Synopsys (SNPS)

Liquidity and Capital Resources

        Our sources of cash, cash equivalents and short-term investments are funds generated from our business operations and funds that may be drawn down under our credit facility.

        The following sections discuss changes in our balance sheet and cash flows, and other commitments on our liquidity and capital resources during fiscal 2007.

Cash and cash equivalents and short term investments

        During the year ended October 31, 2007, our primary sources and uses of cash consisted of (1) cash provided by operating activities of $433.5 million, (2) proceeds from issuance of common stock to employees of $208.5 million, (3) proceeds from sales and maturities of short-term investments of $284.6 million, (4) proceeds from sale of land of $26.3 million, (5) repurchases of common stock of

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$151.6 million, (6) purchases of investments of $451.7 million, (7) purchases of property and equipment of $44.7 million, and (8) cash paid for acquisitions and intangible assets of $57.5 million.

Cash flows

        Cash provided by operating activities.    Cash provided by operations is dependent primarily upon the payment terms of our license agreements. To be classified as upfront revenue, we require that 75% of a term or perpetual license fee be paid within the first year. Conversely, payment terms for TSLs are generally extended and the license fee is typically paid either quarterly or annually in even increments over the term of the license. Accordingly, we generally receive cash from upfront license revenue much sooner than from time-based licenses revenue.

        Cash provided by operating activities increased primarily due to increased collections largely as a result of payments received from a significant customer, a litigation settlement of $12.5 million received from Magma during fiscal 2007, and decreased commission payments and timing of payments to vendors compared to the same period in 2006.

        Cash used in investing activities.    The increase in cash used primarily relates to acquisitions, purchases of marketable securities related to our increased collections and the timing of maturities of marketable securities, and our capital expenditures to support our information technology infrastructure, partially offset by cash received for the sale of land in San Jose for $26.3 million, net of related fees.

        Cash provided by (used in) financing activities.    The increase in cash provided primarily relates to a higher amount of option exercises by employees and lower stock repurchases under our stock repurchase program compared to the same period in fiscal 2006. See Note 7 of Notes to Consolidated Financial Statements for details of the stock repurchase program.

        We hold our cash, cash equivalents and short-term investments in the United States and in foreign accounts, primarily in Ireland, Bermuda, and Japan. As of October 31, 2007, we held an aggregate of $722.1 million in cash, cash equivalents and short-term investments in the United States and an aggregate of $262.4 million in foreign accounts. Funds in foreign accounts are generated from revenue outside North America. At present, such foreign funds are considered to be indefinitely reinvested in foreign countries. See "Income Taxes" above.

        We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including timing of our billings and collections, our operating results, the timing and amount of tax and other liability payments and cash used in any future acquisitions.

Accounts Receivable, net

        Our accounts receivable and Days Sales Outstanding (DSO) are primarily driven by our billing and collections activities. Our DSO was 36 days at October 31, 2007 and 39 days at October 31, 2006. The

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decrease in DSO along with a slight increase in accounts receivable balance primarily relates to our strong collection efforts and timing of billings to customers that occurred during the year with subsequent payment terms.

        Net Working Capital.    Working capital is comprised of current assets less current liabilities, as shown on our unaudited condensed consolidated balance sheets. As of October 31, 2007, our net working capital was $296.5 million, compared to $23.4 million as of October 31, 2006. The increase of $273.1 million was primarily due to (1) an increase of $248.6 million in cash and cash equivalents including proceeds from sale of land and the Magma litigation settlement, (2) an increase in short-term investments of $163.2 million, (3) an increase in income taxes receivable and deferred taxes of $10.8 million, and (4) an increase in prepaid and other of $9.2 million. This increase was partially offset by an increase in (1) deferred revenue of $131.7 million, (2) accounts payable and accrued liabilities of $12.1, and (3) income taxes payable of $16.2 million.

