10-KPeriod: FY2006

SYNOPSYS INC Annual Report, Year Ended Oct 31, 2006

Filed January 11, 2007For Securities:SNPS

Summary

Synopsys, Inc. reported fiscal year 2006 revenue of $1.096 billion, a 10% increase year-over-year, driven primarily by strong performance in time-based license revenue, which grew 18%. The company's strategic shift towards a more ratable license model has reduced revenue seasonality but also impacted upfront license and maintenance revenue. Financially, Synopsys achieved net income of $24.7 million, a significant improvement from a net loss of $17.1 million in fiscal 2005. This turnaround was attributed to increased revenue and lower amortization expenses, partially offset by higher research and development costs and the adoption of new stock-based compensation accounting standards. The company also continued its share repurchase program, buying back approximately $200 million in stock. A significant factor impacting operations is an ongoing IRS audit for fiscal years 2000-2001, with the IRS proposing a substantial tax deficiency, which Synopsys is contesting vigorously.

Key Highlights

  • 1Revenue increased by 10% to $1.096 billion in fiscal year 2006.
  • 2Time-based license revenue grew by 18%, reflecting the company's shift to a ratable revenue model.
  • 3Net income turned positive at $24.7 million, a significant improvement from a net loss of $17.1 million in the prior year.
  • 4Research and Development expenses increased by 15% to $370.6 million, reflecting investment in new products and acquisitions.
  • 5The company repurchased approximately $200 million of its common stock during fiscal year 2006.
  • 6Synopsys is actively contesting a significant proposed tax deficiency from the IRS for fiscal years 2000-2001, with appeals expected to continue for several years.
  • 7The company acquired three businesses in fiscal year 2006: HPL Technologies, Virtio Corporation, and SIGMA-C Software AG, to enhance its product offerings in yield management, virtual prototyping, and lithography simulation.

Frequently Asked Questions

Synopsys reported revenue of $1.096 billion for fiscal year 2006, an increase of 10% compared to $991.9 million in fiscal year 2005. This growth was primarily driven by an 18% increase in time-based license revenue.

Synopsys achieved a net income of $24.7 million in fiscal year 2006, a substantial improvement from a net loss of $17.1 million in fiscal year 2005. This turnaround was driven by increased revenue and reduced amortization expenses.

The IRS proposed a net tax deficiency of approximately $476.8 million plus interest for fiscal years 2000 and 2001, primarily related to transfer pricing. Synopsys strongly disputes these proposed adjustments and is actively engaged in the appeals process with the IRS, which is expected to be a lengthy process.

Synopsys had $572.7 million in cash and cash equivalents and short-term investments as of October 31, 2006. The company generated $205.9 million in cash flow from operations and has a $300 million revolving credit facility, indicating a strong liquidity position to meet its business requirements.