Lisa Ewbank – Vice President of Investor Relations Aart de Geus - Chairman and Chief Executive Officer Brian Beattie – Chief Financial Officer

Raj Seth - Cowen and Company Matthew Petkun - D. A. Davidson & Co. Richard Valera - Needham & Company Sterling Auty - J.P. Morgan K.C. Rajkumar - RBC Capital Markets

Ladies and gentlemen, thank you for standing by and welcome to Synopsys, Inc. earnings conference call for the second quarter of fiscal year 2009. (Operator Instructions) At this time I'd like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Thank you, [Pamela]. Good afternoon, everyone. With us today are Aart de Geus, Chairman and CEO of Synopsys, and Brian Beattie, Chief Financial Officer. During the course of this consolidated comp store Synopsys may make forecasts, targets and other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, the company's actual results and performance are subject to significant risks and uncertainties that could cause actual results to differ materially. In addition to any risks that we highlight during this call, important factors that may affect our results are described in our 10-Q for the fiscal quarter ended January 31, 2009 and in our earnings release for the second quarter fiscal year 2009 issued earlier today. In addition, all financial information to be discussed on this call as well as the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and supplemental financial information can be found in our second quarter earnings release and financial supplement. All of these items are currently available on our website at Synopsys.com. With that, I'll turn the call over to Aart de Geus.

Good afternoon. I'm pleased to report another quarter of very good execution with solid financial results, strong technology momentum and visible customer successes. Let me begin with our financials. In Q2 we delivered $337 million in revenue and non-GAAP EPS of $0.45, above our target range. We achieved this within our predictable business model with more than 90% time-based revenue. In anticipation of continued economic stress we further tightened our expense management to stay solidly on track with earnings for the year. We exited the quarter with $877 million of cash and no debt. Turing to the overall environment, the outlook remains mixed. While we're rebounding off the bottom with inventory rebuilds and some rush orders, the semiconductor industry is expected to experience a 2009 revenue decline in the 20% range. After that, a very gradual recovery lasting into 2011 is a likely scenario although predictions will be greatly impacted by the overall economy. The long-term ramifications of this scenario are only starting to become visible. In addition to some immediate cost cutting to respond to the crisis, most businesses are now refocusing their market strategies, massively streamlining their operations, de-risking their supply and partner relationships, and in a number of cases actively pursuing consolidation opportunities to drive economic efficiencies. The recently announced potential Renesas-NEC merger is a visible case in point. Over the next 12 to 24 months the challenge for the semiconductor industry and its suppliers will be to find the next level of efficiency in an overall very weak economy. The good news is that across a broad field of applications semiconductors are a key enable to future prosperity. Drivers range from an extensive green push to the emergence of low-cost netbooks and solid state drives to advances in connectivity, including telepresence, to exciting products such as the evolving Kindle that may completely restructure the publishing industry. Meanwhile, our customers are under high stress and we're moderating our revenue expectations as we approach 2010. In Q2 we saw average run rates slightly decrease due in part to several bankruptcies during the first half and we expect the end of the year run rates to be slightly down. As anticipated, many customers are renewing their contracts closer to their expiration dates and we expect bookings for the year to be slightly below our original internal plan. Finally, we continue to see late payments for some customers who are focused on short-term cash conservation. In a recession of this magnitude none of these things should be a surprise, and we have already adopted a number of measures to further strengthen our position. I'm happy to report that while we are slightly reducing the revenue rates for the year, we're actually solidifying our earnings per share guidance for '09. We're also moderating our operating cash flow target to reflect a collection environment. Brian will discuss guidance in more detail. Given the extraordinary economic situation Synopsys is actually doing very, very well. Our technology position is demonstrably strong, our customer relationships were built for the long term, and we have an intense focus on execution so that we emerge even stronger. Synopsys is steadily gaining customer momentum while continuing to invest in evolving our product