Synopsys Posts Financial Results for Third Quarter Fiscal Year 2008 (Revenue up 13%)

MOUNTAIN VIEW, Calif., Aug. 20 /PRNewswire-FirstCall/ -- Synopsys, Inc. (NASDAQ: SNPS), a world leader in software and IP for semiconductor design and manufacturing, today reported results for its third quarter ended July 31, 2008.

 

For the third quarter, Synopsys reported revenue of $344.1 million, a 13.2 percent increase compared to $304.1 million for the third quarter of fiscal 2007.

"Our technology and product pipeline are strong throughout our broad portfolio, and we are seeing good competitive momentum," said Aart de Geus, chairman and CEO of Synopsys. "Even at a time of increased customer caution around spending, Synopsys continues to perform well."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2008 was $57.7 million, or $0.39 per share, compared to $24.9 million, or $0.17 per share for the third quarter of fiscal 2007. GAAP earnings per share included a $17.3 million tax benefit associated with the settlement of an IRS tax issue for fiscal years 2000 and 2001.

Non-GAAP Results

On a non-GAAP basis, net income for the third quarter of fiscal 2008 was $64.5 million, or $0.44 per share, compared to non-GAAP net income of $47.7 million, or $0.32 per share, for the third quarter of fiscal 2007.

Non-GAAP net income consists of GAAP net income excluding employee share- 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 (which could include in-process research and development charges), facilities realignment charges, and other significant items, including a tax benefit from a settlement with the IRS in the third quarter, and the related tax-effect of each, which, in the opinion of management, are infrequent or non-recurring. See "GAAP Reconciliation" below.

Financial Targets

Synopsys also provided its operating model targets for the fourth quarter and full fiscal year 2008. 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.

 

    Fourth Quarter of Fiscal Year 2008 Targets:
    --  Revenue: $348 million - $356 million
    --  GAAP expenses: $295 million - $310 million
    --  Non-GAAP expenses: $273 million - $283 million
    --  Other income and expense: $0 - $3 million
    --  Tax rate applied in non-GAAP net income calculations: approximately 27
        percent
    --  Fully diluted outstanding shares: 147 million - 152 million
    --  GAAP earnings per share: $0.23 - $0.29
    --  Non-GAAP earnings per share: $0.36 - $0.39
    --  Revenue from backlog: greater than 90 percent


    Full Fiscal Year 2008 Targets:
    --  Revenue: $1.332 billion - $1.340 billion
    --  Tax rate applied in non-GAAP net income calculations: approximately 26
        percent
    --  Fully diluted outstanding shares: 147 million - 150 million
    --  GAAP earnings per share: $1.20 - $1.26
    --  Non-GAAP earnings per share: $1.65 - $1.68
    --  Cash flow from operations: $300 million - $325 million

 

GAAP Reconciliation

Synopsys' management evaluates and makes 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 (including in-process research and development charges), facilities realignment charges and other significant infrequent items, including a tax benefit from a settlement with the IRS, are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while employee share-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 requires cash settlement by the Company and because such expense is not used by management to assess the core performance of the Company's business operations. Therefore, management excludes such costs, to the extent incurred in a particular quarter, from the following historical and targeted GAAP financial measures included in this earnings release: total cost of revenue, gross margin, total operating expenses, operating income, income before provision (benefit) for income taxes, provision (benefit) for income taxes, net income and net income per share.

For each such measure, excluding these costs provides management with more consistent, comparable information about the Company's core performance. For example, 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 support 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, 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 Third Quarter Results

The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for periods indicated below:

 


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

    Income Statement Reconciliation    Three Months Ended   Nine Months Ended
                                             July 31,           July 31,
                                          2008     2007      2008      2007
    GAAP net income                      $57,749  $24,855  $143,581   $89,477
    Adjustments:
      Amortization of intangible assets   10,810   12,186    34,841    37,393
      Share-based compensation            17,321   16,110    50,806    46,674
      In-process research and development  4,800    2,100     4,800     2,100
      Litigation settlement                  -        -         -     (12,500)
      Facilities realignment charge          -        -         -        (645)
      Tax benefit from IRS settlement    (17,253)     -         (17,253)            -
            Tax  effect                                                    (8,923)    (7,552)    (26,595)    (17,634)
        Non-GAAP  net  income                                    $64,504    $47,699    $190,180    $144,865



                                                                                  Three  Months  Ended    Nine  Months  Ended
                                                                                              July  31,                      July  31,
                                                                                        2008          2007            2008            2007
        GAAP  earnings  per  share                                $0.39        $0.17          $0.97          $0.60
        Adjustments:
            Amortization  of  intangible  assets          0.07          0.08            0.24            0.25
            Share-based  compensation                            0.12          0.11            0.34            0.32
            In-process  research  and  development      0.03          0.01            0.03            0.01
            Litigation  settlement                                    -                -                  -              (0.08)
            Facilities  realignment  charge                    -                -                  -              (0.01)
            Tax  benefit  from  IRS  settlement            (0.12)          -              (0.12)            -
            Tax  effect                                                      (0.05)      (0.05)        (0.17)        (0.12)
        Non-GAAP  earnings  per  share                        $0.44        $0.32          $1.29          $0.97

        Shares  used  in  calculation                      147,486    149,709      147,760      149,283


 

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