Mentor Graphics Corporation (NASDAQ:MENT) today announced
results for the fiscal fourth quarter and full year ending January
31, 2011. For the full year, the company reported revenues of
$914.8 million, up 14% from fiscal year 2010, non-GAAP earnings per
share of $.70, a 49% increase, and GAAP earnings per share of $.25
compared to a GAAP loss per share of $.23 the prior year. For the
fiscal fourth quarter, the company reported revenues of $307.3
million, up 30% from the fourth quarter of the prior year, non-GAAP
earnings per share up 60% at $.48, and GAAP earnings per share of
$.43, up 10% from the prior fourth quarter.
“Driven by over 40% year-over-year bookings growth in our core
system design business, Mentor set an all-time revenue record this
past year, growing the fastest of the ‘Big 3’ EDA companies,” said
Walden C. Rhines, CEO and chairman of Mentor Graphics. “Mentor’s
decade-long emphasis on investment in system design software has
driven us to a near-50% market share in printed circuit board
design (PCB) software and an operating margin percent for PCB
software that is twice that of the overall company. We expect this
momentum to continue in this fiscal year as we achieve over 9%
growth in Mentor’s revenues and a much greater percentage growth in
earnings.”
During the quarter, the company teamed up with ARM to provide an
automated memory test and repair solution for ARM embedded memories
and processor cores. Mentor also combined Veloce® hardware
emulation technology with equipment from Rohde and Schwarz, the
largest test and measurement supplier in Europe, to deliver a
hardware-accelerated debug platform for wireless communication
systems-on-chip. The company collaborated with IBM, GLOBALFOUNDRIES
and Samsung to design a test chip for 32nm and 28nm IC
manufacturing technologies, using the Mentor® Olympus-SoCTM place
and route system and the Calibre® physical verification and design
for manufacturing platform. Mentor’s leading-edge products
continued to receive endorsements from customers such as Broadcom,
Infineon, Siemens, Fujitsu and Cypress Semiconductor.
In December, the company announced the acquisition of assets of
CodeSourcery, a leading provider of open source toolchains and
services for advanced embedded systems development. CodeSourcery
software enables customers to maximize the performance of hardware
platforms ranging from embedded devices to supercomputers.
“Cost controls remain an intense focus at Mentor Graphics,” said
Gregory K. Hinckley, president of Mentor Graphics. “We have reduced
SG&A expense as a percent of revenue by five hundred basis
points over the last two years, and are on track to reduce it
another two hundred basis points this fiscal year. We are committed
to continue to further reduce SG&A expense over the next
several fiscal years.”
Outlook
For the fiscal first quarter ending April 30, 2011, the company
expects revenue of about $225 million, non-GAAP earnings per share
of about $.15 and GAAP earnings per share of about $.06. For the
full year fiscal 2012, the company expects revenues to be
approximately $1 billion, non-GAAP earnings per share of about
$1.00 and GAAP earnings per share of approximately $.77. This
represents a 9% growth in revenue, over 40% growth in non-GAAP
earnings per share, and a non-GAAP operating margin of
approximately 15%.
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 (except Frontline P.C.B Solutions
Limited Partnership (Frontline)), 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 the normalized effective tax rate described below 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, 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 Frontline, a joint venture. 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. Our
GAAP tax rate for the fiscal year ended January 31, 2011 is 11%.
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.
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 $915 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, Mentor, Veloce, and Calibre are registered
trademarks and Olympus-SoC is a trademark 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) weakness or recession in the US, EU, Japan or
other economies; (ii) the company’s ability to successfully
offer products and services that compete in the highly competitive
EDA industry; (iii) product bundling or discounting of
products and services by competitors, which could force the company
to lower its prices or offer other more favorable terms to
customers; (iv) possible delayed or canceled customer orders
resulting from the business disruption and uncertainty of prolonged
proxy fights or offers to purchase the company’s securities; (v)
effects of the increasing volatility of foreign currency
fluctuations on the company’s business and operating results; (vi)
changes in accounting or reporting rules or interpretations;
(vii) the impact of tax audits by the IRS or other taxing
authorities, or changes in the tax laws, regulations or enforcement
practices where the company does business; (viii) effects of
unanticipated shifts in product mix on gross margin; and
(ix) effects of customer seasonal purchasing patterns and the
timing of significant orders may negatively or positively impact
the company’s quarterly results of operations, 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.