portfolio. As customers are aggressively de-risking their supplier relationships and focusing on cost efficiencies, many have selected Synopsys as their primary EDA partner. Evidence of this is the further extension of our relationships with companies such as Marvell, Toshiba, Tundra and Wolfson. The number of companies who have openly selected Synopsys is further augmented by several sizeable partnerships that have not been publicly identified. The stability of shared visions created in these kinds of deep relationships between vendors and customers will be critical in driving the innovation and technology roadmaps of the future. So let me now turn to the essence of our DNA, technology. The need for advanced design goes on unabated. Both the direction and level of our technical investments match well the needs of our customers, and we feel a great sense of momentum in the company. Our strategy is twofold - first, to ensure best in class point technology in products. While we can't promise the best in every tool, we always try to do so. Second and even more important is driving best in class overall results through integrated advanced flows, platforms and methodologies that focus on our customers' total cost of design. 2008 was a prolific year for Synopsys. We introduced significant new products such as Zroute, recipient of this year's EDN innovation award for design, and Custom Designer, our long-awaited entry into analog implementation. 2009 is continuing the steady delivery of new products and capabilities ranging from systems to silicon. In verification, the number one pain point for customers, we building on our strength in both analog and digital with several advances in Q2, including Custom Sim for unified analog simulation, which combines the speed and accuracy of what used to be three separate tools into a single flexible easy to deploy solution. We also delivered multi-core technology in DCS functional simulator, resulting in a 2x speedup. In implementation we introduced an exciting new physical verification solution that integrates manufacturing information and analysis into the design process. A companion to IC Compiler, IC Validator is architected for 45 nanometer and below designs and includes advanced features such as a brand-new engine driving greater performance, unmatched scalability with multi-core CPUs and an architecture permitting easy design corrections within IC Compiler. IC Validator has already been adopted by companies such as technology heavyweight Invidia and Toshiba. Our implementation flow is excelling at the most advanced 32 and 28 nanometer designs and our work with customers at these nodes is proceeding very well. With the broad objective of increasing design productivity and predictability, at our user's group in March we launched our new open design system Lynx. Lynx is architected for easy adoption by both mainstream and advanced users and it's aimed at systematizing design for efficiency through a lower risk [soundly ready] path from design to silicon. With production-proven design flows and methodologies for 65 nanometer and below, Lynx enables out-of-the-box functionality without costly CAD infrastructure spending, helping our customers reduce their total cost of design. Not surprisingly, we're already had several adoptions of Lynx, even at this early stage. As a side note, our San Jose user's group was the best attended in Synopsys' history, attesting to the high level of interest in what we have to offer. Turning to our strategic investments, I'd like to highlight two today - Custom Design and IP. Our new analog mixed signal design solution Custom Designer is generating a lot of interest and is on track for general availability next month. Customers have been impressed not only with a viable alternative to the incumbent but also by the functional and ease of use features in Custom Designer that surpass other offerings. In the IP space, the recession is accelerating the build versus buy decisions that many customers go through as they streamline their operations for efficiency and differentiation. Purchasing commercial high-quality IP is a good way to save on development costs and to focus one's own designers on the most critical and differentiating portions of a design. During the quarter we expanded our offering with the acquisition of the analog business group of MIPS Technologies. This acquisition adds a new analog IP product line, including data converters, audio codecs and video [inaudible] and complements our portfolio of interface IP with HDMI products. To conclude, even with the turbulent environment around us, Synopsys again executed well in Q2. We have technology momentum and are seeing significant commitments by key customers to work with us going forward. We are practically balancing technical investments and careful expense controls. Overall, we expect to weather the recession well. We're clearly building for the opportunities waiting in the recover. With that, I'll turn the call over to Brian Beattie.

