations
because the acquired technology had not reached technological feasibility and
had no alternative uses.
The Company acquired two small privately held companies in the EDA industry
in October 1997, each of which has been accounted for as a purchase. The
purchase price, acquisition costs and net liabilities assumed for these
acquisitions totaled $4.2 million, which was allocated to in-process research
and development and other costs and charged to operations in the first quarter
of fiscal 1998 because the acquired technology had not reached technological
feasibility and had no alternative uses.
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.
NOTE 3. FINANCIAL INSTRUMENTS
Cash, cash equivalents and investments. All cash equivalents, short-term
investments, and non-current investments have been classified as
available-for-sale securities and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 UNREALIZED UNREALIZED ESTIMATED
(in thousands) COST GAINS LOSSES FAIR VALUE
- -------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 UNREALIZED UNREALIZED ESTIMATED
(in thousands) COST GAINS LOSSES FAIR VALUE
- -------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Classified as current assets:
Tax-exempt commercial paper $ 37,673 $ -- $ -- $ 37,673
Tax-exempt municipal obligations 210,123 49 -- 210,172
Money market preferred stock 49,823 -- -- 49,823
Municipal auction rate preferred stock 43,418 -- -- 43,418
U.S. government obligations 1,996 7 -- 2,003
Certificate of deposit 2,000 -- -- 2,000
Corporate annuity 1,000 -- -- 1,000
-------- -------- -------- --------
346,033 56 -- 346,089
Classified as non-current assets:
Tax-exempt municipal obligations 6,209 17 -- 6,226
Equity securities 28,797 26,033 -- 54,830
-------- -------- -------- --------
35,006 26,050 -- 61,056
-------- -------- -------- --------
Total securities $381,039 $ 26,106 $ -- $407,145
======== ======== ======== ========
</TABLE>
F-12
<PAGE> 33
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, 1998, the underlying maturities of the short-term investments are
$172.1 million within one year, $6.5 million within five to ten years and $261.5
million after ten years.
At September 30, 1998, $61.5 million and $440.1 million are classified as
cash equivalents and short-term investments, respectively. At September 30,
1997, $37.7 million and $308.4 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 1998, the Company
realized gains on sales of long-term investments of $13.9 million, which is
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 Design Systems, Inc.
(Cadence) consummated a merger, whereby each share of CCT was converted to 0.85
shares of Cadence stock. During fiscal year 1998, the Company sold 469,000
shares of Cadence stock and realized a gain of $10.0 million. As of September
30, 1998, the Company owns 823,000 shares of Cadence stock.
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, 1998, the fair market value of the puts and calls, based
on a quoted market price of $24.625, was $1.1 million, which has been recorded
in unrealized gains on investments.
As of September 30, 1998, the Company has an investment in Artisan
Components (Artisan) of 594,000 shares, which is included in long-term
investments. The Company entered into a forward contract for the sale of its
Artisan shares in the third quarter of fiscal 1998. The contract has remaining
prices and expiration dates as follows:
<TABLE>
<CAPTION>
Date Shares Forward Price
---- ------- -------------
<S> <C> <C>
December 15, 1998 148,574 $17.01
May 4, 1999 148,574 $17.01
June 15, 1999 148,574 $17.01
September 15, 1999 148,578 $17.01
</TABLE>
As of September 30, 1998, the fair market value of the forward contract,
based on a quoted market price of $7.00, was $5.9 million, which has been
recorded in unrealized gains on investments.
Foreign exchange hedging. The Company has two foreign exchange lines of
credit available totaling $70.0 million, which expire in October 1998 and July
1999. The Company had $38.4 million of short-term foreign exchange forward
contracts outstanding which approximated the fair value of such contracts and
their underlying transactions at September 30, 1998. 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, 1998
were not material. In addition, the Company has not terminated or extinguished
any foreign exchange forward contracts. The
F-13
<PAGE> 34
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 1996, the Company and International Business
Machines Corporation (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 of achievement of scheduled milestones
or at maturity in fiscal 2006. The notes were recorded at fair value of $28.5
million, using a discount rate commensurate with the risks involved. The Company
will also pay royalties on revenues from the sale of new products developed
pursuant to the IBM Agreement. As a result of the transaction, the Company
incurred an in-process research and development charge of $39.7 million in
fiscal 1996. In the first quarter of fiscal 1998, the Company and IBM modified
the terms of one of the notes which has been accounted for as an extinguishment
of debt. Accordingly, the Company recorded an extraordinary gain of $1.9
million, net of income tax expense, related to the extinguishment of the note.
