UNITED STATES SECURITIES and EXCHANGE COMMISSION Washington, D.C
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) # ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Forthe yearended October 31, 2006 OR " TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-19807 SYNOPSYS, INC. (Exact name of registrant as specified in its charter) Delaware 56-1546236 (State or other jurisdiction of (I.R.S. Employer incorporation ororganization) Identification No.) 700 East Middlefield Road, Mountain View, California 94043 (Address of principal executive offices, including zip code) (650) 584-5000 (Registrant’s telephone number, including areacode) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each ClaSS Name of Each Exchange on Which Registered Common Stock, $0.01 par value The Nasdaq Stock Market, Inc. Preferred Share Purchase Rights The Nasdaq Stock Market, Inc. Indicate by check markif the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act. Yes # No " Indicate by check markif the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Ye S " No # Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934during thepreceding 12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for the past 90 days. Yes # No " Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of Registrant’s knowledge, in definitive proxy or information statements incorporated by referencein Part III of thisForm 10-K or any amendment to this Form 10-K. " Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one): Large accelerated filer # Accelerated filer " Non-accelerated filer " Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act). Yes " No # The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business dayofthe Registrant’s most recently completed second fiscal quarter was approximately $2,676,166,223. Aggregate market value excludes an aggregate of 21,241,457 shares of common stock held by officers and directors and by each person known by the Registrant to own 5% or more of the outstanding commonstock on such date.Exclusion of shares held by any of these persons should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant. On December 31, 2006, 144,013,064 shares of the Registrant’s Common Stock, $0.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE None. SYNOPSYS, INC. ANNUAL REPORT ON FORM 10-K Year ended October 31, 2006 TABLE OF CONTENTS Page No. PART I Item 1.Business................................................................... 1 Item 1A. Risk Factors............................................................... 11 Item 1B. Unresolved Staff Comments................................................. 18 Item 2.Properties................................................................. 18 Item 3.Legal Proceedings.......................................................... 19 Item 4.Submission of Matters to a VoteofSecurity Holders............................ 20 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities. ............................................. 24 Item 6.Selected Financial Data ..................................................... 25 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................... 46 Item 8.FinancialStatements and Supplementary Data ................................. 50 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................................... 92 Item 9A. Controls and Procedures .................................................... 92 Item 9B. Other Information.......................................................... 95 PART III Item 10. Directors and ExecutiveOfficers of theRegistrant.............................. 95 Item 11. Executive Compensation.................................................... 98 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters............................................... 102 Item 13. CertainRelationshipsand Related Transactions and Director Independence....... 104 Item 14. Principal Accounting Fees and Services........................................ 105 PART IV Item 15.Exhibits, Financial Statement Schedules....................................... 106 SIGNATURES......................................................................... 111 i PART I This Annual Report on Form 10-K, particularly in Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the Securities Act)and Section 21E of the Securities Exchange Act of1934 (the Exchange Act). These statements include, but are not limited to, statementsconcerning: our business, product and platform strategies, expectations regarding previous and future acquisitions; completion of development of our unfinished products, or further development or integration of our existing products; continuation of current industry trends towards vendor consolidation; expectations regarding our license mix;expectations regarding customerinterestin more highly integrated tools and design flows; expectations of the success of our intellectualproperty and designfor manufacturinginitiatives; expectations concerning recent completed acquisitions; expectations regarding seasonality; expectations regarding the likely outcome of the Internal Revenue Service’s proposed net taxdeficiencies for fiscal years 2000 and 2001 or other outstanding litigation; expectations that our cash, cash equivalents and short-term investments and cash generated from operations will satisfy our business requirements for the next 12 months; and our expectations of our future liquidity requirements. Our actual results could differ materially from those projected in the forward-looking statements as a result of anumber of factors, risks and uncertainties discussed in this Form 10-K, especially those contained in Item1A of this Form 10-K. The words “may,” “will,” “could,” “would,” “anticipate,” “expect,” “intend,” “believe,” “continue,” or the negatives of these terms, or other comparable terminologyand similar expressions identify these forward-looking st atements. The information included herein isgiven as of the filing date of this Form 10-K with theSecurities and Exchange Commission (SEC) and future events or circumstances could differ significantly from these forward-looking statements. Accordingly, we caution readers not to place undue reliance on thesestatements. Item 1. Business Introduction Synopsys, Inc. (Synopsys) is aworld leaderin electronic design automatio n (EDA) software and related services for seMIconductor designcompaNIes. Wedeliver technology-leadINgsemiconductor design and verification software platforms and integrated circuit (IC) manufacturINg software products to the globalelectronics market, enabLIng the development and production of complex systems-on-chips (SoCs). In addition, we provide intellectualproperty (IP) and design services to simplify the design process and accelerate time-to-market for our customers. FinaLLy, we provide software and services that help customers prepare and optimize their designs for manufacturINg. We incorporated IN 1986 in North CaroLINa and reINcorporated IN Delaware in 1987. Our headquarters are located at 700East Middlefield Road, Mountain View, California 94043, and our telephone number there is (650) 584-5000. We have more than 60 offices throughout North America, Europe, Japan and Asia. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements relating to our annual meetings of stockholders, Current Reports onForm 8-K and amendments to these reports, as weLL as filings made by our executive officers and directors, are available on our Internet website (www.synopsys.com). We postthese reports to our websiteassoon as practicable after we file themwith, or furnish them to, the SEC. Thecontents of our website are not part of this Form 10-K. 1 The Role of EDA in the Electronics Industry Technology advancesin the semiconductor industry have steadily increased the featuredensity, speed, power efficiency and functional capacity of