Well, thank you, Aart, and good afternoon, everyone. In my comments today I will summarize our financial results for the quarter and provide you with our guidance. As a reminder, I'll be discussing certain GAAP and non-GAAP measures of our financial performance. We provided reconciliations in the press release and the financial supplement, which is posted on our website. In my discussions, all of my comparisons will be year-over-year unless I specify otherwise. As Aart discussed, we're continuing to manage the business well in what is a difficult economic environment. We delivered solid second quarter results highlighted by top and bottom line growth, strong operating margin, and we exited the quarter in a healthy financial position with $877 million in cash and no debt. Total revenue increased 4% to $336.8 million, within our target range, with greater than 90% of Q2 revenue coming from beginning of quarter backlog. While our Software results remain solid, the slow economy has understandably affected both our Consulting and Hardware businesses as customers continue to focus on reducing costs. This has resulted in some pressure on our Consulting engagements and some delays in Hardware purchases during the quarter. One customer accounted for slightly more than 10% of second quarter revenue. Now turning to expenses, total GAAP costs and expenses were $282.2 million, which included $10.6 million of amortization of intangible assets and $14.7 million of share-based compensation. Total non-GAAP costs and expenses were $253.1 million, an expected year-over-year increase due mainly to our Simplicity acquisition, but below our target range due to company wide cost controls and timing of quarterly expenses. For all of 2009 we expect total costs and expenses to increase slightly less than our targeted revenue growth rate. As we prepare for an uncertain economic outlook for the balance of 2009 and 2010, we implemented broad cost savings initiatives focusing on vendor and contractor costs, compensation and headcount-related expenses, capital expenditures and discretionary spend, including travel and marketing events. These actions will increase our flexibility to more efficiently manage our expenses to our moderating revenue expectations in this difficult environment. Note also however that while we're managing costs diligently, we intend to fully fund our strategic growth areas, drive product innovation, and expand our technology leadership to emerge from these challenging times as an even more successful company. Continuing on with our key operating metric, non-GAAP operating margin was 24.8% during the quarter and 25.7% for the first half of fiscal 2009. While the timing depends on how the environment improves, we remain committed to our longer-term operating margin target of mid to high 20s. By proactively aligning expenses with revenue we were able to deliver Q2 earnings above the target ranges we provided at the outset of the quarter. GAAP earnings per share was $0.33 while non-GAAP earnings per share was $0.45. Earnings outperformance was driven primarily by top line growth and expense management along with higher-than-expected other income. Our non-GAAP tax rate was 27.1% for the quarter. For modeling purposes, we think that a 27% non-GAAP tax rate is a reasonable estimate for the full year. Our revenue visibility remains strong, with 95% coming from backlog. Upfront revenue was 5% of total, well within our target range of less than 10%. The average length of our renewable customer license commitments for the quarter was about 3.4 years. Now as you know from our previous disclosures, we've been involved in a tax dispute with the IRS regarding our 2002 to 2004 tax returns primarily associated with issues related to our acquisition of Avanti. We're pleased to report that during the quarter we reached a tentative settlement with the IRS Examination Division that would resolve this dispute. The settlement is subject to further approval by the government, which we expect will take at least several more months, but as of today we believe that a settlement is likely. If approved, we would expect the settlement to result in cash payments of approximately $50 million over the next 12 months. This will be fully offset by a reduction in tax payments in future years. We also expect that the settlement would finally permit certain tax refund claims of around $35 million from other years to be paid to the company in 2010. We reiterate that if the settlement becomes final, we are adequately reserved for these items, so no material P&L impact. The tentative settlement is not included in our 2009 operating cash flow forecast. Now turning to our cash and balance sheet items, in the current environment cash continues to be an area of focus for us and our strong balance sheet provides us with significant financial flexibility. We ended the quarter with $877 million in cash and short-term investments and no debt, an amount that translates into approximately $6.00 per share in cash. Of this balance, 52% is held within the United States. Operating cash flow was $24.7 million in Q2. We expect higher cash generation in the second half of our fiscal year principally driven by the expected annual payment from a large customer in our third fiscal quarter. However, at this time we feel it's prudent to slightly moderate our FY '09 operating cash flow target to approximately $170 to $190 million due primarily to less-than-planned scheduled collections for the balance of '09. This slightly lower level is driven primarily by three factors - first, continued late payments from some of our customers; second, bookings coming in slightly below expectations for the year and the timing of these bookings; and third, we're being conservative in our cash collection assumptions given the uncertain economic environment. Now continuing on with our cash and balance sheet items, capital expenditures were $6.5 million in the quarter. For the full year we expect to reduce capital spending by 15% over last year to approximately $30 to $35 million. We did not repurchase stock in the quarter and have approximately $210 million remaining on our current authorization. As always, we'll evaluate the best use of cash each quarter, including company operations, investments and stock repurchases at the time. We value the flexibility that our cash provides. Now as Aart highlighted, we're excited to have closed the acquisition of the analog business group of MIPS Technologies earlier this month. It was an all-cash deal for approximately $22 million, funded from our U.S. cash balance. We expect the transaction to be approximately $0.04 dilutive to non-GAAP earnings in fiscal 2009, but we will absorb that dilution and are even increasing the bottom end of our EPS guidance. We currently expect the acquisition to be neutral to slightly accretive in fiscal 2010. Q2 net accounts receivable totaled $189.1 million and DSOs were 51 days, slightly up from last year and well within our target range. Deferred revenue at the end of the quarter was $588.5 million. We ended Q2 with approximately 5,700 employees. This was an expected year-over-year increase due primarily to our Simplicity acquisition and basically flat headcount to the first quarter. Now moving on to our guidance, for the third quarter of FY '09 our targets are revenue between $342 and $350 million; total GAAP costs and expenses between $284.5 and $300 million, which includes approximately $14 million of share-based compensation expense; total non-GAAP costs and expenses between $261 and $271 million; other income and expense between zero and $3 million; a non-GAAP tax rate of approximately 27%; outstanding shares between 144 and 149 million; GAAP earnings of $0.26 to $0.31 per share, and non-GAAP earnings of $0.40 to $0.42 per share. We expect greater than 90% of the quarter's revenue to come from backlog. Now our fiscal 2009 outlook. Based on what we know now, we expect revenue of approximately $1.35 to $1.38 billion; other income and expense between $14 and $18 million; a non-GAAP tax rate of approximately 27%; outstanding shares between 144 and 149 million; GAAP earnings per share, $1.11 and $1.26, which includes the impact of approximately $58 million in share-based compensation expense; non-GAAP earnings per share of $1.62 to $1.72. We've increased the low end of our guidance range by $0.02 despite the slight dilution from our acquisition of the analog business group from MIPS Technologies. We continue to target a 23% non-GAAP operating margin for the full year and as I mentioned earlier, we're targeting cash flow from operations of $170 to $190 million, which does not include any impact from our tentative tax settlement with the IRS. In summary, we've completed a good quarter and we're continuing to execute against our earnings targets in this ongoing challenging environment. And with that, I'll turn it over to the operator for questions.

