Mentor Graphics Corp. (NASDAQ:MENT) today announced that the
company will release financial results for the fiscal fourth
quarter, ended January 31, 2011, on Thursday, February 24, 2011 at
approximately 4:15 p.m. Eastern time. A conference call with
investors to discuss the financial results is scheduled for 5:00
p.m. Eastern time.
The company today affirmed that it expects to meet or exceed its
outlook for the fiscal fourth quarter and full fiscal year 2011, as
provided on November 19, 2010. This guidance was for revenue of
about $293 million, non-GAAP earnings per share of approximately
$0.46, and GAAP earnings per share of about $0.40 for the fourth
quarter, up from reported revenues of $237.1 million, non-GAAP
earnings per share of $0.30, and GAAP earnings per share of $0.39
for the fourth quarter of the preceding fiscal year. For the full
fiscal year ending January 31, 2011, the company expected revenue
in the range of $900 million, non-GAAP earnings per share of about
$0.67, and GAAP earnings per share of approximately $0.19, as
compared to reported revenues of $802.7 million, non-GAAP earnings
per share of $0.47, and a GAAP loss per share of $0.23 for the
preceding fiscal year. For a reconciliation of GAAP to non-GAAP
guidance, see “Discussion of Non-GAAP Financial Measures”
below.
Mentor Graphics’ board and management team are focused on
delivering shareholder value. The company’s share price has grown
by more than 70% over the last year and it also grew by more than
70% during the prior year period, for a two year growth of
approximately 200%, significantly outperforming its peer group and
the market.
Webcast Participation
- Live audio webcast at
http://www.mentor.com/company/investor_relations. Please register
at this website prior to the scheduled call time of 5:00 p.m.
Eastern time.
- Conference call replay: Begins February
24, 2011 (7:00 p.m. Eastern time); Ends March 4, 2011 (3:00 a.m.
Eastern time). USA 800-475-6701; International 320-365-3844; Access
code: 192453
About Mentor Graphics
Mentor Graphics Corporation (NASDAQ: MENT) is a world leader in
electronic hardware and software design solutions, providing
products, consulting services and award-winning support for the
world’s most successful electronic, semiconductor and systems
companies. Established in 1981, the company reported revenues over
the last 12 months of about $850 million. Corporate headquarters
are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon
97070-7777. World Wide Web site: http://www.mentor.com/.
(Mentor Graphics and Mentor are registered trademarks of Mentor
Graphics Corporation. All other company or product names are the
registered trademarks or trademarks of their respective
owners.)
Statements in this press release regarding the company’s
guidance for future periods constitute “forward-looking” statements
based on current expectations within the meaning of the Securities
Exchange Act of 1934. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the company or
industry results to be materially different from any results,
performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: (i) the company’s ability to successfully offer
products and services that compete in the highly competitive EDA
industry; (ii) product bundling or discounting of products and
services by competitors; (iii) effects of foreign currency
fluctuations on the company’s business; (iv) changes in accounting
or reporting rules or interpretations; (v) the impact of tax
audits, or changes in the tax laws, regulations or enforcement
practices; (vi) effects of unanticipated shifts in product mix
on gross margin; and (vii) effects of customer seasonal
purchasing patterns and the timing of significant orders which may
negatively or positively impact the company’s quarterly results of
operations and liquidity, all as may be discussed in more detail
under the heading “Risk Factors” in the company’s most recent Form
10-K or Form 10-Q. Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking
statements. In addition, statements regarding guidance do not
reflect potential impacts of mergers or acquisitions that have not
been announced or closed as of the time the statements are made.
Mentor Graphics disclaims any obligation to update any such factors
or to publicly announce the results of any revisions to any of the
forward-looking statements to reflect future events or
developments.
Fiscal Year Definition
Mentor Graphics fiscal year runs from February 1 to January 31.
The fiscal year is dated by the calendar year in which the fiscal
year ends. As a result, the first three fiscal quarters of any
fiscal year will be dated with the next calendar year, rather than
the current calendar year.
