1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 1999
OR
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER: 0-19807
-------------------------------
SYNOPSYS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1546236
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
(Address of principal executive offices)
TELEPHONE: (650) 962-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
70,868,097 shares of Common Stock as of May 4, 1999
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SYNOPSYS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1999
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - March 31, 1999
and September 30, 1998 3
Condensed Consolidated Statements of Income - Three Months
and Six Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNOPSYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
MARCH 31, SEPTEMBER 30,
1999 1998
---------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 118,516 $ 164,548
Short-term investments 567,385 440,082
---------- ----------
Cash and short-term investments 685,901 604,630
---------- ----------
Accounts receivable, net of allowances of
$13,018 and $13,210, respectively 139,213 126,336
Prepaid expenses, deferred taxes and other 45,205 42,461
---------- ----------
Total current assets 870,319 773,427
---------- ----------
Property and equipment, net 119,072 99,998
Long-term investments 36,043 38,265
Intangibles and other assets 74,012 39,943
---------- ----------
Total assets $1,099,446 $ 951,633
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 104,395 $ 117,412
Current portion of long-term debt 8,949 7,783
Accrued income taxes 45,168 50,313
Deferred revenue 102,621 93,160
---------- ----------
Total current liabilities 261,133 268,668
---------- ----------
Long-term debt 13,486 13,138
Deferred compensation 8,556 4,886
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized;
no shares outstanding -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; 70,471,000 and 67,925,000 shares
outstanding, respectively 705 679
Additional paid-in capital 502,281 423,975
Retained earnings 302,821 240,465
Treasury stock, at cost -- (11,184)
Accumulated other comprehensive income 10,464 11,006
---------- ----------
Total stockholders' equity 816,271 664,941
---------- ----------
Total liabilities and stockholders' equity $1,099,446 $ 951,633
========== ==========
The accompanying notes are an integral part of these financial statements.
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SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
MARCH 31, MARCH 31,
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited)
Revenue:
Product $116,680 $103,063 $226,639 $213,488
Service 73,506 67,042 143,773 130,829
-------- -------- -------- --------
Total revenue 190,186 170,105 370,412 344,317
-------- -------- -------- --------
Cost of revenue:
Product 8,311 8,282 15,906 17,093
Service 16,381 13,008 30,492 27,689
-------- -------- -------- --------
Total cost of revenue 24,692 21,290 46,398 44,782
-------- -------- -------- --------
Gross margin 165,494 148,815 324,014 299,535
-------- -------- -------- --------
Operating expenses:
Research and development 39,182 36,471 80,118 76,908
Sales and marketing 58,476 57,293 114,054 123,454
General and administrative 10,873 11,257 21,965 24,544
Amortization of goodwill 1,470 -- 1,470 --
Merger-related and other costs -- 11,888 -- 47,888
In-process research and development
and other costs 16,267 -- 16,267 4,191
-------- -------- -------- --------
Total operating expenses 126,268 116,909 233,874 276,985
-------- -------- -------- --------
Operating income 39,226 31,906 90,140 22,550
Other income, net 9,708 6,419 18,192 11,360
-------- -------- -------- --------
Income before provision for income taxes
and extraordinary item 48,934 38,325 108,332 33,910
Provision for income taxes 22,313 13,151 41,320 17,225
-------- -------- -------- --------
Net income before extraordinary item 26,621 25,174 67,012 16,685
Extraordinary item, net of income tax expense -- -- -- 1,869
-------- -------- -------- --------
Net income $ 26,621 $ 25,174 $ 67,012 $ 18,554
======== ======== ======== ========
Basic earnings per share:
Net income before extraordinary item $ 0.38 $ 0.38 $ 0.96 $ 0.25
Extraordinary item -- -- -- 0.03
-------- -------- -------- --------
Net income $ 0.38 $ 0.38 $ 0.96 $ 0.28
======== ======== ======== ========
Weighted average common shares 70,286 65,950 69,739 65,605
======== ======== ======== ========
Diluted earnings per share:
Net income before extraordinary item $ 0.36 $ 0.37 $ 0.92 $ 0.24
Extraordinary item -- -- -- 0.03
-------- -------- -------- --------
Net income $ 0.36 $ 0.37 $ 0.92 $ 0.27
======== ======== ======== ========
Weighted average common shares
and equivalents 73,873 68,262 73,207 68,585
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
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SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED
--------------------------
MARCH 31,
1999 1998
--------- ---------
(unaudited)
Cash flows provided by operating activities:
Net income $ 67,012 $ 18,554
Adjustments to reconcile net income to cash flows
provided by operating activities:
Depreciation and amortization 23,722 21,887
Tax benefit associated with stock options 18,893 6,482
Provision for doubtful accounts and sales returns (192) 3,749
Interest accretion on notes payable 448 196
Deferred taxes 426 (304)
Gain on sale of long-term investments (9,282) (4,000)
Noncash merger-related and other costs -- 8,023
In-process research and development and other costs 16,267 4,191
Extraordinary gain on extinguishment of debt -- (1,869)
Changes in operating assets and liabilities:
Accounts receivable (12,066) 2,312
Prepaid expenses and other current assets 894 706
Accounts payable and accrued expenses (15,680) 767
Accrued income taxes (5,145) (13,959)
Deferred revenue 9,190 17,471
Deferred compensation 3,670 2,496
--------- ---------
Cash flows provided by operating activities 98,157 66,702
--------- ---------
Cash flows used in investing activities:
Expenditures for property and equipment (38,224) (19,449)
Proceeds from sale of long-term investments 10,947 11,634
Purchases of long-term investments (3,885) (901)
Purchases and maturities of short-term investments, net (127,303) (103,348)
Acquisitions, net of cash (34,786) (2,236)
Intangibles and other assets (3,881) (8,796)
--------- ---------
Cash flows used in investing activities (197,132) (123,096)
--------- ---------
Cash flows provided by financing activities:
Payments of long-term debt (9,477) (4,839)
Issuances of common stock 62,536 28,449
--------- ---------
Cash flows provided by financing activities 53,059 23,610
--------- ---------
Effect of exchange rate changes on cash (116) (1,159)
Net decrease in cash and cash equivalents (46,032) (33,943)
Cash and cash equivalents, beginning of period 164,548 127,307
--------- ---------
Cash and cash equivalents, end of period $ 118,516 $ 93,364
========= =========
The accompanying notes are an integral part of these financial statements.