(Operator Instructions) Your first question comes from Raj Seth - Cowen and Company. Raj Seth - Cowen and Company: Aart, I may have missed this; I got on late. Did you make any comment about how fiscal Q2 bookings came in and can you talk a little bit about whether or not - I know the environment still is tough - but have you seen a material change from last quarter or the same general environment?

Okay, it's a complex question because let me start with the same general environment. I would argue that the general environment has not fundamentally changed with the exception of obviously many of the semiconductor companies seeing some, quote, "bounce," off the bottom, which was first was attributed to inventory that has to be replenished, now is being viewed as really the market trying to find a little bit more stable state and that stable state is not minus 38%, which is where it was a quarter ago, but is more likely to end up in the minus 20% state or so for the year. And so in that sense the free fall is over for right now unless there's another major economic disturbance and people are really starting to look forward to where is the industry now going and how long will the recovery be. And in general the scenarios that I hear - and [inaudible] the one that we use from a management point of view - is to just assume that it will then take probably a couple of years to come back to the levels that it used to be in the middle of '08, let's say. Within that we have clearly seen that we actually had a very good quarter. Overall as we look at the entire year, we communicated that we think that our bookings will be slightly below what we had planned, but [inaudible] as the plans were, you know, done in mid '08 so there's a lot of changes there. And, by the way, the bookings themselves are less relevant as maybe the run rate, which is slightly down going forward. And that is also moderated by the fact that there's just been a few bankruptcies, a few people that are just very cautious right now. If I were to summarize it, we actually feel that we are in an extraordinarily strong position as a company and that the magnitude of the recession is very deep and that it's only now that many companies are planning how are they going to behave and restructure the industry going forward. And in that situation I think we're in a very good position, but we are well aware that many companies are still very stressed. Raj Seth - Cowen and Company: Given the fact that 2010, certainly the top line, will be driven in large part by what you do from a bookings perspective this year - your model's a little bit unique - any initial thoughts on 2010 assuming you execute on your revised booking objectives in 2009. Is 2010, are you planning for a growth year on the revenue line, first? Anything you say on 2010 would be appreciated. And maybe, Brian, you could touch on the license duration increase in the quarter.

I think it's a bit too early to give guidance to 2010 because there's so many moving parts in the industry. I think that the fact that the overall run rate is down slightly is a piece of what we will take into account as we plan 2010, but there also are many things that we can still do. And the other thing is that we are certainly solidifying many relationships with customers that today wouldn't dream of spending more, but as business returns or as they find their new stability point will look at how can they improve their differentiation and efficiency. And so we do think that from that perspective we are in a very strong long-term position. But as I said in my preamble, I think that the return of the semiconductor industry - or, as a matter of fact, of the entire economy - is going to take more than just six months.

Raj, [inaudible] on the contract length as well. It was 3.4 years in the average contract length we closed in the quarter, and it gave us a good perspective based on the amount of activity we saw about just how the quarter went, you know? But we put that in the context of a real tough recession out there and it really just depends on the customer, the requirement for the software, the timing and expansion of the agreements they have. And it averaged 3.4; last quarter it was 2.7. I think in the long run it's very, very close to the three years that we've set out for ourselves and that is the length of our agreement, but just during this recession you're going to see a number of contracts - maybe shorter, a number may be even longer it's just given it's such a unique situation out there, that's really what I'd highlight.

Your next question comes from Matthew Petkun - D. A. Davidson & Co. Matthew Petkun - D. A. Davidson & Co.: Aart, you referred to maybe not wanting to talk about bookings as much as run rate this year. Are you referring to run rate as far as it means inflows of new orders or run rate in terms of your run rate in individual customer; maybe across the board all your customers are using less of your software?

Sure. Matt, for starters, our customers are using more of our software, that's for sure, and that's a good sign. But it's also clear that right now customers cannot spend more. I mean, going to any customer today and say hey, we want more money is just a ridiculous proposition in the midst of a massive recession. At the same time though we want to make sure that we maintain a healthy ongoing business profile and for that we use the term run rate. And you're absolutely right; we are thinking about those from customer to customer. The reason I've always cautioned about looking at just orders as the reflector is precisely, following up on the answer Brian just gave, which is from one quarter to another you can have the number of years go from 2.7 to 3.4 and that's a big difference in orders, but may have no change whatsoever in run rate. And so the very fact that there will be big fluctuations is a given in this landscape. We are managing it very much around the center of gravity of about three years because that's a way that we think to balance our business. Matthew Petkun - D. A. Davidson & Co.: Okay, now if, as you stated and I probably agree, your customers are using over time more of your software but they're not paying more, what levers do you have to get paid more?