Discussion of Non-GAAP Financial Measures
Mentor Graphics management evaluates and makes operating
decisions using various performance measures. In addition to our
GAAP results, we also consider adjusted gross margin, operating
margin, net income (loss), and earnings (loss) per share which we
refer to as non-GAAP gross margin, operating margin, net income
(loss), and earnings (loss) per share, respectively. These non-GAAP
measures are derived from the revenues of our product, maintenance,
and services business operations and the costs directly related to
the generation of those revenues, such as cost of revenue, research
and development, sales and marketing, and general and
administrative expenses, that management considers in evaluating
our ongoing core operating performance. These non-GAAP measures
exclude amortization of intangible assets, special charges, equity
plan-related compensation expenses and charges, interest expense
attributable to net retirement premiums or discounts on the early
retirement of debt and associated debt issuance costs, interest
expense associated with the amortization of debt discount and
premium on convertible debt, impairment of long-lived assets,
impairment of cost method investments, and the equity in income or
losses of unconsolidated entities, which management does not
consider reflective of our core operating business.
Identified intangible assets consist primarily of purchased
technology, backlog, trade names, customer relationships, and
employment agreements. Special charges primarily consist of costs
incurred for employee terminations due to a reduction of personnel
resources driven by modifications of business strategy or business
emphasis. Special charges may also include expenses incurred
related to potential acquisitions, abandonment of in-process
research and development, excess facility costs, asset-related
charges, post-acquisition rebalance costs and restructuring costs,
including severance and benefits. Equity plan-related compensation
expenses represent the fair value of all share-based payments to
employees, including grants of employee stock options. For purposes
of comparability across other periods and against other companies
in our industry, non-GAAP net income (loss) is adjusted by the
amount of additional tax expense or benefit that we would accrue
using a normalized effective tax rate applied to the non-GAAP
results.
Management excludes from our non-GAAP measures certain recurring
items to facilitate its review of the comparability of our core
operating performance on a period-to-period basis because such
items are not related to our ongoing core operating performance as
viewed by management. Management considers our core operating
performance to be that which can be affected by our managers in any
particular period through their management of the resources that
affect our underlying revenue and profit generating operations
during that period. Management uses this view of our operating
performance for purposes of comparison with our business plan and
individual operating budgets and allocation of resources.
Additionally, when evaluating potential acquisitions, management
excludes the items described above from its consideration of target
performance and valuation. More specifically, management adjusts
for the excluded items for the following reasons:
- Amortization charges for our intangible
assets are excluded as they are inconsistent in amount and
frequency and are significantly impacted by the timing and
magnitude of our acquisition transactions. We therefore consider
our operating results without these charges when evaluating our
core performance. Generally, the most significant impact to
inter-period comparability of our net income (loss) is in the first
twelve months following an acquisition.
- Special charges are incurred based on
the particular facts and circumstances of acquisition and
restructuring decisions and can vary in size and frequency. These
charges are excluded as they are not ordinarily included in our
annual operating plan and related budget due to the
unpredictability of economic trends and the rapidly changing
technology and competitive environment in our industry. We
therefore exclude them when evaluating our managers' performance
internally.
- We view equity plan-related
compensation as a key element of our employee retention and
long-term incentives, not as an expense that we use in evaluating
core operations in any given period.
- Interest expense attributable to net
retirement premiums or discounts on the early retirement of debt,
the write-off of associated debt issuance costs and the
amortization of the debt discount and premium on convertible debt
are excluded. Management does not consider these charges as a part
of our core operating performance. The early retirement of debt and
the associated debt issuance costs are not included in our annual
operating plan and related budget due to unpredictability of market
conditions which could facilitate an early retirement of debt. We
do not consider the amortization of the debt discount and premium
on convertible debt to be a direct cost of operations.
- Impairment of cost method investments
can occur when the fair value of the investment is less than its
cost. This can occur when there is a significant deterioration in
the investee’s earnings performance, significant adverse changes in
the general market conditions of the industry in which the investee
operates, or indications that the investee may no longer be able to
conduct business. These charges are inconsistent in amount and
frequency. We therefore consider our operating results without
these charges when evaluating our core performance.
