Item 2.02 Results of Operations and Financial Condition.
On December 2, 2020, Synopsys, Inc. ("Synopsys") issued a press release
announcing the financial results of its fourth fiscal quarter and fiscal year
ended October 31, 2020. A copy of this press release is furnished and attached
hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this Current Report, including the exhibit hereto, shall not
be deemed to be "filed" for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, or otherwise subject to the liabilities of that section
or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The
information contained herein and in the accompanying exhibit shall not be
incorporated by reference into any registration statement or other document
filed with the Securities and Exchange Commission by Synopsys whether made
before or after the date hereof, regardless of any general incorporation
language in such filing, except as shall be expressly set forth by specific
reference in such filing.
The attached press release includes measures that are not in accordance with, or
an alternative for, U.S. generally accepted accounting principles ("GAAP"). The
attached press release includes non-GAAP earnings per share, non-GAAP net
income, targeted non-GAAP expenses, and targeted non-GAAP earnings per share.
These non-GAAP measures may be different from non-GAAP measures used by other
companies. In addition, these non-GAAP measures are not based on any
comprehensive set of accounting rules or principles, and management exercises
judgment in determining which items should be excluded in the calculation of
non-GAAP measures. While we believe that non-GAAP measures have limitations in
that they do not reflect all of the amounts associated with our results of
operations as determined in accordance with GAAP, we believe that non-GAAP
measures are valuable in analyzing our core operations. Management analyzes
current and future results on a GAAP basis as well as a non-GAAP basis and also
provides GAAP and non-GAAP measures in our earnings release. The presentation of
non-GAAP financial information is not meant to be considered in isolation or as
a substitute for the directly comparable financial measures prepared in
accordance with GAAP. The non-GAAP financial measures are meant to supplement,
and be viewed in conjunction with, GAAP financial measures. We believe that the
presentation of non-GAAP measures, when shown in conjunction with the
corresponding GAAP measures, provides useful information to investors and
management regarding financial and business trends relating to our financial
condition and results of operations.
Synopsys' management evaluates and makes decisions about our business operations
primarily based on the income and costs that management believes are directly
related to Synopsys' core operations, both from a company-wide basis and on a
business segment basis. For our internal budgeting and resource allocation
process, and in reviewing our financial results, we use non-GAAP financial
measures that exclude: (i) the amortization of acquired intangible assets;
(ii) the impact of stock compensation; (iii) acquisition-related costs;
(iv) restructuring charges; (v) the effects of certain settlements, final
judgments and loss contingencies related to legal proceedings; and (vi) the
income tax effect of non-GAAP pre-tax adjustments. We also utilize a normalized
annual non-GAAP tax rate in the calculation of our non-GAAP measures, as further
We use these non-GAAP financial measures in making our operating decisions
because we believe the measures provide meaningful supplemental information
regarding our core operational performance and give us a better understanding of
how we should invest in research and development, as well as fund infrastructure
and product and market strategies. We use these measures to help us make
budgeting decisions, for example, among product development expenses and
research and development, sales and marketing, and general and administrative
expenses. In addition, these non-GAAP financial measures facilitate our internal
comparisons to our historical operating results, forecasted targets and
comparisons to competitors' operating results.
Synopsys provides segment information, namely adjusted segment operating income
and adjusted segment operating margin, in accordance with FASB Accounting
Standards Codification Topic 280, Segment Reporting. These measures reflect how
management evaluates the operating performance of its segments. In evaluating
our business segments, management considers the income and costs that management
believes are directly related to those segments. The items mentioned above that
are excluded from non-GAAP measures are the same items that management does not
allocate to the segments to evaluate their performance. Similarly, Synopsys does
not allocate changes in the fair value of its non-qualified deferred
compensation plan because these changes typically do not require cash settlement
and they are not used by us to assess the core profitability of our business
As described above, we exclude the following items from one or more of our
(i) Amortization of acquired intangible assets. We incur expenses from
amortization of acquired intangible assets, which include contract rights,
core/developed technology, trademarks, trade names, customer relationships,
covenants not to compete, and other intangibles related to acquisitions. We
amortize the intangible assets over their economic lives. We exclude this item
because the expense is non-cash in nature and because we believe the non-GAAP
financial measures excluding this item provide meaningful supplemental
information regarding (a) our core operational performance and liquidity, and
(b) our ability to invest in research and development and fund acquisitions and
(ii) Stock compensation impact. While stock compensation expense constitutes an
ongoing and recurring expense, such expense is excluded from non-GAAP results
because it is not an expense that typically requires or will require cash
settlement by us and because such expense is not used by us to assess the core
profitability of our business operations. In addition, excluding this item from
various non-GAAP measures facilitates comparisons to our competitors' operating
(iii) Acquisition-related costs. In connection with our business combinations,
we incur significant expenses which we would not have otherwise incurred as part
of our business operations. These expenses include compensation expenses,
professional fees and other direct expenses, concurrent restructuring
activities, including employee severance and other exit costs, changes to the
fair value of contingent consideration related to the acquired company, and
amortization of the fair value difference of below-market value assets arising
from arrangements entered into or acquired in conjunction with an acquisition.
We exclude such expenses, which we would not have otherwise incurred, as they
are related to acquisitions and have no direct correlation to the operation of
(iv) Restructuring charges. We initiate restructuring activities in order to
align our costs in connection with both our operating plans and our business
strategies based on then-current economic conditions. The amounts of the
restructuring activities and frequency of occurrence may vary from time to time.
Restructuring costs generally include severance and other termination benefits
related to voluntary retirement programs and involuntary headcount reductions as
well as facilities closures. Such restructuring costs include elimination of
operational redundancy and permanent reductions in workforce and facilities
closures and, therefore, are not considered by us to be a part of the core
operation of our business and not used by us when assessing the core
profitability and performance of our business operations. Furthermore, excluding
this item from various non-GAAP measures facilitates comparisons to our
competitors' and our past operating results.
(v) Legal matters. From time to time we are party to legal proceedings,
including tax-related matters. Legal proceedings could result in an expense or
benefit due to settlements, final judgments, or accruals for loss contingencies.
We exclude these types of expenses or benefits because we do not believe they
are reflective of the core operation of our business.
(vi) Income tax effect of non-GAAP pre-tax adjustments. Excluding the income tax
effect of non-GAAP pre-tax adjustments from the provision for income taxes
assists investors in understanding the tax provision associated with those
adjustments and the effect on net income.
We utilize a normalized annual non-GAAP tax rate in calculating non-GAAP
financial measures to provide better consistency across interim reporting
periods by eliminating the effects of non-recurring and period-specific items
such as tax audit settlements, which can vary in size and frequency and not
necessarily reflect our normal operations, and to more clearly align our tax
rate with our expected geographic earnings mix. In projecting this rate, we
evaluate our historical and projected mix of U.S. and international profit
before tax, excluding the impact of the non-GAAP adjustments described above. We
also consider other factors including our current tax structure, our existing
tax positions, and expected recurring tax incentives.
On an annual basis we re-evaluate this rate for significant events, including
changes in tax laws and regulations, that may materially affect our projections.
Based upon our review, our projected normalized annual non-GAAP tax rate remains
16% through fiscal 2021.
Item 9.01 Financial Statements and Exhibits.
Number Exhibit Title
99.1 Press release dated December 2, 2020 containing Synopsys, Inc.'s
results of operations for its fourth fiscal quarter and fiscal year
ended October 31, 2020.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
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