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 and 4. 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)
Three Months Ended January 31,
Twelve Months Ended January 31,
2011 2010
2011 2010 Revenues:
System and software $ 216,313 $ 153,847 $ 562,355 $ 479,493 Service
and support 90,992 83,288
352,398 323,234 Total revenues 307,305
237,135 914,753 802,727
Cost of revenues: (1) System and software 10,710
5,226 31,119 22,592 Service and support 26,204 22,130 95,715 85,265
Amortization of purchased technology 3,343
3,047 13,771 12,012 Total cost
of revenues 40,257 30,403
140,605 119,869 Gross margin 267,048
206,732 774,148 682,858
Operating expenses: Research and development (2)
85,101 68,111 285,005 255,538 Marketing and selling (3) 89,936
82,585 320,825 303,709 General and administration (4) 32,552 24,218
101,670 92,260 Equity in earnings of Frontline (5) (290 ) - (2,051
) - Amortization of intangible assets (6) 1,605 2,630 7,347 11,184
Special charges (7) 2,205 5,444
10,257 21,334 Total operating expenses
211,109 182,988 723,053
684,025
Operating income (loss) 55,939 23,744 51,095
(1,167 ) Other income (expense), net (8) (755 ) 334 (2,116 ) (928 )
Interest expense (9) (5,033 ) (4,287 ) (18,411
) (17,546 ) Income (loss) before income tax 50,151 19,791
30,568 (19,641 ) Income tax expense (benefit) (10) 996
(19,576 ) 3,428 2,248 Net
income (loss) $ 49,155 $ 39,367 $ 27,140 $
(21,889 ) Net income (loss) per share: Basic $ 0.45 $ 0.40
$ 0.25 $ (0.23 ) Diluted* $ 0.43 $ 0.39
$ 0.25 $ (0.23 ) Weighted average number of shares
outstanding: Basic 110,128 98,970
107,743 96,474 Diluted* 113,082
101,750 109,861 96,474
*Diluted net income per share for the three months
ended January 31, 2010 includes $125 of convertible debt interest,
net of tax, added back to net income and 1,379 of corresponding
dilutive shares added to the diluted weighted average number of
shares outstanding. Refer to following page for a
description of footnotes.
MENTOR GRAPHICS
CORPORATION
FOOTNOTES TO
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands) Listed below are the
items included in net income that management excludes in computing
the non-GAAP financial measures referred to in the text of this
press release. Items are further described under "Discussion of
Non-GAAP Financial Measures."
Three Months Ended January
31,
Twelve Months Ended January 31,
2011 2010
2011 2010 (1) Cost of
revenues: Equity plan-related compensation $ 217 $ 300 $ 888 $
1,618 Amortization of purchased technology 3,343
3,047 13,771 12,012 $
3,560 $ 3,347 $ 14,659 $ 13,630
(2) Research and development: Equity plan-related
compensation $ 1,932 $ 2,052 $ 7,939 $ 10,931
(3) Marketing and selling: Equity plan-related
compensation $ 1,310 $ 1,622 $ 6,112 $ 8,406
(4) General and administration: Equity
plan-related compensation $ 1,905 $ 1,209 $ 7,016
$ 5,204
(5) Equity in earnings of
Frontline:
Amortization of purchased technology and
other identified intangible assets
$ 1,242 $ - $ 4,347 $ -
(6)
Amortization of intangible assets: Amortization of other
identified intangible assets $ 1,605 $ 2,630 $ 7,347
$ 11,184
(7) Special charges:
Rebalance, restructuring, and other costs $ 2,205 $ 5,444
$ 10,257 $ 21,334
(8) Other income
(expense), net:
Equity in losses of unconsolidated
entities and impairment of investments
$ 667 $ 257 $ 938 $ 1,108
(9)
Interest expense: Amortization of debt discount and premium,
net $ 755 $ 713 $ 2,981 $ 2,764 Premium (discount) and costs
related to debt retirement - -
345 (354 ) $ 755 $ 713 $ 3,326 $
2,410
(10) Income tax expense (benefit):
Non-GAAP income tax effects $ (10,110 ) $ (25,877 ) $ (12,298 ) $
(7,028 )
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,
2011 2010
2011 2010 GAAP net income (loss)
$ 49,155 $ 39,367 $ 27,140 $ (21,889 ) Non-GAAP adjustments: Equity
plan-related compensation: (1) Cost of revenues 217 300 888 1,618
Research and development 1,932 2,052 7,939 10,931 Marketing and