- Equity in earnings or losses of
unconsolidated subsidiaries, with the exception of our investment
in Frontline P.C.B. Solutions Limited Partnership (Frontline),
represents the net income (losses) in an investment accounted for
under the equity method. The amounts represent our equity in the
net income (losses) of a common stock investment. The carrying
amount of our investment is adjusted for our share of earnings or
losses of the investee. The amounts are excluded as we do not
control the results of operations for these investments, we do not
participate in regular and periodic operating activities and
management does not consider these businesses a part of our core
operating performance.
- In connection with the Company’s
acquisition of Valor on March 18, 2010, we also acquired Valor’s
50% interest in a joint venture, Frontline P.C.B. Solutions Limited
Partnership (“Frontline”). We report our equity in the earnings or
losses of Frontline within operating income. We actively
participate in regular and periodic activities such as budgeting,
business planning, marketing and direction of research and
development projects. Accordingly, we do not exclude our share of
Frontline’s earnings or losses from our non-GAAP results as
management considers the joint venture to be core to our operating
performance.
- Income tax expense (benefit) is
adjusted by the amount of additional tax expense or benefit that we
would accrue if we used non-GAAP results instead of GAAP results in
the calculation of our tax liability, taking into consideration our
long-term tax structure. We use a normalized effective tax rate of
17%, which reflects the weighted average tax rate applicable under
the various jurisdictions in which we operate. This non-GAAP tax
rate eliminates the effects of non-recurring and period specific
items which are often attributable to acquisition decisions and can
vary in size and frequency and considers our US loss carryforwards
that have not been previously benefited. This rate is subject to
change over time for various reasons, including changes in the
geographic business mix and changes in statutory tax rates. The
GAAP tax rate considers certain mandatory and other non-scalable
tax costs which may adversely or beneficially affect our tax rate
depending upon our level of profitability in various
jurisdictions.
In certain instances our GAAP results of operations may not be
profitable when our corresponding non-GAAP results are profitable
or vice versa. The number of shares on which our non-GAAP earnings
per share is calculated may therefore differ from the GAAP
presentation due to the anti-dilutive effect of stock options in a
loss situation.
Non-GAAP gross margin, operating margin, and net income (loss)
are supplemental measures of our performance that are not required
by, or presented in accordance with, GAAP. Moreover, they should
not be considered as an alternative to any performance measure
derived in accordance with GAAP, or as an alternative to cash flow
from operating activities as a measure of our liquidity. We present
non-GAAP gross margin, operating margin, and net income (loss)
because we consider them to be important supplemental measures of
our operating performance and profitability trends, and because we
believe they give investors useful information on period-to-period
performance as evaluated by management. Non-GAAP net income (loss)
also facilitates comparison with other companies in our industry,
which use similar financial measures to supplement their GAAP
results. Non-GAAP net income (loss) has limitations as an
analytical tool, and therefore should not be considered in
isolation or as a substitute for analysis of our results as
reported under GAAP. In the future we expect to continue to incur
expenses similar to the non-GAAP adjustments described above and
exclusion of these items in our non-GAAP presentation should not be
construed as an inference that these costs are unusual, infrequent
or non-recurring. Some of the limitations in relying on non-GAAP
net income (loss) are:
- Amortization of intangibles represents
the loss in value as the technology in our industry evolves, is
advanced, or is replaced over time. The expense associated with
this loss in value is not included in the non-GAAP net income
(loss) presentation and therefore does not reflect the full
economic effect of the ongoing cost of maintaining our current
technological position in our competitive industry, which is
addressed through our research and development program.
- We regularly engage in acquisition and
assimilation activities as part of our ongoing business and
regularly evaluate our businesses to determine whether any
operations should be eliminated or curtailed. We therefore will
continue to experience special charges on a regular basis. These
costs also directly impact our available funds.
- We perform impairment analyses on cost
method investments when triggering events occur and adjust the
carrying value of assets when we determine it to be necessary.