        Other Commitments—Revolving Credit Facility.    On October 20, 2006, we entered into a five-year, $300.0 million senior unsecured revolving credit facility providing for loans to Synopsys and certain of its foreign subsidiaries. The amount of the facility may be increased by up to an additional $150.0 million through the fourth year of the facility. The facility contains financial covenants requiring us to maintain a minimum leverage ratio and specified levels of cash, as well as other non-financial covenants. The facility terminates on October 20, 2011. Borrowings under the facility bear interest at the greater of the administrative agent's prime rate or the federal funds rate plus 0.50%; however, we have the option to pay interest based on the outstanding amount at Eurodollar rates plus a spread between 0.50% and 0.70% based on a pricing grid tied to a financial covenant. In addition, commitment fees are payable on the facility at rates between 0.125% and 0.175% per year based on a pricing grid tied to a financial covenant. As of October 31, 2007 we had no outstanding borrowings under this credit facility and were in compliance with all covenants.

        We believe that our current cash, cash equivalents, short-term investments, cash generated from operations, and available credit under our credit facility will satisfy our business requirements for at least the next twelve months.

Liquidity and Capital Resources

We derive our liquidity and capital resources primarily from cash generated from our operations.  We believe that our current cash, cash equivalents, short-term investments and cash generated from operations will satisfy our business requirements for at least the next twelve months. Our cash, cash equivalents and short-term investments decreased $52 million, or 9%, to $534.5 million as of April 30, 2006 from $586.5 million as of October 31, 2005.

Cash provided by operations is in part dependent upon the payment terms of our license agreements. For an upfront license, we require that a substantial portion of the license fee be paid within the first year. Conversely, payment terms for time-based licenses are generally extended; typically the license fee is paid quarterly in even increments over the term of the license. Accordingly, we generally receive cash from upfront licenses sooner than on time-based licenses.

Cash provided by operations was $46.7 million for the six months ended April 30, 2006 compared to $130.6 million for the same period in fiscal 2005. The decrease of $83.9 million was driven primarily by (i) a reduction of $22.8 million in cash collected from customers; and (ii) an increase of $53.2 million in cash used to satisfy vendors and other liabilities, of which $10.8 million related to commission payments when compared to the same period in fiscal 2005.

Accounts receivable, net of allowances, increased $38.1 million to $138.3 million as of April 30, 2006 from $100.2 million as of October 31, 2005 as a result of increased billings under TSLs during the quarter. Days sales outstanding, calculated based on revenue for the six months ended April 30, 2006 and accounts receivable as of April 30, 2006, increased to approximately 46 days as of April 30, 2006 from approximately 36 days as of October 31, 2005. The increase in days sales outstanding is primarily driven by the increase in the accounts receivable balance during the six months ended April 30, 2006.

Cash used in investing activities was $96.1 million for the six months ended April 30, 2006 compared to $63.8 million

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Liquidity and Capital Resources

We derive our liquidity and capital resources primarily from our cash generated from operations.  We believe that our current cash, cash equivalents, short-term investments and cash generated from operations will satisfy our business requirements for at least the next twelve months. Cash, cash equivalents and short-term investments decreased $72.2 million, or 12%, to $514.3 million as of January 31, 2006 from $586.5 million as of October 31, 2005.

Cash provided by operations is in part dependent upon the payment terms of our license agreements. For an upfront license, we require that a substantial portion of the license fee be paid within the first year. Conversely, payment terms for time-based licenses are generally extended; typically the license fee is paid quarterly in even increments over the term of the license. Accordingly, we generally receive cash from upfront licenses sooner than on time-based licenses.

Cash provided by operations was $19.8 million for the three months ended January 31, 2006 compared to $142.1 million for the same period in fiscal 2005. The decrease of $122.3 million was comprised of (i) increase in payments to vendors of $60.2 million; (ii) increase in commission payments of $13.4 million, and (iii) a decrease in cash collections of $44.1 million for the three months ended January 31, 2006 when compared to the same period in fiscal 2005.

Accounts receivable, net of allowances, decreased $16.2 million to $84.0 million as of January 31, 2006 from $100.2 million as of October 31, 2005 as a result of strong collection efforts during the quarter. Days sales outstanding, calculated based on revenue for the three months ended January 31, 2006 and accounts receivable as of January 31, 2006, decreased to approximately 29 days as of January 31, 2006 from approximately 36 days as of October 31, 2005. The decrease in days sales outstanding is primarily due to a reduction in the level of accounts receivable, which in turn was driven by strong collections during the quarter and the increased amount of installment contract arrangements caused by our license model change.