As of September 30, 1998, the notes had a balance of $7.4 million, of which $3.2
million is included in long-term debt.
During fiscal 1998, in connection with the acquisition of SSI, the Company
issued $14.0 million in notes, which bear interest at 6.6%, and are payable upon
the earlier of achievement of certain milestones or at maturity in fiscal 2005.
The notes were recorded at fair value of $12.0 million, using a discount rate
commensurate with the risks involved. As of September 30, 1998, the notes had a
balance of $12.0 million, of which $9.3 million is included in long-term debt.
The fair value of the Company's long-term debt approximates the carrying
amount.
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 $25.5 million, $25.2
million and $21.4 million in 1998, 1997 and 1996, respectively.
Future minimum lease payments as of September 30, 1998, of which $2.2
million has been accrued as merger-related expenses, are as follows:
(in thousands)
Fiscal Years Ending
<TABLE>
<CAPTION>
<S> <C>
1999 $18,383
2000 17,510
2001 16,046
2002 14,688
2003 8,521
Thereafter 15,401
------
Total minimum payments required $90,549
=======
</TABLE>
NOTE 5. STOCKHOLDERS' EQUITY
Net Income Per Share. 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 1998, 1997 and 1996:
F-14
<PAGE> 35
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
(in thousands) 1998 1997 1996
-------------- ------ ------ ------
<S> <C> <C> <C>
Weighted-average common shares used to
calculate basic net income per share 66,568 62,852 60,162
Stock options outstanding 2,956 3,073 2,829
------ ------ ------
Weighted-average common shares used to
calculate diluted net income per share 69,524 65,925 62,991
====== ====== ======
</TABLE>
Stock Repurchase Program. 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. In October 1998, the
Company announced that it had rescinded its stock repurchase program to comply
with pooling-of-interests accounting guidance provided in the Securities and
Exchange Commission Staff Accounting Bulletin No. 96 (See Note 2).
In May 1996, the Board of Directors authorized the repurchase of up to
2,000,000 shares of the Company's outstanding common stock in the open market
over the following 24 months. During fiscal 1996, the Company purchased
approximately 361,000 shares at an average price of $41 per share. During fiscal
1997, the Company purchased approximately 205,000 shares at an average price of
$46 per share. All shares repurchased during fiscal 1996 and 1997 were reissued
prior to the merger with EPIC in February 1997, at which time the Company
announced that it had rescinded this stock repurchase program in order to comply
with pooling-of-interests accounting guidance provided in the Securities and
Exchange Commission Staff Accounting Bulletin No. 96.
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 stockholders, to fix the rights and
preferences and issue shares of, authorized but undesignated shares of Preferred
Stock. This provision and other provisions of the Company's Restated Certificate
of Incorporation and Bylaws and the Delaware General Corporation Law may have
the effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which the
stockholders of the Company might otherwise receive a premium for their shares
over then current market prices. The rights expire on October 24, 2007.
Employee Stock Purchase Plan. Under the Company's 1992 Employee Stock
Purchase Plan (ESPP), 3,150,000 shares have been authorized for issuance as of
September 30, 1998. 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 1998, 1997 and 1996, shares totaling 433,036, 457,877 and 486,887,
respectively, were issued under the plan at average prices of $27.61, $26.96 and
$16.95 per share, respectively. As of September 30, 1998, 1,379,421 shares of
common stock are reserved for the ESPP.
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
shares and stock options issued to new employees typically vest 25% after one
year with the remaining shares and options vesting on a pro rata basis over the
following 36 months, and shares and stock options issued to existing employees
typically vest on a pro rata basis over 48 months or 16 quarters. Options expire
ten years from the date of grant. As of September 30, 1998, 823,537 shares of
common stock are reserved for future grants.
In fiscal 1998, Synopsys established a Non-Statutory Stock Option Plan (the
1998 Plan) under which it authorized 566,736 shares of common stock for granting
of non-qualified stock options to employees excluding officers and directors.
Exercisibility, 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. 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, 1998, 2,149 shares
of common stock are reserved for future grants.
F-15
<PAGE> 36
Under the Company's 1994 Non-Employee Directors Stock Option Plan (the
Directors Plan), a total of 275,000 shares have been reserved for issuance.