Well, you know, I think that's a correct observation today and, you know, many customers will be very eloquent in formulating that we need to help them right now through this downturn because if we do over time we'll do better, and we partially agree with that. At the same time, though, it is right now that we are building a set of relationships with these customers that are moving, I think, quite far beyond the traditional just selling them software. As a matter of fact, most of our customers, principally driven by the recession, are forced or see the opportunity to revisit their own productivity and predictability model. And that is perfect for us because for the last few years we've been aiming - aside of trying to have the best possible products to aim at getting the best possible overall results at the best overall design cost. And so focusing on total design costs with the customer is the way we are engaging today, and I think with that comes the opportunity, as they become financially more able to pay more and to be back in business, to really play with us going forward. And so we are really strengthening our position notwithstanding the fact that in the midst of a deep recession you don't go to your customers and say hey, I'm going to charge you more. Matthew Petkun - D. A. Davidson & Co.: And then sort of in conjunction with this question, Brian, I'm wondering if any changes have been made to the deals that you are signing today in terms of maybe some of the cash collection terms as well as whether or not you're able to command as much in the way of bundled maintenance in a given contract?

Okay, sure. The bundled maintenance, by far - by far - the majority of our business activity are the term licenses taken over time, right, our time-based license agreements, so therefore all of the maintenance is bundled into that. There's a very small amount of perpetual licenses where actually maintenance is charged separately. Those are typically, you know, three or four-year-old deals that were struck awhile back, so it's basically embedded and that is built into the pricing levels. When we look at - the first part of the question was around which part? Matthew Petkun - D. A. Davidson & Co.: Just timing of cash collection.

Yes. The payments are up slightly from what we had scheduled earlier. We track each one of them relative to how much cash is due in the first year, second year or third year of the agreement. It's up a little bit. And, again, on a case-by-case basis, as we're looking at the customers going through some of their challenges, we track the payments specifically against their due dates and considering to match that. But, again, at this quarter we hit 51 days of DSOs. That's well within our range. We have very detailed files, analysis, risk ratings, etc., on the credit positions of each of our customers. And finally really don't take revenue until we have a guarantee that the cash is going to come in. We've almost written off no revenues at all in our history and it's very carefully and conservatively managed relative to the cash payments. But, you know, that's why with a slight decrease in our cash outlook it's just really recognizing it's a real challenging environment out there with all companies relative to their cash. And we're still in great shape and just moderating it a little bit.

Your next question comes from Richard Valera - Needham & Company. Richard Valera - Needham & Company: I'd like to follow up on the run rate discussion. Aart, excluding the couple of bankruptcies you referred to, how was the run rate? Was it nearly flat? Then sort of a follow up as well to the discussion on primary vendor agreements, I'm just wondering what your historical track record is with increasing run rates when you sign a primary vendor agreement and how that's, you know, played out over the last couple you've signed here during this downturn.

Sure. Well, I think the summary is actually the whole story, which is it's nearly flat. And so there are some people that can afford an increase; there's some people that beg for a decrease. But on average we're doing very well, I would say, with that. That's why I'm saying it's a good indicator to be a little bit careful to not expect huge increases out of customers at a moment where they just can't afford to commit to that, but at the same time we are very bullish on the position that we're building with a number of customers and we think that the very fact that we can provide a strong solution that is aimed at helping their overall cost equation while not having to charge more for it today is very attractive to our customers. Richard Valera - Needham & Company: And just the other part of the question with respect to the primary vendor agreements, you know, what's your - I would assume historically that's implied an increase in run rate, if you can confirm if that's true, and then what has been your experience recently? Has it been more of a flattish run rate despite signing one of these primary deals?

I think your characterization is correct. I would actually not say that there is such a big difference from where it was historically to where it is today. It is very often the case that the primary agreement is really around the core of the technology that people need no matter what, and then there are opportunities to upsell from there as we solidify our position and there are opportunities for our customers to reduce their cost bases by essentially focusing on fewer vendors that provide a more complete solution. And so, you know, the fact that somebody becomes one of our primary EDA partners has many other relationship ramifications that really, I think, bode well for the long term going forward, but they include to be able to sell them more capability. Now the objective is not here to reduce our total available market; the objective is to increase it. But it's also clear that the technical complexity and the interaction level needed to be successful has gone up and therefore working well with these customers bodes well, I think, for both them, most importantly, and hopefully for us as the business picture clarifies going forward. Richard Valera - Needham & Company: And then a couple of questions on the guidance. I guess this is for you, Brian. You have a $30 million delta in your full year revenue guidance with only two quarters to go, which seems like a quite big range given the predictability of your model would seem to imply to get to the low end you'd need to do almost no perpetual revenue, it would seem, or upfront revenue. So question number one, you know, why such a big range with only two quarters to go? And number two, if you take your nine-month EPS, year-to-date EPS, and back that away from your full year guidance, it looks like you're looking for $0.25 to $0.35 in the fourth quarter. I'm trying to understand why that EPS number is so low in the fourth quarter. Is that a new run rate or is there some unusual expenses in the fourth quarter relative to, say, the third quarter?