Cash used in investing activities was $39.5 million for the three months ended January 31, 2006 compared to $72.8 million for the same period in fiscal 2005. The decrease of $33.3 million is primarily due to a decrease in cash used for acquisitions of $79.4 million, partially offset by an increase of (i) $44.9 million in payments made for purchase of short and long term investments, net of related proceeds of the short-term investments; and (ii) $1.2 million cash used for purchases of property and equipment.

Cash used in financing activities was $70.5 million for the three months ended January 31, 2006 compared to $37.9 million for the same period in fiscal 2005. The increase of $32.7 million is primarily due to an increase in purchases of shares of our common stock, partially offset by an $8.2 million increase in proceeds to Synopsys from sales of shares of our common stock pursuant to our employee stock option plans.

We hold our cash, cash equivalents and short-term investments in the U.S. and in foreign accounts, primarily Ireland, Bermuda and Japan. As of January 31, 2006, we held an aggregate of $418.7 million in cash, cash equivalents and short-term investments in the U.S. and an aggregate of $95.5 million in foreign accounts. Funds in foreign accounts are generated from revenue outside North America. With the exception of Japan, we currently maintain a policy under APB 23, Accounting for Income Taxes-Special Areas, of indefinitely reinvesting such funds outside of the U.S.

In April 2004, we entered into a three-year, $250.0 million senior unsecured revolving credit facility. This facility contains financial covenants requiring us to maintain a minimum leverage ratio and specified levels of cash, as well as other non-financial covenants. The facility terminates on April 28, 2007. Borrowings under the facility bear interest at the greater of the administrative agent’s prime rate or the Federal funds rate plus 0.50%; however, we have the option to pay interest based on the outstanding amount at Eurodollar rates plus a spread between 0.80% and 1.125% based on a pricing grid tied to a financial covenant.  In addition, commitment fees are payable on the facility at rates between 0.20% and 0.25% per annum

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Liquidity and Capital Resources

Our sources of cash, cash equivalents and short-term investments are funds generated from our business operations and funds that may be drawn down under our credit facility.

As of October 31, 2005, cash, cash equivalents and short-term investments were $586.5 million, compared to $579.0 million as of October 31, 2004.

Cash provided by operations is in part dependent upon the payment terms on our license agreements. Payment terms for time-based licenses are generally extended, with the license fee typically paid quarterly

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in even increments over the term of the license. Conversely, for an upfront license, customers pay a substantial portion of the license fee within the first year. Accordingly, we generally receive cash from time-based licenses, the primary component of our business under our almost fully ratable license model, later than from upfront licenses.

Cash provided by operations was $269.2 million for the year ended October 31, 2005 compared to $264.0 million for the same period in fiscal 2004. This increase largely resulted from (i) an increase in deferred revenue of $62.8 million due to the change in our licenses from upfront to time-based licenses during the last quarter of fiscal 2004; (ii) the  payment of $15.4 million for the MoSys acquisition agreement termination fee and associated litigation made in fiscal 2004 but not in 2005; and (iii) lower disbursements for income taxes and value added taxes paid of approximately $24.9 million and $7.5 million, respectively. This increase was offset by: (i) increased disbursements of $23.3 million associated with prepaid maintenance contracts for our information technology infrastructure as compared to the prior fiscal year; and (ii) $49.2 million reduction in cash used to satisfy accounts payable in fiscal 2005.

Accounts receivable, net of allowances, decreased $32.0 million, or 24%, to $100.2 million as of October 31, 2005 from $132.3 million as of October 31, 2004. Days sales outstanding (DSO), calculated based on revenue for the most recent quarter and accounts receivable as of the balance sheet date, decreased to 36 days as of October 31, 2005 from 53 days as of October 31, 2004. The decrease in DSO and accounts receivable is attributable to lower billings for the fiscal year due to greater concentration of TSLs in our more ratable license model since cash is collected over a longer period of time for TSLs than upfront licenses.

Cash provided by operations was $264.0 million in fiscal 2004 compared to $391.5 million in fiscal 2003. The decrease in cash from operations was driven in part by lower orders and reported revenues in fiscal 2004, as well as by increased use of operating cash as follows: (i) cash disbursements for foreign income taxes of approximately $44.7 million; (ii) payment of $15.4 million for the MoSys acquisition agreement termination fee and associated litigation costs; (iii) disbursements associated with our fiscal 2003 workforce realignment of approximately $14.9 million; (iv) payments of international value added taxes of approximately $7.5 million; and (v) increased prepaid maintenance contract expenses for our design and information systems electronic infrastructure. These uses of cash were partially offset by income tax refunds of $28.6 million.