selling 1,310 1,622 6,112 8,406 General and administration 1,905
1,209 7,016 5,204 Acquisition - related items: Amortization of
purchased assets Cost of revenues (2) 3,343 3,047 13,771 12,012
Amortization of intangible assets (3) 1,605 2,630 7,347 11,184
Frontline purchased technology and intangible assets (4) 1,242 -
4,347 - Special charges (5) 2,205 5,444 10,257 21,334 Other income
(expense), net (6) 667 257 938 1,108 Interest expense (7) 755 713
3,326 2,410 Non-GAAP income tax effects (8) (10,110 )
(25,877 ) (12,298 ) (7,028 ) Total of non-GAAP
adjustments 5,071 (8,603 ) 49,643
67,179 Non-GAAP net income $ 54,226 $
30,764 $ 76,783 $ 45,290 GAAP weighted
average shares (diluted)a 113,082 101,750 109,861 96,474 Non-GAAP
adjustment - - -
1,901 Non-GAAP weighted average shares (diluted)b
113,082 101,750 109,861
98,375 GAAP net income (loss) per share (diluted)a $
0.43 $ 0.39 $ 0.25 $ (0.23 ) Non-GAAP adjustments detailed above
0.05 (0.09 ) 0.45 0.70
Non-GAAP net income per share (diluted)b $ 0.48 $
0.30 $ 0.70 $ 0.47 a 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 1,379 of
corresponding dilutive shares added to the diluted weighted average
number of shares outstanding. b Diluted non-GAAP net income
per share for the twelve months ended January 31, 2010 includes
$633 of convertible debt interest, net of tax, added back to
non-GAAP net income and 1,415 of corresponding dilutive shares
added to the diluted 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) Amount represents amortization of purchased technology
and other identified intangible assets identified as part of the
fair value of the Frontline P.C.B. Solutions Limited Partnership
(Frontline) investment. Mentor Graphics acquired a 50% joint
venture in Frontline as a result of the Valor Computerized Systems,
Ltd. acquisition in the first quarter of fiscal 2011. The purchased
technology will be amortized over three years, other identified
intangible assets will be amortized over three to four years, and
are reflected in the income statement in the equity in earnings of
Frontline results. This expense is the same type as being adjusted
for in notes (2) and (3) above.
(5) Three months ended
January 31, 2011: Special charges consist of (i) $1,474 of costs
incurred for employee rebalances which includes severance benefits,
notice pay, and outplacement services, (ii) $412 in lease
restoration costs, (iii) $360 related to an asset abandonment, (iv)
$96 related to the abandonment of excess lease space, (v) $(138) in
acquisition costs, and (vi) $1 in other adjustments. 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, 2011: Special charges
consist of (i) $6,114 of costs incurred for employee rebalances
which includes severance benefits, notice pay, and outplacement
services, (ii) $2,083 in advisory fees, (iii) $1,432 in lease
restoration costs, (iv) $900 related to the abandonment of excess
leased facility space, (v) $(566) related to a casualty loss, (vi)
$360 related to an asset abandonment, (vii) $(231) in acquisition
costs, and (viii) $165 in other 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.
(6)
Three months ended January 31, 2011: Loss of $667 on investment
accounted for under the equity method of accounting. Three months
ended January 31, 2010: Loss of $257 on investment accounted for
under the equity method of accounting. Twelve months ended January
31, 2011: Loss of $938 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.
(7) Three months ended January 31, 2011: $755 in
amortization of original issuance debt discount and premium. Three
months ended January 31, 2010: $713 in amortization of original
issuance debt discount. Twelve months ended January 31, 2011:
$2,981 in amortization of original issuance debt discount and
premiums and $345 in premium on partial redemption of the $110.0M
convertible debt. 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.