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SYNOPSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Synopsys, Inc. (Synopsys or the Company) is a leading supplier of
electronic design automation (EDA) solutions to the global electronics market.
The Company provides comprehensive design technologies to creators of advanced
integrated circuits, electronic systems, and systems on a chip. The Company also
provides consulting services and support to its customers to streamline the
overall design process and accelerate time-to-market.
The unaudited condensed consolidated financial statements have been
prepared by the Company and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the interim periods presented.
Such adjustments are of a normal recurring nature, except for merger-related and
other costs and in-process research and development charges. The consolidated
results of operations for the interim periods presented are not necessarily
indicative of the results for any future interim period or for the entire fiscal
year. Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been omitted, although the Company believes that the
disclosures included are adequate to make the information presented not
misleading. The unaudited condensed consolidated financial statements and notes
included herein should be read in conjunction with the consolidated financial
statements and notes for the fiscal year ended September 30, 1998, included in
the Company's 1998 Annual Report on Form 10-K.
The Company has a fiscal year that ends on the Saturday nearest September
30. Fiscal 1999 will be a 52-week year while fiscal 1998 was a 53-week year. For
presentation purposes, the condensed consolidated financial statements and notes
refer to the quarter's calendar month end.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. A change in the facts
and circumstances surrounding these estimates could result in a change to the
estimates and impact future operating results.
2. BUSINESS COMBINATIONS
Acquisitions
During the second quarter of fiscal 1999, the Company acquired Gambit
Automated Design, Inc. (Gambit), Smartech OY and the rights to CoverMeter, a
software product owned by Advanced Technology Center, for a combined purchase
price of $51.6 million, including notes of $10.3 million. The Company reserved
approximately 78,000 shares of its common stock for issuance under Gambit's
stock option plan, which the Company assumed in the acquisition. The purchase
price of each transaction was allocated to the acquired assets and liabilities
based on their estimated fair values as of the date of the respective
acquisition. Amounts allocated to developed technology, workforce and goodwill
are being amortized on a straight-line basis over four to five-year periods.
Approximately $16.3 million was allocated to in-process research and development
and charged to operations because the acquired technology had not reached
technological feasibility and had no alternative uses.
Pro forma results of operations have not been presented since the effects
of the acquisitions were not material to the Company's consolidated financial
position, results of operations or cash flows for the periods presented.
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Mergers
On November 20, 1998, the Company exchanged approximately 1.4 million
shares of its common stock for all the outstanding stock of Everest Design
Automation, Inc. (Everest) and reserved approximately 100,000 shares of its
common stock for issuance under Everest's stock option plan, which the Company
assumed in the transaction. The business combination was accounted for as a
pooling-of-interests. The Board of Directors approved the rescission of the
Company's stock repurchase program in order to comply with pooling-of-interests
accounting guidance provided in the Securities and Exchange Commission (SEC)
Staff Accounting Bulletin No. 96. The Company's condensed consolidated financial
statements have been restated to include the financial position and results of
Everest for all periods presented. The following table sets forth the results of
operations previously reported by the separate enterprises and the combined
amounts presented in the accompanying consolidated financial statements:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- --------------------------
MARCH 31, MARCH 31,
1999 1998 1999 1998
--------- --------- --------- ---------
(unaudited) (unaudited)
(in thousands)
Total revenue:
Synopsys $ 190,186 $ 170,105 $ 370,412 $ 344,317
Everest -- -- -- --
--------- --------- --------- ---------
Combined $ 190,186 $ 170,105 $ 370,412 $ 344,317
--------- --------- --------- ---------
Net income (loss):
Synopsys $ 26,621 $ 25,527 $ 67,773 $ 19,127
Everest -- (353) (761) (573)
--------- --------- --------- ---------
Combined $ 26,621 $ 25,174 $ 67,012 $ 18,554
========= ========= ========= =========
3. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income as of the first quarter of fiscal 1999. SFAS
No. 130 has no impact on the Company's net income or total stockholders' equity.
The following table sets forth the components of comprehensive income, net of
income tax expense:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
MARCH 31, MARCH 31,
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited)
(in thousands)
Net income $ 26,621 $ 25,174 $ 67,012 $ 18,554
Cumulative translation adjustment (485) 160 (116) (1,159)
Change in unrealized gain (loss) on
available-for-sale investments (2,807) 12,665 (426) 8,279
-------- -------- -------- --------
Total comprehensive income $ 23,329 $ 37,999 $ 66,470 $ 25,674
======== ======== ======== ========
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4. EARNINGS PER SHARE
Basic earnings per share is computed using the weighted-average number of
common shares. Diluted earnings per share is computed using the weighted-average
number of common and dilutive potential common shares outstanding during the
period. Dilutive potential common shares consist of employee stock options using
the treasury stock method.
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
MARCH 31, MARCH 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(unaudited) (unaudited)
(in thousands, except per share amounts)
NUMERATOR:
Numerator for basic and diluted earnings
per share -
Net income before extraordinary item $ 26,621 $ 25,174 $ 67,012 $ 16,685
Extraordinary item -- -- -- 1,869
---------- ---------- ---------- ----------
Net income $ 26,621 $ 25,174 $ 67,012 $ 18,554
========== ========== ========== ==========
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares 70,286 65,950 69,739 65,605
Effect of dilutive securities:
Employee stock options 3,587 2,312 3,468 2,980
---------- ---------- ---------- ----------
Dilutive potential common shares 73,873 68,262 73,207 68,585
========== ========== ========== ==========
Basic earnings per share:
Net income before extraordinary item $ 0.38 $ 0.38 $ 0.96 $ 0.25
Extraordinary item -- -- -- 0.03
---------- ---------- ---------- ----------
Net income $ 0.38 $ 0.38 $ 0.96 $ 0.28
========== ========== ========== ==========
Diluted earnings per share:
Net income before extraordinary item $ 0.36 $ 0.37 $ 0.92 $ 0.24
Extraordinary item -- -- -- 0.03
---------- ---------- ---------- ----------
Net income $ 0.36 $ 0.37 $ 0.92 $ 0.27
========== ========== ========== ==========
5. EFFECT OF NEW ACCOUNTING STANDARDS
During fiscal 1999, the Company early adopted Statement of Position (SOP)
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. This statement requires computer software costs incurred during
the application development stage to be capitalized and amortized to operations
over the software's estimated useful life. The effect of adopting SOP 98-1 for
the three and six-month periods ended March 31, 1999 was not material to the
Company's consolidated financial position, results of operations or cash flows.