Pursuant to the Directors Plan, each non-employee member of the Board of
Directors (the Board) is automatically granted an option to purchase 20,000
shares of the Company's stock upon initial appointment or election to the Board,
10,000 shares of the Company's stock upon reelection to the Board, and 5,000
shares of the Company's 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. 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, 1998, 116,000 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.
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 October 1, 1995 10,634,285 $17.63
Granted 4,406,013 $30.52
Exercised (2,173,998) $11.60
Canceled (1,549,325) $27.37
----------
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
==========
Options Exercisable at:
September 30, 1996 3,849,289 $16.93
September 30, 1997 4,042,590 $20.40
September 30, 1998 5,239,779 $24.08
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- ------------------------ ----------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.11 - $23.19 2,722,037 5.82 $15.41 2,126,846 $14.90
$23.22 - $28.19 2,887,130 7.74 $27.15 1,316,841 $26.65
$28.25 - $33.69 2,617,690 8.64 $32.22 773,873 $31.20
$33.74 - $37.38 2,589,573 8.78 $35.35 785,248 $35.23
$37.44 - $45.75 1,411,883 9.37 $39.90 146,971 $42.43
--------- ---- ------ ----------- ------
$ 0.11 - $45.75 12,228,313 7.94 $28.83 5,239,779 $24.08
========== ==== ====== =========== ======
</TABLE>
F-16
<PAGE> 37
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
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 123.
The fair value method of the Company's stock-based awards to employees was
estimated using the Black-Scholes option pricing model. The Black-Scholes option
valuation model was developed for use in estimating fair value of traded options
that have no vesting restrictions and are fully transferable. The Black-Scholes
model requires the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's stock-based awards to
employees have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of the Company's stock-based
awards to employees was estimated assuming no expected dividends and the
following weighted-average assumptions:
<TABLE>
<CAPTION>
STOCK OPTION PLANS ESPP
-------------------------- -------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years) 5.3 5.4 5.4 1.25 0.9 0.9
Risk-free interest rate 5.3% 6.3% 6.0% 5.5% 5.8% 5.6%
Volatility 55.0% 55.1% 53.6% 55.0% 55.1% 53.6%
</TABLE>
The weighted-average estimated fair value of stock options granted during
fiscal 1998, 1997 and 1996 was $20.32, $12.87 and $17.49 per share,
respectively. The weighted-average estimated fair value of shares granted under
the ESPP during fiscal 1998, 1997 and 1996 was $11.70, $10.74 and $9.64 per
share, respectively. 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 information
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------
(in thousands, except per share amounts) 1998 1997 1996
- ---------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net income
As reported $ 89,446 $ 81,750 $ 16,802
Pro forma $ 44,680 $ 53,878 $ 5,239
Earnings per share - basic
As reported $ 1.34 $ 1.30 $ 0.28
Pro forma $ 0.67 $ 0.86 $ 0.09
Earnings per share - diluted
As reported $ 1.29 $ 1.24 $ 0.27
Pro forma $ 0.64 $ 0.82 $ 0.08
</TABLE>
Because SFAS 123 is applicable only to awards granted subsequent to
September 30, 1995, its pro forma effect will not be fully reflected until
fiscal 1999.
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.