Impairment charges could therefore be incurred in any period.
- Our stock option and stock purchase
plans are important components of our incentive compensation
arrangements and will be reflected as expenses in our GAAP
results.
- Our income tax expense (benefit) will
be ultimately based on our GAAP taxable income and actual tax rates
in effect, which often differ significantly from the 17% rate
assumed in our non-GAAP presentation. In addition, if we have a
GAAP loss and non-GAAP net income, our non-GAAP results will not
reflect any projected GAAP tax benefits. Similarly, in the event we
were to have GAAP net income and a non-GAAP loss, our GAAP tax
expense would be replaced by a credit in our non-GAAP
presentation.
- Other companies, including other
companies in our industry, calculate non-GAAP net income (loss)
differently than we do, limiting its usefulness as a comparative
measure.
Important Information
This release may be deemed to be solicitation material in
respect of the solicitation of proxies from shareholders in
connection with the company’s 2011 annual meeting of shareholders.
The company, its directors and certain of its executive officers
and employees may be deemed to be participants in such
solicitation. The company will file a proxy statement with the
Securities and Exchange Commission (the “SEC”) in connection with
its 2011 annual meeting of shareholders. The proxy statement, any
other relevant documents and other material filed with the SEC
concerning the company will be, when filed, available free of
charge at http://www.sec.gov and
http://www.mentor.com/company/investor_relations. Shareholders are
urged to read the proxy statement and any other relevant documents
filed when they become available because they will contain
important information.
Information Regarding Participants
The company, its directors and certain of its executive officers
and employees may be deemed to be participants in the solicitation
of proxies from shareholders in connection with the company’s 2011
annual meeting of shareholders. Information concerning these
participants is available in the company’s proxy statement for the
2010 annual meeting of shareholders filed with the SEC on May 28,
2010, and in subsequent SEC filings on Forms 3, 4 and 5.
Shareholders are advised to read the company’s proxy statement for
the 2011 annual meeting of shareholders and other relevant
documents when they become available, because they will contain
important information, including information with respect to such
participants. You can obtain free copies of these referenced
documents as described above.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three
Months Ended
January 31,
Twelve
Months Ended
January 31,
2010 2010 GAAP net income
(loss) $ 39,367 $ (21,889 ) Non-GAAP adjustments: Equity
plan-related compensation: (1) Cost of revenues 300 1,618 Research
and development 2,052 10,931 Marketing and selling 1,622 8,406
General and administration 1,209 5,204 Acquisition - related items:
Amortization of purchased intangible assets Cost of revenues (2)
3,047 12,012 Amortization of intangible assets (3) 2,630 11,184
Special charges (4) 5,444 21,334 Other income (expense), net (5)
257 1,108 Interest expense (6) 713 2,410 Income tax effects (7)
(25,877 ) (7,028 ) Total of non-GAAP adjustments
(8,603 ) 67,179 Non-GAAP net income $ 30,764
$ 45,290 GAAP weighted average shares
(diluted)* 101,750 96,474 Non-GAAP adjustment -
1,901 Non-GAAP weighted average shares (diluted)*
101,750 98,375 GAAP net income
(loss) per share (diluted)* $ 0.39 $ (0.23 ) Non-GAAP adjustments
detailed above (0.09 ) 0.70 Non-GAAP net
income per share (diluted)* $ 0.30 $ 0.47 *
Diluted GAAP and non-GAAP net income per share for the three months
ended January 31, 2010 includes $125 of convertible debt interest,
net of tax, added back to GAAP and non-GAAP net income and
corresponding 1,379 dilutive shares added to the weighted average
number of shares outstanding. Diluted non-GAAP net income per share
for the twelve months ended January 31, 2010 includes $633 of
convertible debt interest, net of tax add back to non-GAAP net
income and corresponding 1,415 dilutive shares added to the
weighted average number of shares outstanding.
(1) Equity plan-related compensation
expense.
(2) Amount represents amortization of purchased
technology resulting from acquisitions. Purchased intangible assets
are amortized over two to five years.
