Synopsys Posts Financial Results for First Quarter of Fiscal 2006

MOUNTAIN VIEW, Calif., Feb. 15 /PRNewswire-FirstCall/ -- Synopsys, Inc. (NASDAQ: SNPS), a world leader in semiconductor design software, today reported results for its first fiscal quarter ended January 31, 2006.

For the first quarter, Synopsys reported revenue of $260.2 million, an 8 percent increase compared to $241.3 million for the first quarter of fiscal 2005.

"Synopsys has delivered another quarter of very solid results," said Aart de Geus, chairman and CEO of Synopsys. "We again executed well against our financial goals, and continue to win business based on our strong technology momentum."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the first quarter of fiscal 2006 was $1.7 million, or $0.01 per share, compared to a net loss of ($14.3) million, or ($0.10) per share, for the first quarter of fiscal 2005. GAAP net income for the current period includes a stock-based compensation expense of $18.4 million due to the implementation of Statement of Financial Accounting Standards 123(R) (FAS 123(R)). Net income prior to fiscal 2006 did not include stock-based compensation expense related to FAS 123(R).

Non-GAAP Results

On a non-GAAP basis, net income for the first quarter of fiscal 2006 was $26.4 million, or $0.18 per share, compared to non-GAAP net income of $14.7 million, or $0.10 per share, for the first quarter of fiscal 2005.

Non-GAAP net income consists of GAAP net income excluding stock-based compensation expense calculated in accordance with FAS 123(R) and, to the extent incurred in a particular quarter or period, amortization of intangible assets, in-process research and development charges, integration and other acquisition-related expenses, facilities and workforce realignment charges, and other significant items which, in the opinion of management are extraordinary. See "GAAP Reconciliation - Reconciliation of First Quarter 2006 Results" below.

Financial Targets

Synopsys also announced its operating model targets for the second quarter and full fiscal year 2006. These targets constitute forward-looking information and are based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see "Forward-Looking Statements" below.

    Second Quarter of Fiscal 2006 Targets:
    *  Revenue:  $262 million - $270 million
    *  GAAP expenses:  $263 million - $276 million
    *  Non-GAAP expenses:  $233 million - $243 million
    *  Other income and expense:  $0 million - $4 million
    *  Fully diluted outstanding shares:  144 million - 150 million
    *  Tax rate applied in non-GAAP net income calculations:  31 percent
    *  GAAP (loss) earnings:  $(0.02) - $0.03 per share
    *  Non-GAAP earnings:  $0.13 - $0.17 per share
    *  Revenue from backlog:  more than 90 percent

    Full-Year Fiscal Year 2006 Targets
    *  Revenue:  $1,055 million - $1,085 million
    *  Fully diluted outstanding shares:  144 million - 150 million
    *  Tax rate applied in non-GAAP net income calculations:  31 percent
    *  GAAP earnings:  $0.05 - $0.17 per share
    *  Non-GAAP earnings:  $0.65 - $0.73 per share
    *  GAAP cash flow from operations:  greater than $175 million
    *  Revenue from backlog:  more than 85 percent

    GAAP Reconciliation

Synopsys' management evaluates and makes operating decisions about the Company's business operations primarily based on the bookings, revenue and direct, ongoing and recurring costs of those operations. Management does not believe amortization of intangible assets, in-process research and development charges, integration and other acquisition-related expenses, facilities and workforce realignment charges and other significant extraordinary items are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while stock-based compensation expense calculated in accordance with FAS 123(R) constitutes an ongoing and recurring expense of the Company, such expense is excluded from non-GAAP results because it is not an expense that typically requires or will require cash settlement by the Company and because such expense is not used by management to assess the core profitability of the Company's business operations. Therefore, management adjusts the following GAAP financial measures included in this earnings release to exclude such costs, to the extent incurred in a particular quarter: total cost of revenue, gross margin, total operating expenses, operating income (loss), income (loss) before provision (benefit) for income taxes, provision (benefit) for income taxes, net income (loss) and net income (loss) per share.

For each such measure, excluding these costs provides management with more consistent, comparable information about the Company's core profitability. For example, since the Company does not acquire businesses on a predictable cycle, management would have difficulty evaluating the Company's profitability as measured by gross margin, operating margin, income before taxes and net income on a period-to-period basis unless it excluded acquisition-related charges. Similarly, the Company does not undertake significant restructuring or realignments on a regular basis, and, as a result, excludes associated charges in order to enable better and more consistent evaluations of the Company's operating expenses before and after such actions are taken. Management also uses these measures to help it make budgeting decisions, for example, as between product development expenses (which affect cost of revenue and gross margin) and research and development, sales and marketing and general and administrative expenses (which affect operating expenses and operating margin). Finally, the availability of such information helps management track performance to both internal and externally communicated financial targets and to its competitors' operating results.