(8) 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 FINANCIAL MEASURES TO NON-GAAP FINANCIAL
MEASURES
(In thousands, except percentages)
Three Months Ended January 31,
Twelve Months Ended January 31,
2011 2010
2011 2010 GAAP gross margin $
267,048 $ 206,732 $ 774,148 $ 682,858 Reconciling items to non-GAAP
gross margin Equity plan-related compensation 217 300 888 1,618
Amortization of purchased technology 3,343
3,047 13,771 12,012 Non-GAAP
gross margin $ 270,608 $ 210,079 $ 788,807 $
696,488
Three Months Ended January 31,
Twelve Months Ended January 31,
2011 2010
2011 2010 GAAP gross margin as a
percent of total revenues 87 % 87 % 85 % 85 % Non-GAAP adjustments
detailed above 1 % 2 % 1 % 2 % Non-GAAP
gross margin as a percent of total revenues 88 % 89 %
86 % 87 %
Three Months Ended January 31,
Twelve Months Ended January 31,
2011 2010
2011 2010 GAAP operating
expenses $ 211,109 $ 182,988 $ 723,053 $ 684,025 Reconciling items
to non-GAAP operating expenses
Amortization of Frontline purchased
technology and other identified intangible assets
(1,242 ) - (4,347 ) - Equity plan-related compensation (5,147 )
(4,883 ) (21,067 ) (24,541 ) Amortization of other identified
intangible assets (1,605 ) (2,630 ) (7,347 ) (11,184 ) Special
charges (2,205 ) (5,444 ) (10,257 )
(21,334 ) Non-GAAP operating expenses $ 200,910 $ 170,031
$ 680,035 $ 626,966
Three Months Ended January 31,
Twelve Months Ended January 31,
2011 2010
2011 2010 GAAP operating income
(loss) $ 55,939 $ 23,744 $ 51,095 $ (1,167 ) Reconciling items to
non-GAAP operating income
Amortization of Frontline purchased
technology and other identified intangible assets
1,242 - 4,347 - Equity plan-related compensation 5,364 5,183 21,955
26,159 Amortization of purchased intangible assets: Cost of
revenues 3,343 3,047 13,771 12,012 Amortization of intangible
assets 1,605 2,630 7,347 11,184 Special Charges 2,205
5,444 10,257 21,334
Non-GAAP operating income $ 69,698 $ 40,048 $ 108,772
$ 69,522
Three Months Ended January 31,
Twelve Months Ended January 31,
2011 2010
2011 2010 GAAP operating income
(loss) as a percent of total revenues 18 % 10 % 6 % 0 % Non-GAAP
adjustments detailed above 5 % 7 % 6 %
9 % Non-GAAP operating income as a percent of total revenues
23 % 17 % 12 % 9 %
Three Months Ended January 31,
Twelve Months Ended January 31,
2011 2010
2011 2010 GAAP other expense,
net and interest expense $ (5,788 ) $ (3,953 ) $ (20,527 ) $
(18,474 )
Reconciling items to non-GAAP other income
(expense), net and interest expense
Equity in losses of unconsolidated entities 667 257 938 995
Impairment of cost method investment - - - 113 Amortization of debt
discount and retirement costs 755 713
3,326 2,410 Non-GAAP other expense, net
and interest expense $ (4,366 ) $ (2,983 ) $ (16,263 ) $ (14,956 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31, January 31,
2011 2010
Assets Current assets: Cash, cash equivalents, and
short-term investments $ 133,113 $ 99,343 Trade accounts
receivable, net 153,733 110,839 Term receivables, short-term
193,342 178,911 Prepaid expenses and other 42,605 29,629 Deferred
income taxes 15,992 11,891 Total
current assets 538,785 430,613
Property, plant, and equipment,
net 139,340 121,795
Term receivables, long-term 167,425
164,898
Goodwill and intangible assets, net 541,697 484,342
Other assets 40,731 21,393
Total assets $ 1,427,978 $ 1,223,041
Liabilities and Stockholders' Equity Current