(3) Other identified
intangible assets are amortized to other operating expense over two
to five years. Other identified intangible assets include trade
names, employment agreements, customer relationships, and deferred
compensation which are the result of acquisition transactions.
(4) Three months ended January 31, 2010: Special charges
consist of (i) $1,717 of costs incurred for employee rebalances
which includes severance benefits, notice pay, and outplacement
services, (ii) $1,547 related to the abandonment of excess leased
facility space, (iii) $1,175 in advisory fees, (iv) $405 related to
an asset abandonment, (v) $302 in lease restoration costs, and (vi)
$298 in acquisition costs. Twelve months ended January 31, 2010:
Special charges consist of (i) $10,713 of costs incurred for
employee rebalances which includes severance benefits, notice pay,
and outplacement services, (ii) $4,700 in advisory fees, (iii)
$2,530 related to the abandonment of excess leased facility space,
(iv) $2,067 in acquisition costs, (v) $566 related to a casualty
loss, (vi) $405 related to an asset abandonment, (vii) $302 in
lease restoration costs, and (viii) $51 in other costs.
(5)
Three months ended January 31, 2010: Loss of $257 on investment
accounted for under the equity method of accounting. Twelve months
ended January 31, 2010: Other income (expense), net consists of:
(i) loss of $995 on investment accounted for under the equity
method of accounting and (ii) an impairment of $113 for an
investment accounted for under the cost method.
(6) Three
months ended January 31, 2010: $713 in amortization of original
issuance debt discount. Twelve months ended January 31, 2010:
$2,764 in amortization of original issuance debt discount and
$(354) in discounts and unamortized debt costs related to a partial
redemption of the $110.0M convertible debt.
(7) Non-GAAP
income tax expense adjustment reflects the application of our
assumed normalized effective 17% tax rate, instead of our GAAP tax
rate, to our non-GAAP pre-tax income.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP TO NON-GAAP
EARNINGS PER
SHARE GUIDANCE
The following table reconciles management's estimates
of the specific items excluded from GAAP in the calculation of
expected non-GAAP loss per share for the periods shown below:
Q4 FY11 FY11 Diluted GAAP net
income per share $ 0.40 $ 0.19 Non-GAAP Adjustments: Amortization
of purchased intangible assets (1) $ 0.03 0.17 Amortization of
other identified intangible assets (2) $ 0.01 0.07 Equity
plan-related compensation (3) $ 0.05 0.20 Special charges (4) $
0.00 0.07 Other expense, net and interest expense (5) $ 0.01 0.03
Non-GAAP income tax effects (6) ($0.04 ) (0.06 )
Non-GAAP net income per share $ 0.46 $ 0.67
(1) Excludes
amortization of purchased intangible assets resulting from
acquisition transactions. Purchased intangible assets are amortized
over two to five years. The guidance for Q4 FY11 and Full Year FY11
assumes no additional acquisitions.
(2) Excludes
amortization of other identified intangible assets including trade
names, employment agreements, customer relationships, and deferred
compensation resulting from acquisition transactions. Other
identified intangible assets are amortized over two to five years.
The guidance for Q4 FY11 and Full Year FY11 assumes no additional
acquisitions.
(3) Excludes equity plan-related compensation
expense.
(4) Excludes special charges consisting primarily
of costs incurred for facility closures, employee rebalances (which
includes severance benefits, notice pay and outplacement services),
advisory legal fees, and acquisition costs. The guidance for Q4
FY11 and Full Year FY11 assumes no additional special charges.
(5) Reflects amortization of original issuance debt discount
and bond premium, net, equity in losses of unconsolidated entities,
and a premium on the partial redemption of convertible debt. The
guidance for Q4 FY11 and Full Year FY11 assumes no additional
equity in losses of unconsolidated entities or premium on the
partial redemption of convertible debt.
(6) Non-GAAP income
tax expense adjustment reflects the application of our assumed
normalized effective 17% tax rate, instead of our GAAP tax rate, to
our non-GAAP pre-tax income.
Mentor Graphics Corp. (NASDAQ:MENT)
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