Accounts receivable, net of allowances, decreased $68.7 million, or 34%, to $132.3 million as of October 31, 2004 from $201.0 million as of October 31, 2003. Days sales outstanding (DSO), calculated based on revenue for the most recent quarter and accounts receivable as of the balance sheet date, decreased to 53 days as of October 31, 2004 from 58 days as of October 31, 2003. The decrease in accounts receivable and DSO was attributable to a $100.7 million reduction in new billings caused by lower orders during fiscal 2004 and longer customer payment terms compared to fiscal 2003, partially offset by a $39.0 million decrease in collections compared to the prior fiscal year.

Cash used in investing activities was $171.5 million for the year ended October 31, 2005 compared to $172.0 million for the same period in fiscal 2004. Cash used in investing activities remained relatively constant as we offset the increase of $114.4 million of cash used in acquisitions by a corresponding reduction in cash used in net purchases of short term and long term investments.

Cash used in investing activities was $172.0 million in fiscal 2004 compared to $258.3 million in fiscal 2003. The decrease of $86.3 million is primarily due to a substantial decrease of cash used for acquisitions and decreased proceeds from the sale of long-term investments.

Cash used in financing activities was $39.8 million for the year ended October 31, 2005 compared to $266.6 million provided by financing activities in fiscal 2004. The decrease of $226.8 million in cash used was due to a decrease of $334.9 million in cash used to repurchase shares of our common stock in the open

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market compared to the year ended October 31, 2004 and decreased proceeds of $108.1 million from the issuance of our common stock pursuant to our employee stock plans compared to fiscal 2004.

Cash used in financing activities was $266.6 million in fiscal 2004 compared to cash provided by financing activities of $74.2 million in fiscal 2003. The decrease of $340.8 million is primarily due to a decrease in proceeds of $178.2 million from the sale of shares pursuant to our employee equity incentive plans during fiscal 2004 and increased purchases of our common stock in the open market of $162.6 million during fiscal 2004.

The American Jobs Creation Act of 2004 (the Act) provides for a special one-time elective dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer equal to 85% of the eligible distribution. During the fourth quarter of 2005, we repatriated $360 million, of which $172.5 million qualified for the special one-time elective dividends received deduction and $187.5 million constituted earnings that do not qualify under the Act, previously taxed income and return of capital. We recorded tax expense of $11.2 million related to the repatriation of $360 million. During the fourth quarter of 2005, our chief executive officer approved a domestic reinvestment plan (DRIP) to invest up to $185 million in foreign earnings in qualified investments pursuant to the Act. As required by the Act, the reinvestment plan was ratified by the Board of Directors in the first quarter of fiscal 2006. We satisfied the DRIP reinvestment requirements during fiscal 2005.

We hold our cash, cash equivalents and short-term investments in the United States and in foreign accounts, primarily in Ireland, Bermuda, and Japan. As of October 31, 2005, we held an aggregate of $486.8 million in cash, cash equivalents and short-term investments in the United States and an aggregate of $99.7 million in foreign accounts. Funds in foreign accounts are generated from revenue outside North America. With the exception of Japan and the repatriated funds described above, we currently maintain a policy under APB 23, Accounting for Income Taxes—Special Areas, of permanently reinvesting such funds outside of the United States.

In April 2004, we entered into a three-year senior unsecured revolving credit facility. This facility contains financial covenants requiring us to maintain a minimum leverage ratio and specified levels of cash, as well as other non-financial covenants. The facility terminates on April 28, 2007. Borrowings under the facility bear interest at the greater of the administrative agent’s prime rate or the Federal funds rate plus 0.50%; however, we have the option to pay interest based on the outstanding amount at Eurodollar rates plus a spread between 0.80% and 1.125% based on a pricing grid tied to a financial covenant. In addition, commitment fees are payable on the facility at rates between 0.20% and 0.25% per annum based on a pricing grid tied to a financial covenant. In April, 2004, we borrowed and repaid $200 million under the credit facility. On May 3, 2005, we borrowed $75.0 million under this credit facility in connection with the acquisition of Nassda. We repaid this amount in full as of May 27, 2005. As of October 31, 2005, we had no outstanding borrowings under this credit facility and we were in compliance with all covenants.