Okay, a good question. On the range itself, I think, again, we're one of those companies that does provide guidance; a lot of people have kind of looked at it. And we wanted to give a range that, as we've traditionally done, keeps us within the boundaries of what we set out. So in a way you might call that conservative revenue. And really relative to the trend that we're seeing on revenues, it keeps moving along, you know? There's no anticipation of any major surprises. It's just tough out there, you know? We're just watching the credit; we're watching the situations with any consolidations happening amongst the semiconductor players and other activities going on. But you're right, we're highly predictable. We just have, you know, our traditional wider range. And we only have two quarters left to go, so I just locked that into being a conservative position on it but still feeling very confident that we're going to get through this within those ranges. You know, as I look ahead then to Q3 and Q4, it's really just, again, the expense timing relative to when those costs come in, relative variable compensation, which for us typically picks up towards the third and fourth quarter relative to the performance metrics that we've established for the company, and we have higher levels of confidence as we move towards the end of the year. And so I think, again, it's just a pretty good profile that has allowed us to maintain our operating margins, to increase, even with the $0.04 dilution from the new acquisition, to actually increase the bottom end of that earnings guidance and come out for the year real tight against what we set up initially in an extremely tough environment. So we're pretty proud of the expense management and delivering the revenues as we expected to get on the EPS numbers. Richard Valera - Needham & Company: If I could just ask that a little bit of a different way, the fourth quarter, assuming you did flattish sequential revenue from the third quarter, which would be within your guidance, the lower EPS would be due, it sounds like, to higher commissions, perhaps, and maybe some incremental dilution from the MIPS deal. Are those the two main contributors?

Yes, those are both contributors and beyond just the commission piece, but the whole variable compensation, which goes beyond just the sales team. And, again, as we deliver, we'll be accruing those expenses against our performance metrics for the year. So it really just builds up. And again, trying to be, you know, conservative in the expense outlook and, again, prepare us for 2010 to get our expenses as low as we can leading in. And it's a typical fourth quarter for us relative to the profile that we see every single year.

Your next question comes from Sterling Auty - J.P. Morgan. Sterling Auty - J.P. Morgan: So the first question is, when I look at the jump in the average duration, you know, if we look at the industry as a whole there have been periods in the past where some vendors, when you saw a jump in duration, it was because the environment was tough and it was because of increased discounting. Can you give just some description based on what's happening in pricing and discounting because, you know, the predictability of your model, I thought that was kind of the alleviation of having to give in to some of the pressures.

Certainly. First, on duration, you know, one of the reasons I'm always hesitant should we release this on a quarter-by-quarter basis is because it's not meaningful data mostly. The running average is far more meaningful, which are really around about three years. Now sometimes people want to have a longer duration because they essentially want to lock in pricing and feel that in a relationship they don't want to be feeling subject to price changes when things move on. There's a positive for us in that in that people commit to us. On the other hand we may argue the opposite, which is, say, you know, shorter durations are better because now is not the time to ask for premium pricing and locking it in for too long is a negative. And so the bottom line of all of that is I think we are very cognizant of the dynamics in both dimensions and that is the very reason that in the last four or five years we've actually been, I think, extremely systematic to keep it sort of at roughly the same average. Now having said that, there's no question that a number of customers right now are shifting their decision-making to be more encompassing about some of the relationships they're going into, and they are seeing that the complexity of design is demanding a degree of integration of the tools but also of the integration of the interaction between user and supplier that is different from the past to be successful. And a number of companies are absolutely de-risking their profile of suppliers that they're using. That is a benefit for us. I think we are a safe bet. I think we're better than a safe bet. We have a number of technologies that will help them going forward. And so the discussions about the length of the deals are not difficult. It is really sort of what makes sense, what's the timeline of what they have already running with us, and a little bit a feel for how do you minimize the degree of anxiety on both sides. So the length of the deal is a non-event in the negotiation. It's not something we're pushing or pulling one way or another. Sterling Auty - J.P. Morgan: And then can you describe a little bit the linearity of the bookings through the quarter because you mentioned kind of the improvement in terms of the inventory refresh and there's been some discussions about layoffs possibly mitigating. So can you just talk about what you saw in terms of the linearity of bookings?