In December 1998, the American Institute of Certified Public Accountants
(AICPA) issued SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition,
With Respect to Certain Transactions, which amends SOP 97-2, Software Revenue
Recognition. and supercedes SOP 98-4. The Company will adopt SOP 98-9 in fiscal
2000. The Company intends to modify certain aspects of its business model such
that the impact of SOP 98-9 will not be significant.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information and in
June 1998, issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. Readers are referred to the "Effect of New Accounting
Standards" section of the Company's 1998 Annual Report on Form 10-K for further
discussion.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. When used in the
following discussion, the words "projects," "expects," "believes," "anticipates"
and similar expressions are intended to identify forward-looking statements.
Actual results could differ materially from those anticipated in such
forward-looking statements as a result of certain factors, including those set
forth under "Factors That May Affect Future Results."
RESULTS OF OPERATIONS
Business Combinations - Acquisitions. During the course of the second
quarter of fiscal 1999, the Company completed three acquisitions. The Company
acquired Gambit, a privately held provider of place and route software and
physical design services located in San Jose, California. The Company had been
an investor in Gambit since fiscal 1997. The Company also acquired Smartech OY
of Finland, a privately held design services firm with specific expertise in the
design of wireless communication devices. Additionally, the Company acquired the
rights to "CoverMeter," a Verilog code coverage tool, from Advanced Technology
Center of Massachusetts.
The combined purchase price for the transactions totaled $51.6 million,
including notes of $10.3 million. The Company reserved approximately 78,000
shares of its common stock for issuance under Gambit's stock option plan, which
the Company assumed in the acquisition. The purchase price of each transaction
was allocated to the acquired assets and liabilities based on their estimated
fair values as of the date of the respective acquisition based on appraisals
completed by independent third parties. Amounts allocated to developed
technology, workforce and goodwill are being amortized on a straight-line basis
over four to five-year periods. Approximately $16.3 million was allocated to
in-process research and development and charged to operations because the
acquired technology had not reached technological feasibility and had no
alternative uses. The in-process research and development projects were
estimated to be approximately 75% complete in the aggregate, and the expected
aggregate cost to complete the projects was estimated at $3.2 million. During
the valuation process, core technology was identified in addition to the
in-process research and development projects. The core technology was valued
separately using a discount rate of 15% and is being amortized over its
estimated useful life. The fair value of the in-process technology was based on
a discounted cash flow model, similar to the traditional "Income Approach,"
which discounts expected future cash flows to present value, net of tax. In
discounting the estimated cash flows, a discount rate of 25% was used based on
the risks associated with achieving such projected cash flows upon successful
completion of the acquired projects, expected incremental revenues and expenses
associated with the development projects utilizing the acquired technology, and
risks and uncertainties in incorporating the acquired technology into the
Company's development projects. In developing cash flow projections, revenues
were forecasted based on relevant factors, including aggregate revenue growth
rates for the business as a whole, characteristics of the potential market for
the technology and the anticipated life of the technology. Projected annual
revenues for the in-process research and development projects were assumed to
ramp up initially and decline significantly at the end of the in-process
technology's economic life. Operating expenses and resulting profit margins were
forecasted based on the characteristics and cash flow generating potential of
the acquired in-process technology. Gross profit was assumed to approximate the
Company's corporate gross profit average. Associated risks include the inherent
difficulties and uncertainties in completing each project and thereby achieving
technological feasibility, and risks related to the impact of potential changes
in market conditions and technology.
Pro forma results of operations have not been presented since the effects
of the acquisitions were not material to the Company's consolidated financial
position, results of operations or cash flows for the periods presented.
Mergers. On November 20, 1998, the Company exchanged approximately 1.4
million shares of its common stock for all the outstanding stock of Everest
Design Automation, Inc. (Everest) and reserved approximately 100,000 shares of
its common stock for issuance under Everest's stock option plan, which the
Company assumed in the transaction. The business combination was accounted for
as a pooling-of-interests. The Board of Directors approved the rescission of the
Company's stock repurchase program in order to comply with pooling-of-interests
accounting guidance provided in the SEC Staff Accounting Bulletin No. 96. The
Company's condensed consolidated financial statements have been restated to
include the financial position and results of Everest for all periods presented.
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Disposition of Viewlogic Systems' PCB/Systems Business - effect on
comparative financial information. The Company merged with Viewlogic Systems,
Inc. (Viewlogic) in December 1997 in a transaction accounted for as a
pooling-of-interests. On October 2, 1998, the Company sold the printed circuit
board and electronics systems business (PCB/Systems business) of Viewlogic. In
the discussion below, financial information for fiscal 1998 includes the results
of the PCB/Systems business, while financial information for fiscal 1999
excludes the PCB/systems business. Therefore, the comparative measures included
in the discussion, in particular with respect to absolute dollar amounts of
revenue or expenditure, are not necessarily valid with respect to the Company's
business as it is presently conducted. A pro forma unaudited condensed
consolidated statement of income, excluding the results of the PCB/Systems
business and certain unusual charges, was filed with the SEC on a Form 8-K on
April 23, 1999.
Revenue. Revenue for the second quarter of fiscal 1999 increased 11.8% to
$190.2 million from $170.1 million in the second quarter of fiscal 1998. Revenue
for the first half of fiscal 1999 increased 7.6% to $370.4 million from $344.3
million for the comparable period in fiscal 1998. The increase in revenue for
both periods was primarily attributable to increased license revenue as well as
increased training and consulting services revenue. Product revenue as a
percentage of total revenue remained relatively constant at 61.4% for the second
quarter of fiscal 1999 compared to 60.6% for the second quarter of fiscal 1998.