Management recognizes that the use of these non-GAAP measures has certain limitations, including the fact that management must exercise judgment in determining whether certain types of charges, such as those relating to workforce reductions executed in the ordinary course of business, should be excluded from non-GAAP results. However, management believes that, although it is important for investors to understand GAAP measures, providing investors with these non-GAAP measures gives them additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations.

Reconciliation of First Quarter Results

The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP earnings per share and non-GAAP expenses for the first quarter fiscal 2006.


           GAAP to Non-GAAP Reconciliation of First Quarter Results
                   (in thousands, except per share amounts)

    Income Statement Reconciliation                    Three Months Ended
    (in thousands)                                         January 31,
                                                     2006               2005

    GAAP net income (loss)                          $1,697           $(14,325)
    Adjustments:
       Amortization of intangible assets            15,999             36,951
       Stock-based compensation (1)                   18,430                                  --
              In-process  research  and  development                          800                            5,700
              Tax  effect                                                                    (10,530)                      (13,638)
        Non-GAAP  net  income                                                        $26,396                        $14,688

        (1)  Stock-based  compensation  results  from  the  Company's  implementation  of
                FAS  123(R)  during  the  first  quarter  of  fiscal  2006.


        Earnings  Per  Share  Reconciliation                                    Three  Months  Ended
                                                                                                                      January  31,
                                                                                                          2006                              2005

        GAAP  earnings  (loss)  per  share                                      $0.01                          $(0.10)
        Adjustments:
              Amortization  of  intangible  assets                            0.11                              0.25
              Stock-based  compensation  (1)                                      0.13                                  --
              In-process  research  and  development                        0.01                              0.04
              Tax  effect                                                                        (0.08)                          (0.09)
        Non-GAAP  earnings  per  share                                            $0.18                            $0.10

        Shares  used  in  calculation                                          146,969                        146,060

        (1)  Stock-based  compensation  results  from  the  Company's  implementation  of
                FAS  123(R)  during  the  first  quarter  of  fiscal  2006.


        Reconciliation  of  Estimated  Target  Operating  Results
        The  following  tables  reconcile  the  specific  items  excluded  from  GAAP  in
the  calculation  of  target  non-GAAP  operating  results  for  the  periods  indicated
below:


                      GAAP  to  non-GAAP  Reconciliation  of  Target  Second  Quarter
                                                      Fiscal  Year  2006  Targets
                                      (in  thousands,  except  per  share  amounts)

                                                                                                          Range  for  Three  Months
                                                                                                            Ending  April  30,  2006
                                                                                                            Low                            High

        Target  GAAP  expenses                                                    $263,000                    $276,000
        Adjustment:
              Estimated  impact  of  amortization  of
                intangible  assets                                                    (13,000)                    (14,000)
              Estimated  impact  of  stock-based
                compensation  (1)                                                      (17,000)                    (19,000)
        Target  non-GAAP  expenses                                            $233,000                    $243,000

        (1)  Stock-based  compensation  results  from  the  Company's  implementation  of
                FAS  123(R)  during  the  first  quarter  of  fiscal  2006.


                                                                                                          Range  for  Three  Months
                                                                                                            Ending  April  30,  2006
                                                                                                            Low                            High

        Target  GAAP  earnings  (loss)  per  share                      $(0.02)                        $0.03
        Adjustment:
              Estimated  impact  of  amortization  of
                intangible  assets                                                          0.10                            0.09
              Estimated  impact  of  stock-based
                compensation  (1)                                                            0.13                            0.12
              Net  non-GAAP  tax  effect                                              (0.08)                        (0.07)
        Target  non-GAAP  earnings  per  share                              $0.13                          $0.17

        Shares  used  in  non-GAAP  calculation
          (midpoint  of  target  range)                                        147,000                      147,000

        (1)  Stock-based  compensation  results  from  the  Company's  implementation  of
                FAS  123(R)  during  the  first  quarter  of  fiscal  2006.


            GAAP  to  Non-GAAP  Reconciliation  of  Target  Fiscal  Year  2006  Targets

                                                                                                            Range  for  Fiscal  Year
                                                                                                          Ending  October  31,  2006
                                                                                                            Low                              High

        Target  GAAP  earnings  per  share                                      $0.05                          $0.17
        Adjustment:
              Estimated  impact  of  amortization  of
                intangible  assets                                                          0.39                            0.38
              Estimated  impact  of  stock-based
                compensation  (1)                                                            0.47                            0.44
              Net  non-GAAP  tax  effect                                              (0.26)                        (0.26)
        Target  non-GAAP  earnings  per  share                              $0.65                            0.73

        Shares  used  in  non-GAAP  calculation
          (midpoint  of  target  range)                                        147,000                      147,000

        (1)  Stock-based  compensation  results  from  the  Company's  implementation  of
                FAS  123(R)  during  the  first  quarter  of  fiscal  2006.


        Additional  Financial  Information  Available  on  Synopsys  Website 


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