You know, I think at the beginning of the quarter we already had a pretty good sense of what business was actionable and it fundamentally didn't change all that much during the quarter. Now part of that is many of the companies we deal with are well aware that they have to do cuts or that the future is uncertain, but they're also very well aware that they need to have a strong set of relationships with their key suppliers to stay in business and do well. And so the very fact that certainly initially in the downturn we saw people be very nervous making any commitments, just sort of putting it on hold and given that many deals are three-year deals that still have some time to run, there was no super urgency, I think we reported that first quarter orders were very low compared to the second quarter, which was essentially normal. And so I think we're sort of back to normal business in a still very not-normal economy. Sterling Auty - J.P. Morgan: And Brian, I got the $0.04 dilution from the acquisition, but I missed if you said it - did you actually tell us what the revenue contribution expected and what the revenue model on the acquisition looks like?

No. No, I didn't say that, so you didn't miss anything. What we said was it's not material to our next year and that we thought in 2010 the impact of this latest acquisition would be slightly accretive on balance. You know, we typically go through haircuts on deferred revenues and things like that. So don't see it as a major item, you know? We're factoring that, of course, into the guidance and expenses and revenue for the balance of '09, and everything we said includes those metrics.

(Operator Instructions) Your next question comes from K.C. Rajkumar - RBC Capital Markets. K.C. Rajkumar - RBC Capital Markets: Do you guys feel that the EDS spend by your customers, customer spend, has actually lagged the other cuts they made in other segments? And as a follow up, even if the semi customers' revenue declined for this year, it's not going to get any worse. Do you feel that the EDS spending cuts might actually [accelerate] as we go to the [inaudible]?

Well, I think there are two comments to that. First, by definition they're lagging because many of our agreements are multi-year agreements and so, with the exception of customers that essentially go completely out of business, where you would feel the effect immediately, for most of the other customers, aside of the pleading for help, there's not much that occurs. Now having said that, going forward as some of the customers re-look at their relationships, sign up some primary vendor relationships, I think we will see some shift in spending. But on the positive side, there's no question that as many customers have gotten more and more out of manufacturing and are paying more and more attention to differentiation in design, there's an opportunity for us to really have impact there. One of the reasons I mentioned earlier why I'm so enthusiastic about some of these key relationships is because we're essentially strengthening a long-term relationship around the core offering of the company, but there's opportunity to upsell from there once their economic outlook starts to brighten up. And there's no question that from a technology necessity they will need a lot more technology. So the opportunity's there. K.C. Rajkumar - RBC Capital Markets: Okay. Since the start of the downturn, can you characterize how many new relationships have you guys locked up, either with customers whom you did not do much business with or selling new tool sets to old customers? And as a follow up, my impression from your answers to previous questions was that whereas so far you haven't seen a distinct increase in the contract size. Even when you increase the size of the relationship with the customer, you are hoping to do better with customers as the economy picks up.

Well, there are many questions in your question. Let me start with new customers. There are very few truly new customers, you know, partially because today we touch virtually every electronics company in the world. And as you can imagine, the number of startups right now is rather limited and the number of people that are going to spend a lot of money from scratch is essentially nil. Having said that, there have been a few startups and there have been a few companies that we've gotten into because of the interest via some of the new IP, via some of the prototyping capabilities, so there some of the new products that we have are finding traction in places that before we didn't necessarily touch. Now regarding the main players, which are really the big companies where we seek to have profound long-term relationships, in general I would say that the spending overall has not really gone up because there's no way they're going to spend more right now at the very time where they're trying to cut costs in many dimensions. At the same time, though, it's also not practical for them to just cut the costs because they are either in existing contracts or they have a very real need for all of our products and we're not going to give our value away for free. And so I think the joint objective for both of these crucial customers in the industry and ourselves is to say how do we both work on a better future and the better future absolutely says how do we make you more efficient from a true overall productivity and predictability point of view. In other words, you know, let's put a dent in cost of design because that will make them more competitive; that will make us more relevant to them. And in that context, for example, we introduced a very exciting product, Lynx, which is essentially a design flow that has been enabled for the customer to over time start really optimizing for productivity. And so it's a different level of interaction with them already and I think all of those things really bode well and we are essentially investing for post-recession, if you can call it like that. K.C. Rajkumar - RBC Capital Markets: On the matter of the lower bookings run rate, can you comment on how much of the lower run rate is the cause of company bankruptcies and how much of it is because of a slightly lower average contract size of the surviving companies?