Product revenue as a percentage of total revenue for the first half of fiscal
1999 was 61.2%, compared to 62.0% for the comparable period in fiscal 1998. This
decrease was due in part to relatively faster growth in service revenue from
training and consulting services.
International revenue as a percentage of total revenue increased to 41.3%
in the second quarter of fiscal 1999 from 37.4% in the second quarter of fiscal
1998 as a result of increased European sales in the second quarter of fiscal
1999. For the first half of fiscal 1999, international revenue was 38.4% of
total revenue, compared to 39.4% for the comparable period in fiscal 1998. This
decrease is primarily attributable to lower revenue in Asia resulting from the
continued weak economies in many Asian countries, particularly Korea.
Cost of Revenue. Cost of revenue as a percentage of total revenue remained
constant at 13.0% for all periods presented. Cost of revenue includes personnel
and related costs, production costs, product packaging, documentation,
amortization of capitalized software development and purchased software costs,
and costs of the Company's system products.
Research and Development. Research and development expenses as a
percentage of total revenue decreased to 20.6% in the second quarter of fiscal
1999 from 21.4% in the second quarter of fiscal 1998, and increased in absolute
dollars to $39.2 million from $36.5 million. Research and development expenses
were $80.1 million for the first half of fiscal 1999 in absolute dollars,
compared to $76.9 million for the comparable period in fiscal 1998. As a
percentage of total revenue, research and development decreased to 21.6% in the
first half of fiscal 1999 compared to 22.3% for the comparable period in fiscal
1998. The increase in absolute dollars for all periods presented was primarily
attributable to increases in amortization and depreciation expenses, personnel
and personnel-related costs, and consulting expenses.
Sales and Marketing. Sales and marketing expenses as a percentage of total
revenue decreased to 30.7% in the second quarter of fiscal 1999 from 33.7% in
the second quarter of fiscal 1998, and increased in absolute dollars to $58.5
million from $57.3 million. The increase in absolute dollars was primarily the
result of additional spending in advertising, trade shows and travel-related
costs. Sales and marketing expenses were 30.8% of total revenue for the first
half of fiscal 1999, compared to 35.9% for the comparable period in fiscal 1998.
In absolute dollars, sales and marketing expenses were $114.1 million for the
first half of fiscal 1999, compared to $123.5 million for the comparable period
in fiscal 1998. The decrease as a percentage of total revenue for both periods
presented and in absolute dollars for the first half of fiscal 1999 was
primarily due to the Company realizing expense reductions in connection with
aligning Viewlogic operations that began materializing in the second quarter of
fiscal 1998.
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General and Administrative. General and administrative expenses as a
percentage of total revenue decreased to 5.7% in the second quarter of fiscal
1999 from 6.6% in the second quarter of fiscal 1998, and decreased in absolute
dollars to $10.9 million from $11.3 million. General and administrative expenses
were 5.9% of total revenue for the first half of fiscal 1999, compared to 7.1%
for the comparable period in fiscal 1998 and decreased in absolute dollars to
$22.0 million from $24.5 million. The decrease as a percentage of total revenue
and in absolute dollars for all periods presented was primarily due to
reductions in bad debt expense, travel-related expenses, and outside service
fees partially offset by an increase in facilities expenditures.
Amortization of Goodwill. Goodwill represents the excess of the aggregate
purchase price over the fair value of the tangible and intangible assets
acquired by the Company and, under the Company's accounting policies is being
amortized over the estimated useful life of four to five-year periods. The
Company assesses the recoverability of goodwill by determining whether the
amortized asset over its useful life may be recovered through estimated useful
cash flows. Amortization of goodwill charged to operations was $1.5 million in
the second quarter of fiscal 1999, and was not material for the second quarter
of fiscal 1998.
In-process Research and Development. The Company incurred in-process
research and development charges of $16.3 million in the first half of fiscal
1999 related to various acquisitions.
Other Income, net. Other income, net for the second quarter of fiscal 1999
increased 51.2% to $9.7 million from $6.4 million in the second quarter of
fiscal 1998 and increased as a percentage of total revenue to 5.1% from 3.8%.
For the first half of fiscal 1999, other income, net was $18.2 million, compared
to $11.4 million for the comparable period in fiscal 1998. Other income, net
increased as a percentage of total revenue to 4.9% in the second quarter of
fiscal 1999 from 3.3% in the second quarter of fiscal 1998. These increases were
primarily due to higher average invested cash and short-term investment
balances, which yielded more interest income for the fiscal 1999 periods
presented compared to fiscal 1998 periods. The increase in the invested cash and
short-term investments resulted primarily from increased cash flow generated
from the Company's operations and cash proceeds from a relatively greater number
of employee stock options exercised during the first half of fiscal 1999,
partially offset by cash outlays of $34.8 million for the acquisitions in the
second quarter of fiscal 1999.
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to its investment portfolio and long-term debt.
The Company does not use derivative financial instruments for speculative or
trading purposes. The Company places its investments in instruments that meet
high credit quality standards, as specified in the Company's investment policy.
The policy also limits the amount of credit exposure to any one issue, issuer
and type of instrument. The Company does not anticipate any material loss with
respect to its investment portfolio.
The following table presents the carrying value and related
weighted-average interest rates for the Company's investment portfolio. The
carrying value approximates fair value at March 31, 1999. In accordance with the
Company's investment policy, all investments mature in fifteen months or less.
Principal (Notional) Amounts in U.S. Dollars:
Carrying Average
(in thousands, except interest rates) Amount Interest Rate
-------- -------------
Short-term investments - fixed rate $567,385 3.36%
Money market funds - variable rate 51,664 3.17%
--------
Total interest bearing instruments $619,049 3.34%
========
Foreign Currency Risk. The Company enters into foreign exchange forward
contracts to reduce its exposure to currency fluctuations on foreign currency
denominated balance sheet positions. The objective of these contracts is to
neutralize the impact of the foreign currency exchange rate movements on the
Company's operating results. The Company's accounting policy for these
instruments is based on the Company's designation of such instruments as hedging
transactions. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company had $16.5 million of short-term
foreign exchange forward contracts denominated in Japanese, Italian, German,
French, and British currencies which approximated the fair value of such
contracts and their underlying transactions as of March 31, 1999. Looking
forward, the Company does not anticipate any material adverse effect on its
consolidated financial position, results of
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operations, or cash flows resulting from the use of these instruments. There can
be no assurance that these strategies will be effective or that transaction
losses can be minimized or forecasted accurately.