F-17
<PAGE> 38
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------
(in thousands) 1998 1997 1996
- -------------- -------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 40,452 $ 26,998 $ 14,154
State 5,555 4,562 2,525
Foreign 2,662 5,875 5,083
-------- -------- --------
48,669 37,435 21,762
-------- -------- --------
Deferred:
Federal (6,003) (14,325) (6,636)
State (858) (2,062) (992)
Foreign 244 (29) 325
-------- -------- --------
(6,617) (16,416) (7,303)
-------- -------- --------
Charge equivalent to the federal and state tax benefit
related to employee stock options 13,767 30,024 8,967
-------- -------- --------
Provision for income taxes $ 55,819 $ 51,043 $ 23,426
======== ======== ========
</TABLE>
The components of the Company's total income before provision for income taxes
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
(in thousands) 1998 1997 1996
-------------- -------- -------- --------
<S> <C> <C> <C>
United States $110,998 $122,284 $ 35,274
Foreign 5,863 10,509 4,954
-------- -------- --------
$116,861 $132,793 $ 40,228
======== ======== ========
</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,
--------------------------------------
(in thousands) 1998 1997 1996
- -------------- -------- -------- --------
<S> <C> <C> <C>
Statutory federal tax $ 40,901 $ 46,477 $ 14,080
State tax, net of federal benefit 6,121 6,712 2,231
Tax credits (1,665) (3,717) (993)
Tax benefit from foreign sales corporation (3,826) (2,920) (2,013)
Tax exempt income (5,911) (3,797) (3,239)
Equity method for investments -- 744 --
Foreign tax in excess of U.S. statutory tax 872 1,501 575
Non-deductible merger and acquisition expenses 7,379 6,884 1,500
In-process research and development expenses 9,888 1,921 8,694
Other 2,060 2,673 2,591
Valuation Allowance -- (5,435) --
-------- -------- --------
$ 55,819 $ 51,043 $ 23,426
======== ======== ========
</TABLE>
A net deferred tax asset of $30.5 million and $23.8 million is included in
prepaid expenses, deferred taxes, and other at September 30, 1998 and 1997,
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:
F-18
<PAGE> 39
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
(in thousands) 1998 1997
-------------- ------- -------
<S> <C> <C>
Deferred tax assets:
Tax credit carryovers $ 220 $ 672
Prepaid commissions -- 951
Accounts receivable -- 618
Deferred revenue 4,346 9,645
Joint venture and acquisition costs 4,882 7,912
Reserves and other expenses not currently deductible 23,333 18,601
Depreciation and amortization 4,187 599
Unrealized foreign exchange losses 269 --
Other 1,187 670
-------- --------
Deferred tax assets 38,424 39,668
Deferred tax liabilities:
Depreciation and amortization -- (932)
Unrealized gain on securities investments (7,287) (9,382)
Unrealized foreign exchange gains -- (212)
Net capitalized software development costs (674) (2,994)
Other -- (2,302)
-------- --------
Deferred tax liabilities (7,961) (15,822)
-------- --------
Net deferred tax asset $ 30,463 $ 23,846
======== ========
</TABLE>
At September 30, 1998, 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.
At September 30, 1998, the Company had alternative minimum tax credit
carryovers of $0.2 million, which do not expire.
NOTE 7. GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in a single industry segment, the development,
marketing, and support of electronic design automation software and systems
products. The Company's foreign operations consist primarily of sales, marketing
and service activities in subsidiaries throughout the world. No one customer
accounted for more than ten percent of the Company's revenue in fiscal 1998,
1997 and 1996, respectively.
F-19
<PAGE> 40
Summarized financial information by major geographic area is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
(in thousands) 1998 1997 1996
-------------- ----------- ---------- -----------
<S> <C> <C> <C>
Revenue:
North America $ 506,566 $ 456,669 $ 358,959
Europe 128,347 109,760 88,856
Pacific Rim 151,409 152,413 132,619
Transfers between geographic areas (68,382) (71,886) (54,835)
----------- ---------- -----------
Consolidated $ 717,940 $ 646,956 $ 525,599
=========== ========== ===========
Operating income:
North America $ 92,784 $ 61,172 $ 50,567
Europe 30,995 17,110 8,483
Pacific Rim 51,176 42,545 (28,790)
Corporate and eliminations (84,078) (12,395) (59,240)
----------- ---------- -----------
Consolidated $ 90,877 $ 108,432 $ 28,600
=========== ========== ===========
Identifiable assets:
North America $ 416,156 $ 352,308 $ 312,983
Europe 38,949 25,410 39,139
Pacific Rim 53,376 57,739 41,330
Corporate assets and eliminations 443,152 334,042 191,401
----------- ---------- -----------
Consolidated $ 951,633 $ 769,499 $ 584,853
=========== ========== ===========
</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. In fiscal 1998,
identifiable assets in the Pacific Rim include $22.5 million of accounts
receivable from customers located in Japan. Management believes allowances are
adequate to cover any uncollectible amounts. Corporate assets consist primarily
of cash and investments.