I don't know the exact number; it's probably about half or something like that, rough numbers. And yes, there have been a number of bankruptcies. I can't say that that is, you know, overwhelming the picture. That would not be correct. Maybe the other aspect that has seen some marked pressure is the services and that's not really a surprise because, you know, if you are a company where the mandate comes top down cut costs, what does everybody do? The first thing they do is to look at anybody who's not employed in the company and cut their service or their short-term contract. So actually we've seen a slight rebound on that this quarter. Again, let's not overemphasize these things. I think we're in the noisy phase of a recession turning into a recovery, and the very reason we communicate a certain degree of caution is because we've seen these before and when people hit bottom they make it sound as if, you know, the end of the tunnel is here. I think the reality is the recession will take some time to work out. But knowing that reality, I think we can really take advantage of it for the long term. K.C. Rajkumar - RBC Capital Markets: And lastly, what's going to be the earning model for the analog IP that you guys acquired from MIPS, upfront or would that also be subscription based?

Well, the IP is more upfront than certainly the software because in the vast majority of the situations it's essentially a perpetual license with some restrictions. So the perpetual license may be only for a project or only for a product family or only for some period of time, but essentially it is, in simple terms, you get paid when it gets delivered. So in that sense most of what comes out of the new acquisition will probably follow exactly the same profile. The other comment I would like to make is, you know, what we are taking there, which is, I think, there's some fabulous technology in that acquisition, but we want to make really, really sure that it also fits the Synopsys quality profile. One of the reasons that we have built, I think, such a good IP franchise is because we have really over invested in verification with our IP, which is really necessary. And so it will take a little bit of time to fully absorb this into Synopsys. But we're very excited about it because it also ties well to our rollout of Custom Designer, which is, of course, the other area that is very exciting because it's an area that, on the analog implementation, we had no position, and so, you know, that means there's only upside there.

(Operator Instructions) Your next question comes from Sterling Auty - J.P. Morgan. Sterling Auty - J.P. Morgan: How would you characterize - I think we talked at the end of last fiscal year coming into this fiscal year that you had on a relative basis a little bit weaker renewal opportunity set, at least in the beginning of the fiscal year. How would you characterize the amount of business that’s coming up for renewal in the coming couple of quarters and when do we get to a point where maybe the renewal opportunity starts to improve to help offset some of the economic malaise that we're in?

Well, if you don't mind, let me just disagree with your premise. The number of people that keep talking about renewal cycles is just amazing because, you know, to us that is not the key driver to our business. The key driver is the renewals are spread over roughly three years and the renewals tend to be about three years. And so if a renewal is early a quarter or two or later a quarter or two, it has no impact on the revenue whatsoever. However, there are some changes if you renew earlier or later which is can you sell additional capabilities, can you change the relationship and so on, and what we see is that in a time of high uncertainty, such as right now, different companies react differently. There's some people that immediately stop thinking about renewals because they have so many other challenges; there are other companies that think now is the time to cut a deal and maybe it's cheaper, and yet other companies that think hey, you know, now is the time to really re-think strategically where we want to be in two to three years, who will be our key partners and how do we make sure that we have both safety in our relationships but also a highly leveraged relationship going forward? And we see all of those and that's why all these talks about renewals and length of deal tend to be so noisy. But the principles are very basic, old school business principles. So understanding that reasonably well, we've taken an approach of saying well, let's be with the customer on their most fundamental question, which is how do they over the next two years improve their business picture by becoming on one hand more streamlined economically, on the other hand, more competitive with additional differentiation. That is the dialogue that we have with all the people that we have now these broader relationships with, and it gradually morphs how we think about our own mission, notwithstanding that on a day-to-day basis we'll fight to create the best possible individual product. So I don't actually even know that there would be any difference in renewal numbers or key pieces from one year to another, the exception being one or two companies that tend to be very large, but even there there's a high degree of variability. Sterling Auty - J.P. Morgan: Right. But I think the reason that we still focus on it is while it may not matter dramatically to the revenue run rate as you spread it out, it does give an indication or it has an impact on cash flow, at least in the recent past, given how you guys collect. Cash flow is also an important valuation metric in the sector. The question is, you know, if you get to a point where some of the renewals pick up, you know, maybe we see cash flow moving in the other direction; that could point to improved health.

Actually, Sterling, you make an excellent point. I hadn't thought about that. But your point is absolutely correct. And actually you can see - one additional reason why people sometimes don't want to make any moves because they don't want to, you know, engage any cash at the moment where they're holding it as much as they can. But your point is actually well taken and I had not thought about it that way.

And presenters, we'll turn the conference back over to you at this time.

Well, thank you for attending this earnings release. As usual, Brian and I will be available for some comments and clarification afterwards. We do think that we are in a very, very good position in a very unique time environment, and we're actually quite excited about the momentum of the company. And hopefully we were able to give you an objective and balanced perspective of both the market and our situation. Thank you for your time.

Thank you. And, ladies and gentlemen, that does then conclude our conference for today. We thank you for your participation as well as using AT&T's Executive Teleconference service. You may now disconnect.