The following table provides information about the Company's foreign
exchange forward contracts at March 31, 1999. Due to the short-term nature of
these contracts, the contract rate approximates the weighted-average contractual
foreign currency exchange rate and the amount in U.S. dollars approximates the
fair value of the contract at March 31, 1999. These forward contracts mature in
approximately thirty days.
Short-Term Forward Contracts to Sell and Buy Foreign Currencies in
U.S. Dollars Related to Intercompany Balances:
Contract
(in thousands, except for average contract rates) Amount Rate
-------- --------
Forward Contract
Japanese yen $ 10,310 120.13
Japanese yen 17,003 119.08
British pound sterling (414) 0.62
German mark (3,292) 1.82
French franc (7,370) 6.11
Italian lira 228 1803.70
The unrealized gain (loss) on the outstanding forward contracts at March
31, 1999 was immaterial to the Company's consolidated financial statements. The
realized gain (loss) on these contracts as they matured was not material to the
Company's consolidated financial position, results of operations, or cash flows
for the periods presented.
Income Taxes. The Company's effective income tax rate for the three and
six-month periods ended March 31, 1999, was 32% compared to 34% for the
comparable periods in the prior year, respectively, excluding the effect of
unusual charges which were not deductible for income tax purposes. The Company
does not anticipate any material change to the effective tax rate for the
remainder of fiscal 1999.
ACCOUNTING PRONOUNCEMENTS
During fiscal 1999, the Company early adopted SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. This
statement requires computer software costs incurred during the application
development stage to be capitalized and amortized to operations over the
software's estimated useful life. The effect of adopting SOP 98-1 for the three
and six-month periods ended March 31, 1999 was not material to the Company's
consolidated financial position, results of operations or cash flows.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions, which amends
SOP 97-2, Software Revenue Recognition and supercedes SOP 98-4. The Company will
adopt SOP 98-9 in fiscal 2000. The Company intends to modify certain aspects of
its business model such that the impact of SOP 98-9 will not be significant.
In June 1997, the Financial Accounting Standards Board issued Statement of
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information and in June 1998, issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Readers are referred to the "Effect of New
Accounting Standards" section of the Company's 1998 Annual Report on Form 10-K
for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $685.9 million, an
increase of $81.3 million from September 30, 1998. The increase is primarily a
result of cash generated by operations of $98.2 million and through investing
and financing activities, mainly the exercise of stock options and purchases of
stock through the employee stock purchase plans of $62.5 million and the
proceeds on sale of long-term investments of $10.9 million. These cash flows
were partially offset by cash outflows for investing and financing activities,
capital expenditures of $38.2 million, acquisitions of $34.8 million and cash
paid on debt obligations of $9.5 million.
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Accounts receivable increased 10% during the six months ended March 31,
1999. Days sales outstanding in receivables increased to 66 days as of March 31,
1999 from 59 days at September 30, 1998.
At December 31, 1998, the Company had two foreign exchange lines of credit
available totaling $70 million which expire in July 1999 and October 1999.
The Company's management believes that its current cash, cash equivalents,
short-term investments, lines of credit, and cash generated from operations will
satisfy its expected working capital and capital expenditure requirements for at
least the next twelve months.
YEAR 2000 READINESS
Year 2000 Problem. The failure of a computer program to accurately process
date information beginning on January 1, 2000 is referred to as the "Year 2000
problem." The problem arises because many existing computer programs use two
digits rather than four to refer to a year. As a result, these programs may
interpret a date that begins with "20" (i.e., any date after December 31, 1999)
as a date that begins with a "19" (i.e., one hundred years earlier). This may
result in a system failure, miscalculation or other malfunction.
Synopsys has potential Year 2000 issues both as a vendor of software and
as a user of software. As a vendor, Synopsys could have Year 2000 issues either
if our software were not Year 2000 compliant or our customers have Year 2000
issues that interfere with their purchases of Synopsys' products. As a user of
software, Synopsys could have Year 2000 issues if any of the many systems we use
to perform key corporate functions - such as financial accounting, billing,
payroll and license control - were not Year 2000 compliant.
For the purposes of the following discussion our efforts to identify,
assess, fix and test Year 2000 problems relating to our business are referred to
as our "Year 2000 Efforts."
State of Readiness. In general, Synopsys' products are not date-sensitive,
and therefore are less likely to have Year 2000 issues. We have inspected or
tested 99% of our products to determine whether they have Year 2000 problems.
None of our tested products experienced significant date-related failures. In
addition, we are operating a dedicated Year 2000 test laboratory, which we use
to test all of our untested products and to maintain Year 2000 compliance of all
future products. We do not expect that we will experience significant
date-related failures with respect to the products to be tested or, if we do,
that we will incur substantial costs to fix such failures. To determine whether
our customers' purchases will be affected by Year 2000 issues we have held, and
are continuing to hold, discussions with a number of such customers to determine
whether our interactions with such customers are vulnerable to Year 2000 issues.
Synopsys has taken a number of steps to determine whether the internal
computer systems and software we rely upon to run our business will have Year
2000 problems. Our efforts have covered both systems that are commonly thought
of as "information technology" (IT) systems, including accounting, data
processing, and telephone/PBX systems, as well as certain systems that are not
commonly thought of as IT systems, such as alarm systems and fax machines.
Our Year 2000 Efforts are being conducted primarily by Synopsys employees
and in Synopsys facilities. We began our Year 2000 Efforts in February 1997. We
currently anticipate that they will be completed by September 30, 1999, prior to
any currently anticipated impact on our internal computer systems and software.
As of March 31, 1999, we had completed approximately 65% of the total effort for
the projects we believe are necessary to fully address potential Year 2000
issues relating to our internal computer systems and software.