We believe that our current cash, cash equivalents, short-term investments and cash generated from operations will satisfy our business requirements for at least the next twelve months.

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Liquidity and Capital Resources

Our sources of cash, cash equivalents and short-term investments are funds generated from our business operations and funds that may be drawn down under our credit facility.

As of July 31, 2005, cash, cash equivalents and short-term investments decreased $79.6 million, or 14%, to $499.4 million as of July 31, 2005 from $579.0 million as of October 31, 2004, as further described below.

Cash provided by operations is in part dependent upon the payment terms in our license agreements. License fees under our time-based licenses are typically paid quarterly in even increments over the term of the license.  Conversely, for an upfront license, we require customers pay a substantial portion of the license fee within the first year. Accordingly, we generally receive cash from time-based licenses, the primary component of our business under our now almost fully ratable license model, later than from upfront licenses.

Cash provided by operations was $194.9 million for the nine months ended July 31, 2005 compared to $230.5 million for the same period in fiscal 2004. This decrease of $35.6 million largely resulted from (i) a decrease in cash collections of $96.7 million for the nine months ended July 31, 2005 when compared to the same period last year due to extended payment terms granted to customers under our more ratable license model, and (ii) a $2.4 million increase in cash used to pay variable compensation driven by increased shipments and other business performance-related compensation when compared to the same period in fiscal 2004.  This decrease is partially offset by (i) the $33 million litigation settlement received during fiscal 2005 in connection with the Nassda acquisition, (ii) payment of $13.1 million in fiscal 2004 related to our corporate restructuring and not made during fiscal 2005, (iii) a decrease of $8.0 million in corporate income taxes and international value added taxes paid compared to the prior period, and (iv) payment of a $10.0 million acquisition termination fee in fiscal 2004 which was not paid in the current nine-month period.

Accounts receivable, net of allowances and receivables received in the Nassda acquisition, decreased $23.6 million, or 18%, to $108.7 million as of July 31, 2005 from $132.3 million as of October 31, 2004. Days sales outstanding (DSO), calculated based on revenue for the most recent quarter and accounts receivable as of the balance sheet date, decreased to 39 days as of July 31, 2005 from 53 days as of October 31, 2004. The decrease in DSO and accounts receivable is attributable to improved collections from customers and lower billings for the nine months ended July 31, 2005 due to extended payment terms granted to customers under our more ratable license model compared to the prior nine-month period.

Cash used in investing activities was $156.2 million for the nine months ended July 31, 2005 compared to $108.6 million for the same period in fiscal 2004. The increase in cash used of $47.6 million is primarily due to a substantial increase of $131.7 million in cash used for the ISE and Nassda acquisitions, partially offset by an increase of $83.9 million in net proceeds from the sales of short-term and long term investments.

Cash used in financing activities was $64.0 million for the nine months ended July 31, 2005 compared to $146.4 million provided by financing activities for the same period in fiscal 2004. The decrease of $82.4 million in cash used by financing activities is due to decreased proceeds of $117.5 million from the issuance of our common stock pursuant to our employee stock plans in fiscal 2005 when compared to fiscal 2004 which decreased the amount of funds available for financing activities, partially offset a decrease of $200.0 million in cash used to repurchase shares of our common stock in the open market when compared to the nine months ended July 31, 2004.

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Liquidity and Capital Resources

Our source of cash, cash equivalents and short-term investments has been funds generated from our business operations, including cash on hand from companies we have acquired.  Cash, cash equivalents and short-term investments decreased $54.7 million, or 9%, to $524.3 million as of April 30, 2005 from $579.0 million as of October 31, 2004.

Cash provided by operations is in part dependent upon the payment terms of our license agreements. Payment terms for time-based licenses are generally extended, with the license fee typically paid quarterly in even increments over the term of the license.  Conversely, for an upfront license, we require customers pay a substantial portion of the license fee within the first year. Accordingly, we generally receive cash from time-based licenses, the primary component of our business under our now almost fully ratable license model, later than from upfront licenses.