NOTE 8. SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(in thousands, except per share data) DEC. 31 MAR. 31 JUN. 30 SEP. 30
- ------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998:
Revenue $ 174,212 $ 170,105 $ 179,606 $ 194,017
Gross margin 150,720 148,815 156,280 168,358
Income (loss) before provision for income taxes
income taxes and extraordinary items(1) (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:(2)
High $ 46.06 $ 36.00 $ 45.81 $ 42.44
Low $ 35.06 $ 29.50 $ 30.97 $ 26.13
</TABLE>
F-20
<PAGE> 41
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(in thousands, except per share data) DEC. 31 MAR. 31 JUN. 30 SEP. 30
- ------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997:
Revenue $ 153,903 $ 156,771 $ 162,610 $ 173,672
Gross margin 134,339 135,834 139,567 150,331
Income before provision for income taxes(3) 37,444 17,516 37,049 40,784
Net income 24,332 6,905 24,037 26,476
Earnings per share
Basic 0.39 0.11 0.38 0.41
Diluted 0.37 0.11 0.36 0.39
Market stock price range: (2)
High $ 50.00 $ 46.25 $ 38.00 $ 45.19
Low $ 39.75 $ 24.25 $ 21.75 $ 29.50
</TABLE>
(1) 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.
(2) 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 October 3, 1998, there were approximately 734
stockholders of record. To date, the Company has paid no cash dividends on its
capital stock, and has no current intention to do so.
(3) Includes merger-related and other costs of $11.4 million and in-process
research and development and other costs of $5.5 million for the second quarter
of fiscal 1997.
F-21
<PAGE> 42
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by the
Company in connection with the sale of common stock being registered hereunder.
All amounts are estimates except the SEC registration fee and Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee $ 712
NASDAQ National Market listing fee 2,000
Legal fees and expenses 10,000
Accounting fees and expenses 10,000
Miscellaneous expenses 0
-------
Total $22,712
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article X of the Company's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permitted under
Delaware law.
Article VII of the Company's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation to the
fullest extent permitted under the General Corporation Law of Delaware.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
At present, there is no pending litigation or proceeding involving a
director, officer, employee, or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee, or other agent of the Registrant.
II-1
<PAGE> 43
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
5.1* Opinion of Brobeck, Phleger & Harrison LLP
23.1* Consent of KPMG LLP, Independent Auditors (relating to
the financial statements of Synopsys, Inc.)
23.2* Consent of Deloitte & Touche LLP, Independent Auditors
(relating to the financial statements of EPIC Design
Technology, Inc.)
23.3* Consent of Counsel (included in Exhibit 5.1)
23.4* Report of Deloitte & Touche LLP, Independent Auditors
(relating to the financial statements of EPIC Design
Technology, Inc.)
24.1* Power of Attorney (See page II-4)
</TABLE>
- ----------
* Previously filed on August 4, 1999
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement; provided,
however, that paragraphs (a) and (b) above do not apply
if the information required to be included in a
post-effective amendment by those paragraphs is
contained in periodic reports filed by the Company
pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in the
Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
4. That, for the purpose of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
5. To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act; and, where interim financial information required to be presented
by Article 3 of Regulation S-X are not set forth in the prospectus, to
II-2
<PAGE> 44
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
6. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mountain
View, State of California, on the 3rd day of September, 1999.
SYNOPSYS, INC.
By: /s/ David M. Sugishita
-----------------------------
David M. Sugishita
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------- ------------------------------------- -----------------
<S> <C> <C>
* Chief Executive Officer September 3, 1999
---------------------------------- (Principal Executive Officer)
Aart J. de Geus and Chairman of the Board of
Directors
* President, Chief Operating Officer September 3, 1999
---------------------------------- and Director
Chi-Foon Chan
* Executive Vice President September 3, 1999
---------------------------------- and Director
William W. Lattin
* Director September 3, 1999
----------------------------------
Andy D. Bryant
* Director September 3, 1999
----------------------------------
Deborah A. Coleman
* Director September 3, 1999
----------------------------------
Harvey C. Jones, Jr.
* Director September 3, 1999
----------------------------------
A. Richard Newton
</TABLE>
II-4
<PAGE> 46
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------- ------------------------------------- -----------------
<S> <C> <C>
* Director September 3, 1999
----------------------------------
Sasson Somekh
* Director September 3, 1999
----------------------------------
Steven C. Walske
/s/ DAVID M. SUGISHITA Chief Financial Officer September 3, 1999
---------------------------------- (Principal Financial Officer
David M. Sugishita and Accounting Officer)
</TABLE>
*By /s/ David M. Sugishita
-----------------------
(David M. Sugishita)
Attorney-in-Fact
II-5