In addition to conducting an assessment of our products and internal
systems and software, we have conducted a phone survey of our 200 most important
vendors and service providers. We have requested our third party vendors to be
Year 2000 compliant by June 15, 1999. All of those vendors surveyed have
indicated that they are or will be Year 2000 compliant by such date; any
suppliers who do not meet this requirement will be replaced by alternate
vendors.
In addition to assessing the Year 2000 readiness of our existing software
and systems, in the ordinary course of replacing computer equipment and
software, we attempt to obtain replacements that are Year 2000 compliant.
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Based upon our efforts to date, we know that certain of the computer
equipment and software we currently use will require replacement or modification
as a result of Year 2000 issues. In certain instances, an anticipated
replacement or modification has been accelerated due to Year 2000 issues.
Costs of Readiness. Synopsys has not incurred, and does not expect to
incur, material expense in connection with our Year 2000 Efforts. We currently
estimate that the cost of our Year 2000 Efforts, including the costs of our own
employees who work on such Year 2000 Efforts, will not exceed $8.1 million,
including $5.5 million of incremental costs relating to hardware, software and
consulting resources, with the balance representing the costs associated with
reallocating internal resources. This estimate reflects a recent increase based
on the completion of our evaluation of the number of our computers that require
Year 2000 remediation. Should we encounter significant unforeseen Year 2000
problems, either in our products or internal systems, or in our customers'
operations, this number could increase, perhaps by a material amount. These
expenses will be funded from operating cash flows. Such amount represents less
than five percent of our total actual and anticipated IT expenditures for fiscal
1998 through March 31, 2000 (including employee expenses of our IT department).
As of March 31, 1999 we had incurred costs of approximately $1.8 million related
to our Year 2000 Efforts. All of this amount relates to analysis, repair or
replacement of existing software, upgrades of existing software, or evaluation
of information received from significant vendors, service providers, or
customers. Expansion and upgrade of our internal systems unrelated to our Year
2000 Efforts have not been materially delayed or impacted by our Year 2000
Efforts.
Contingency Plans. Synopsys has begun, but not yet completed, a
comprehensive analysis of the operational problems and costs (including loss of
revenues) that would be reasonably likely to result from the failure by us and
certain third parties to complete efforts necessary to achieve Year 2000
compliance on a timely basis. The most likely worst case scenario has not yet
been clearly identified, nor has a contingency plan been developed for dealing
with such scenario. We currently plan to complete such analysis and contingency
planning by September 30, 1999, in conjunction with the Company's overall crisis
planning efforts.
EUROPEAN MONETARY UNIT
The Company's sales to European customers are primarily U.S. dollar based.
However, the Company recognizes the potential importance of the newly introduced
European Monetary Unit (EMU) to its customers residing in the European union.
The Company's information systems are capable of functioning in multiple
currencies. The Company has already started to make system changes to make all
infrastructures capable of operations in the EMU. The Company does not expect to
incur significant expenses for these system changes. The Company does not expect
any disruption in operations due to the EMU implementation.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Potential Earnings Fluctuations. We attempt to plan our business to achieve
predictable revenue and earnings growth. Achieving predictable revenue and
earnings growth is difficult. Quarterly revenue and earnings are affected by
many factors, including customer product and service demand, product license
terms, the size of our backlog, and the timing of revenue recognition on
products and services sold. The following factors could affect our revenues and
earnings in a particular quarter or over several quarterly or annual periods:
- - Our orders are seasonal. Historically, our first fiscal quarter (ending
December 31) has been our weakest.
- - Our products are complex, and before buying them potential customers spend a
great deal of time reviewing and testing them. This is particularly true if
they are new customers or current customers purchasing a new product or
switching from a competitor's product. The sales cycle does not necessarily
match quarterly periods, and if by the end of any quarter we have not sold
enough new licenses, our orders and revenues could be below our plan.
- - Like many companies in the software industry, we receive a disproportionate
volume of orders in the last week of a quarter, and recognize a
disproportionate amount of revenue in the last week of a quarter. In
addition, a large proportion of our business is attributable to our largest
customers. As a result, if any order, and especially a large order, is
delayed beyond the end of a fiscal period, our orders and revenue for that
period could be below our plan.
- - The accounting rules we are required to follow permit us to recognize
revenue only when certain criteria are met. Orders for certain of our
products and services, including certain time-based product licenses,
consulting services, and software support, yield revenue (or a significant
portion thereof) over multiple
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quarters (often extending beyond the current fiscal year) or upon completion
of performance rather than at the time of sale. In addition, in negotiating
a purchase order with a customer, we may agree to terms that have the effect
of requiring deferral of revenue in whole or in part. Therefore, for a given
quarter, it is possible for us to fall short in our revenue and/or earnings
plan even while orders and backlog remain on plan or, conversely, to meet
our revenue and/or earnings plan by drawing on backlog and deferred revenue
while orders are under plan.
Competition. The EDA industry is highly competitive. We compete against
other EDA vendors, and with customers' internally developed design tools and
internal design capabilities, for a share of the overall EDA budgets of our
customers. In general, competition is based on product quality and features,
post-sale support, price and, as discussed below, the ability to offer a
complete design flow. Our competitors include companies that offer a broad range
of products and services, such as Cadence Design Systems, Inc. (Cadence), Mentor
Graphics, Inc. (Mentor) and Avant! Corporation (Avant!), as well as companies,
including numerous start-up companies, that offer products focused on a discrete
phase of the integrated circuit design process. Synopsys' competitors continue
to offer aggressive discounts on their products, in particular on synthesis and
Verilog simulation products. If this behavior continues, overall pricing for EDA
products may be affected. In order to remain successful against such
competition, we must continue to enhance our current products and bring to
market new products that address the needs of our customers. We also will have
to expand our consulting services business. The failure to enhance existing
products, develop and/or acquire new products or to expand our ability to offer
such business would have a material adverse effect on our business, financial
condition and results of operations.