Cash provided by operations was $130.6 million for the six months ended April 30, 2005 compared to $101.7 million for the same period in fiscal 2004. The increase of $28.9 million was driven primarily by the absence in the current period of the following payments made during the first six months of fiscal 2004: (i) tax-related cash disbursements of $32.8 million in foreign income taxes paid during the three months ended January 31, 2004, and (ii) $11.0 million in disbursements associated with foreign value added taxes receivable and maintenance contracts for our design and information systems electronic infrastructure. These reductions in disbursements were partially offset by a $16.7 million reduction in cash collections for the six months ended April 30, 2005.

Accounts receivable, net of allowances, increased $2.5 million to $134.8 million as of April 30, 2005 from $132.3 million as of October 31, 2004. Days sales outstanding, calculated based on revenue for the six months ended April 30, 2005 and accounts receivable as of April 30, 2005, decreased to 50 days as of April 30, 2005 from 53 days as of October 31, 2004.

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Liquidity and Capital Resources

Our source of cash, cash equivalents and short-term investments has been funds generated from our business operations, including cash on hand from companies we have acquired.  Cash, cash equivalents and short-term investments increased $3.5 million, or 1%, to $582.5 million as of January 31, 2005 from $579.0 million as of October 31, 2004.

Cash provided by operations is in part dependent upon the payment terms of our license agreements. For an upfront license, we require that a substantial portion of the license fee be paid within the first year. Conversely, payment terms for time-based licenses are generally extended; typically the license fee is paid quarterly in even increments over the term of the license. Accordingly, we generally receive cash from upfront licenses sooner than on time-based licenses.

Cash provided by operations was $142.1 million for the three months ended January 31, 2005 compared to $11.3 million for the same period in fiscal 2004. The increase of $130.8 million was driven primarily by a $73.0 million increase in cash collections when compared to the same period last year, largely attributable to the strong collections of contracts executed in such quarter and a higher level of collections on other outstanding receivables. Cash provided by operations was lower in the prior period also due to the following payments incurred in such period and not incurred in the current period: (i) tax-related cash disbursements of $32.8 million in foreign income taxes paid during the three months ended January 31, 2004, and (ii) $11 million in disbursements associated with prepaid foreign value added taxes and maintenance contracts for our design and information systems electronic infrastructure paid during the three months ended January 31, 2004.

Accounts receivable, net of allowances, decreased $24.2 million to $108.0 million as of January 31, 2005 from $132.2 million as of October 31, 2004 as a result of strong collection efforts during the quarter. Days sales outstanding, calculated based on revenue for the three months ended January 31, 2005 and accounts receivable as of January 31, 2005, decreased to 40.7 days as of January 31, 2005 from 53 days as of October 31, 2004. The decrease in days sales outstanding is primarily due to a reduction in the level of accounts receivable, which in turn was driven by strong collections during the quarter and the increased amount of installment contract arrangements caused by our license model change.

Cash used in investing activities was $72.8 million for the three months ended January 31, 2005 compared to $47.7 million for the same period in fiscal 2004. The increase of $25.1 million is due to net cash used for the acquisition of ISE of $91.3 million, partially offset by decreases in capital expenditures of $8.7 million and decreases in net purchases of short-term investments of $56.6 million.

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Liquidity and Capital Resources

        Our source of cash, cash equivalents and short-term investments over the last three years has been from funds generated from our business, including cash on hand from companies we have acquired. Cash, cash equivalents and short-term investments decreased $119.4 million, or 17%, to $579.0 million as of October 31, 2004 from $698.4 million as of October 31, 2003.

        Cash provided by operations was $264.0 million in fiscal 2004 compared to $391.5 million in fiscal 2003. The decrease in cash from operations was driven in part by lower orders and reported revenues in fiscal 2004, as well as by increased use of operating cash as follows: (i) cash disbursements for foreign income taxes of approximately $44.7 million; (ii) payment of $15.4 million for the MoSys acquisition agreement termination fee and associated litigation costs; (iii) disbursements associated with our fiscal 2003 workforce realignment of approximately $15 million; (iv) payments of international value added taxes of approximately $8 million; and (v) increased prepaid maintenance contract expenses for our design and information systems electronic infrastructure. These uses of cash were partially offset by income tax refunds of $28.6 million.