Technology advances and customer requirements are fueling a change in the
nature of competition among EDA vendors. Increasingly, EDA companies compete on
the basis of "design flows" involving a broad range of products (including both
logic and physical design tools) and services rather than on the basis of
individual "point" tools performing a discrete phase of the design process. No
single EDA company currently offers its customers industry-leading products in a
complete design flow. We offer a wide range of logic design tools but currently
offer a relatively limited range of physical design tools. In November 1998 we
acquired Everest, a private company developing physical design software and in
March 1999 acquired Gambit, which provides physical design tools and services.
We are also attempting to expand our capacity to offer professional services,
but for the foreseeable future will continue to have less capacity than Cadence
to provide such services. The market for physical design tools is dominated by
Cadence and Avant!, both of which are attempting to complete their design flows.
Cadence has recently acquired companies offering synthesis and other logic
design products, as well as certain physical design verification products. Each
of these acquisitions has increased the direct competition between Synopsys and
Cadence. In addition, Cadence's acquisition of logic design products may lead to
reductions in purchases of our logic design software by Cadence, which was one
of Synopsys' ten largest customers in fiscal 1998. Avant! also recently acquired
a private company offering logic synthesis software, which will increase the
direct competition between Synopsys and Avant!.
Success of Non-Synthesis Products. Historically, much of the Company's
growth has been attributable to the strength of its logic synthesis products.
Opportunities for growth in market share in this area are limited, and synthesis
revenues are expected to grow more slowly than our target for overall revenue
growth. In order to meet our revenue plan, revenue from our non-synthesis design
creation products, certain high level verification products, deep submicron
products and professional services must grow faster than our overall revenue
growth target. During the second quarter of fiscal 1999, revenue from design
creation products grew at approximately the same rate as the Company's overall
revenue growth rate, revenue from design verification products grew more slowly
than the overall corporate rate, and revenue from deep submicron products grew
faster than the overall corporate growth rate. Among the products that we expect
to be the most important contributors to revenue growth are our PrimeTime(R)
timing analysis, Formality(R) formal verification, Module Compiler(TM) datapath
synthesis, VCS(TM) Verilog simulation and EPIC(R) deep submicron analysis and
verification products. If revenue growth for these products fails to meet our
goals, it is unlikely that we will meet our overall revenue growth target.
In order to sustain revenue growth over the long term, we will have to
introduce new products that are accepted by a broad range of customers and to
significantly expand our consulting services business. Product success is
difficult to predict. The introduction of new products and growth of a market
for such products cannot be assured. In the past we, like all companies, have
had products that have failed to meet our revenue
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expectations. Expanding revenue from consulting services will require us to
recruit, hire and train a large number of skilled employees, and to implement
management controls on bidding and executing on services engagements. The
consulting business is significantly different from the software business,
however, and increasing consulting orders and revenue while maintaining an
adequate level of profit can be difficult. There can be no assurance that we
will be successful in expanding revenue from existing or new products at the
desired rate or in expanding our services business, and the failure to do so
would have a material adverse effect on our business, financial condition and
results of operations.
Integration of Acquired Businesses. We have acquired or merged with a number
of companies in recent years, including EPIC Design Technology, Inc., Viewlogic,
Systems Science, Inc., Everest, Gambit and Smartech, and as part of our efforts
to expand our product and services offerings, we may acquire additional
companies in the future. In addition to direct costs, acquisitions pose a number
of risks, including potential dilution of earnings per share, problems of
integrating the acquired products and employees into our business, the failure
to realize expected synergies or cost savings, the drain on management time for
acquisition-related activities, possible adverse effects on customer buying
patterns due to uncertainties resulting from an acquisition, and assumption of
unknown liabilities. While we attempt to review proposed acquisitions carefully
and negotiate terms that are favorable to the Company, there is no assurance
that any individual acquisition will have the projected effect on the Company's
performance.
Dependence on Semiconductor and Electronics Business. Our business has
benefited from the rapid worldwide growth of the semiconductor industry.
Purchases of our products are largely dependent upon the commencement of new
design projects by semiconductor manufacturers and their customers. Despite
recent indications of a recovery in the semiconductor industry, the outlook for
fiscal 1999 is uncertain, owing in part to continuing adverse economic
conditions in Asia. A number of our customers have announced layoffs of their
employees, restructurings or the suspension of investment plans. The effect of
such developments on demand from these customers is difficult to predict, but,
as a result of such actions, their EDA budgets could be reduced, alone or as
part of overall expense control efforts. In addition, there have been a number
of mergers in the semiconductor and systems industries, which may reduce the
aggregate level of purchases of our products and services by the combined
companies. Slower growth in the semiconductor and systems industries, a reduced
number of design starts, tightening of customers' operating budgets or continued
consolidation among our customers may have a material adverse effect on our
business, financial condition and results of operations.
International Exposure. In the second quarter of fiscal 1999, international
revenue accounted for 41.3% of our revenue, compared to 37.4% of revenue in the
second quarter of fiscal 1998. For the first half of fiscal 1999, international
revenue was 38.4% of total revenue compared to 39.4% for the same period of the
prior year. We expect that international revenue will continue to account for a
significant portion of our revenue in the future. As a result, the Company's
performance may be negatively affected by changes in foreign currency exchange
rates and changes in regional or worldwide economic or political conditions. In
particular:
- - Revenue from sales to end users in Japan during fiscal 1998 and the first
half of fiscal 1999 was adversely affected by overall weakness in the
Japanese economy, and the deferral of investments in semiconductor
facilities and technology by Japanese companies. If the Japanese economy
remains weak, revenue from Japan, and the rest of Asia, during the rest of
fiscal 1999 will be adversely affected. The yen-dollar exchange rate remains
subject to unpredictable fluctuations. Weakness of the yen could adversely
affect revenue from Japan during future quarters.
- - Significant declines in the value of the Korean won during fiscal 1998 and
the subsequent economic crisis had a significant adverse effect on our
orders and revenue from Korea during fiscal 1998, and are likely to continue
to affect our business in Korea in fiscal 1999. In addition, two of our four
largest Korean customers are merging, which may result in a lower level of
orders from the combined company than we might have received if the two
companies remained separate
- - Asian countries other than Japan and Korea also have experienced economic
and currency problems. If such conditions persist through the rest of fiscal
1999, orders and revenues from the Asia Pacific region would be adversely
affected.
Need to Recruit and Retain Key Personnel. Our success is dependent on
technical and other contributions of key employees. We participate in a dynamic
industry, with significant start-up activity, and our headquarters is in Silicon
Valley, where skilled technical, sales and management employees are in high
demand. There are a limited number of qualified EDA engineers, and the
competition for such individuals is intense. Experience at
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Synopsys is highly valued in the EDA industry, and our employees are recruited
aggressively by our competitors and by start-up companies, including those in
internet-related businesses. Our salaries are competitive in the market, but
under certain circumstances, start-up companies can offer more attractive stock
option packages. As a result, we have experienced, and may continue to
experience, significant employee turnover. In addition, there can be no
assurance that we can continue to recruit and retain key personnel. Failure to
successfully recruit and retain such personnel could have a material adverse
effect on our business, financial condition and results of operations.
Poison Pill Provisions. Synopsys has adopted a number of provisions that
could have anti-takeover effects. The Board of Directors has adopted a Preferred
Shares Rights Plan, commonly referred to as a "poison pill." In addition, the
Board of Directors has the authority, without further action by its
stockholders, to issue additional shares of Common Stock and to fix the rights
and preferences of, and to issue authorized but undesignated shares of Preferred
Stock. These and other provisions of Synopsys' Restated Certificate of
Incorporation and Bylaws and the Delaware General Corporation Law may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which the
stockholders of the Company might otherwise receive a premium for their shares
over then current market prices.
Year 2000. We presently believe that we will not experience significant
operational problems arising from the Year 2000 problem (i.e., the inability of
certain computer programs to correctly process date information on or after
January 1, 2000). However, if unforeseen Year 2000 issues arise with respect to
Synopsys products, one or more important customers experiences Year 2000-related
problems that interferes with their purchases of Synopsys products, or we are
not able to identify and fix Year 2000 problems relating to the computer systems
and software we rely on to run our business, we may experience a disruption in
our business, which could have a material adverse impact on our business,
financial condition and results of operations.
Change in Financial Accounting Standards. We prepare our financial
statements in conformity with generally accepted accounting principles (GAAP).
GAAP are subject to interpretation by the AICPA, the SEC and various bodies
formed to interpret and create appropriate accounting policies. A change in
these policies can have a significant effect on our reported results, and may
even affect our reporting of transactions completed before a change is
announced.
For example, recent developments in the way the SEC views in-process
research and development (IPRD) charges has made it difficult to predict with
confidence the financial statement effects of acquisitions accounted for by the
purchase method of accounting. The Financial Accounting Standards Board (FASB),
an accounting standards group working under the aegis of the SEC, is considering
whether to recommend the elimination of IPRD charges altogether. In addition,
FASB recently announced that it will issue a proposal to eliminate
pooling-of-interests accounting treatment for acquisitions. Each of these
changes may affect the Company's future merger and acquisition activity by
affecting the Company's accounting for such transactions. Future mergers and
acquisitions (and, depending upon the effective date of any changes, perhaps
already-completed transactions) would result in a relatively greater amount of
goodwill on the Company's balance sheet, and of the corresponding amortization
expense in the Company's income statement. Accounting policies affecting many
other aspects of our business, including rules relating to software revenue
recognition, employee stock purchase plans and stock option grants have recently
been revised or are under review by one or more accounting authorities. Changes
to these rules, or the questioning of current practices, may have a significant
adverse effect on our reported financial results or in the way we conduct our
business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information relating to quantitative and qualitative disclosure about
market risk is set forth under the captions "Interest Rate Risk" and "Foreign
Currency Risk" in Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations. Such information is incorporated herein.
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PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 1, 1999, the Annual Meeting of Stockholders of Synopsys, Inc. was
held in Mountain View, California. Five matters were submit to the stockholders
for action or approval.
1. The stockholders elected nine directors to hold office for a one-year
term or until their respective successors are elected. The votes for
these directors are set forth below.
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
Aart J. de Geus 60,982,534 1,730,622
Andy D. Bryant 60,986,084 1,727,072
Chi-Foon Chan 60,986,913 1,726,243
Deborah A. Coleman 60,979,168 1,733,988
Harvey C. Jones, Jr. 60,953,846 1,759,310
William W. Lattin 60,985,656 1,727,500
A. Richard Newton 60,939,613 1,773,543
Sasson Somekh 60,860,443 1,852,713
Steven C. Walske 60,960,349 1,752,807
2. The stockholders approved an amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the number of shares
of Common Stock that the Company is authorized to issue from 100,000,000
to 200,000,000 shares.
For Against Abstain
--- ------- -------
48,673,603 14,023,300 16,253
3. The stockholders approved an amendment to the Company's Employee Stock
Purchase Plan and International Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,500,000 shares.
For Against Abstain
--- ------- -------
56,893,949 5,775,223 43,984
4. The stockholders approved an amendment to the Company's 1994
Non-Employee Directors Stock Option Plan to increase the number of
Common Stock reserved each year for issuance thereunder to 150,000
shares.
For Against Abstain
--- ------- -------
40,538,012 22,133,528 41,616
5. The stockholders approved a proposal to ratify the appointment of KPMG
LLP as the Company's independent auditors for the fiscal year ending
October 2, 1999.
For Against Abstain
--- ------- -------
62,673,047 18,753 21,356
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
3(i) Amended and Restated Certificate of Incorporation
3(ii) Bylaws
27 Financial Data Schedule
(b.) Reports on Form 8-K
The Company filed a report on Form 8-K on January 25, 1999 containing
the Company's press release announcing its financial results for the
quarter ended December 31, 1998, including condensed consolidated
statements of operations and balance sheets.
The Company filed a report on Form 8-K on April 23, 1999 containing
the Company's press release announcing its financial results for the
quarter ended April 3, 1999, including condensed consolidated
statements of income and balance sheets.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNOPSYS, INC.
By: /s/ David M. Sugishita
--------------------------------------------
David M. Sugishita
Sr. Vice President, Finance & Operations
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 10, 1999
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EXHIBIT INDEX
Exhibits
3(i) Amended and Restated Certificate of Incorporation
3(ii) Bylaws
27 Financial Data Schedule
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