        Accounts receivable, net of allowances, decreased $68.7 million, or 34%, to $132.3 million as of October 31, 2004 from $201.0 million as of October 31, 2003. Days sales outstanding (DSO), calculated based on revenue for the most recent quarter and accounts receivable as of the balance sheet date, decreased to 53 days as of October 31, 2004 from 58 days as of October 31, 2003. The decrease in accounts receivable and DSO was attributable to a $100.7 million reduction in new billings caused by lower orders during fiscal 2004 and longer customer payment terms compared to fiscal 2003, partially offset by a $39.0 million decrease in collections compared to the prior fiscal year.

        Cash provided by operations is in part dependent upon the payment terms on our license agreements. For an upfront license, we require that at least 75% of the license fee be paid within the first year. Conversely, payment terms for time-based licenses are generally extended; typically the license fee is paid quarterly in even increments over the term of the license. Accordingly, we generally

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receive cash from upfront licenses sooner than on time-based licenses. Our lower-than-expected level of up-front orders in the third quarter of fiscal 2004 and further transition to an almost completely ratable license model beginning in the fourth quarter of fiscal 2004 reduced our cash flow from operations for fiscal 2004; we expect this further transition to continue to adversely affect cash flow from operations during fiscal 2005.

        Cash used in investing activities was $172.0 million in fiscal 2004 compared to $258.3 million in fiscal 2003. The decrease of $86.3 million is primarily due to a substantial decrease of cash used for acquisitions and decreased proceeds from the sale of long-term investments.

        Cash used in financing activities was $266.6 million in fiscal 2004 compared to cash provided by financing activities of $74.2 million in fiscal 2003. The decrease of $340.8 million is primarily due to a decrease in proceeds of $178.2 million from the sale of shares pursuant to our employee stock option plans and stock purchase plans during fiscal 2004 and increased purchases of treasury stock of $162.6 million.

        We hold our cash, cash equivalents and short-term investments in the United States and in foreign accounts, primarily in Ireland, Bermuda, and Japan. As of October 31, 2004, we held an aggregate of $202.6 million in cash, cash equivalents and short-term investments in the United States and an aggregate of $376.4 million in foreign accounts. Funds in foreign accounts are generated from revenue outside North America. With the exception of Japan, we currently maintain a policy under APB 23, Accounting for Income Taxes-Special Areas, of permanently reinvesting such funds outside of the United States.

        In April 2004, we entered into a three-year, $250.0 million senior unsecured revolving credit facility. This facility contains financial covenants requiring us to maintain a minimum leverage ratio and specified levels of cash, as well as other non-financial covenants. The facility terminates on April 28, 2007. Borrowings under the facility bear interest at the greater of the administrative agent's prime rate or the Federal funds rate plus 0.50%; however, we have the option to pay interest based on the outstanding amount at eurodollar rates plus a spread between 0.80% and 1.125% based on a pricing grid tied to a financial covenant. In addition, commitment fees are payable on the facility at rates between 0.20% and 0.25% per annum based on a pricing grid tied to a financial covenant. In April 2004, we borrowed and repaid $200 million under the credit facility. As of October 31, 2004, we had no outstanding borrowings under the credit facility and we were in compliance with all covenants.

        In November 2004, Synopsys completed its acquisition of ISE for cash consideration of $100 million.

        On November 30, 2004, Synopsys signed a merger agreement to acquire Nassda Corporation in an all-cash transaction for a purchase price of $7.00 per share. The aggregate consideration is approximately $192 million. At September 30, 2004, Nassda reported cash, cash equivalents and short-term investments of $101.4 million. The transaction is subject to customary regulatory approvals and other closing conditions. In addition, the approval of Nassda's stockholders holding a majority of the outstanding shares of Nassda common stock and approval of the holders of a majority of the outstanding shares of Nassda common stock casting votes affirmatively or negatively on the merger agreement (excluding Nassda's officers and directors, the individual defendants and the related parties of the individual defendants) is required for Nassda and Synopsys to complete the proposed merger. Certain directors, officers and employees of Nassda who own in the aggregate approximately 60% of Nassda's outstanding common shares have agreed to vote in favor of the adoption and approval of the merger agreement. Upon the closing of the acquisition, the Nassda officers, directors and employees who are defendants in the litigation between Synopsys and Nassda will make settlement payments to Synopsys in the aggregate amount of approximately $61 million.

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        We believe that our current cash, cash equivalents, short-term investments and cash generated from operations will satisfy our business requirements for at least the next twelve months.