liabilities: Short-term borrowings $ 15,544 $ 37,874 Current
portion of notes payable 2,000 32,272 Accounts payable 16,724 9,985
Income taxes payable 5,517 3,971 Accrued payroll and related
liabilities 109,173 77,008 Accrued liabilities 39,513 44,122
Deferred revenue 171,416 153,965
Total current liabilities 359,887 359,197
Long-term notes
payable 207,348 156,075
Deferred revenue, long-term
13,952 9,534
Other long-term liabilities 70,076
58,218 Total liabilities 651,263
583,024
Stockholders' equity: Common
stock 766,624 662,595 Accumulated deficit (21,602 ) (48,742 )
Accumulated other comprehensive income 31,693
26,164 Total stockholders' equity 776,715
640,017 Total liabilities and stockholders'
equity $ 1,427,978 $ 1,223,041
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION
(In thousands, except days sales outstanding)
Three Months Ended January 31, Twelve Months Ended
January 31, 2011 2010
2011 2010 Operating
activities Net income (loss) $ 49,155 $ 39,367 $ 27,140 $
(21,889 ) Depreciation and amortization (1) 13,902 14,432 57,075
59,684 Other adjustments to reconcile: Operating cash 3,798 21,755
15,037 37,388 Changes in working capital 8,258
(70,619 ) (17,044 ) (37,294 ) Net cash
provided by operating activities 75,113 4,935 82,208 37,889
Investing activities Net cash used in investing activities
(21,778 ) (30,037 ) (72,750 ) (49,938 )
Financing
activities Net cash provided by financing activities 15,234
39,718 22,110 16,942 Effect of exchange rate changes on cash
and cash equivalents 257 73
2,205 805 Net change in cash and cash
equivalents 68,826 14,689 33,773 5,698 Cash and cash equivalents at
beginning of period 64,287 84,651
99,340 93,642 Cash and cash
equivalents at end of period $ 133,113 $ 99,340 $
133,113 $ 99,340
(1)
Depreciation and amortization includes a write-off of note issuance
costs in the amount of $132 for the year ended January 31, 2011 and
$26 for the year ended January 31, 2010.
Other data:
Capital expenditures $ 10,406 $ 28,446 $ 47,175
$ 46,397 Days sales outstanding 102
110
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to nearest 5%)
Fiscal year ended January
31, 2011 Fiscal year ended January 31, 2010
Fiscal year ended January 31, 2009 Product Group
Bookings (a) Q1 Q2 Q3
Q4 YEAR Q1 Q2
Q3 Q4 YEAR Q1
Q2 Q3 Q4 YEAR
Integrated Systems Design 20 % 20 % 20 % 25 %
20 % 20 % 20 % 20 % 20 %
20 % 15 % 20 % 25 % 15 %
20 % IC Design to Silicon 30 % 35 % 30 % 25 %
30 % 40 % 40 % 35 % 40 %
40 % 40 % 30 %
30 % 40 %
35 % Scalable Verification 30 % 25 % 20 %
30 %
25 % 20 % 25 % 15 % 20 %
20 % 20 %
20 % 20 % 30 %
20 % New & Emerging Products 10 %
10 % 25 % 10 %
15 % 10 % 5 % 20 % 15 %
10
% 10 % 20 % 15 % 10 %
15 % Services &
Other (b) 10 % 10 % 5 % 10 %
10
% 10 % 10 % 10 % 5 %
10
% 15 % 10 % 10 % 5 %
10
% Total 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % Fiscal year ended January 31,
2011 Fiscal year ended January 31, 2010 Fiscal year
ended January 31, 2009 Product Group Revenue (b)
Q1 Q2 Q3 Q4
YEAR Q1 Q2 Q3
Q4 YEAR Q1 Q2
Q3 Q4 YEAR Integrated Systems
Design 25 % 30 % 25 % 30 %
25 % 20 % 20 % 30 % 25 %
25 % 20 % 20 % 25 % 20 %
20 % IC Design
to Silicon 35 % 30 % 25 % 25 %
30 % 45 % 35 % 30 % 35
%
35 % 40 % 30 % 30 % 35 %
35 %
Scalable Verification 20 % 20 % 30 % 25 %
25 % 20 %
25 % 20 % 20 %
25 % 20 % 25 % 25 % 30 %
25
% New & Emerging Products 10 % 10 % 15 % 15 %
15
% 10 % 10 % 10 % 15 %
10 % 10 % 15 % 10 % 10 %
10 % Services & Other (b) 10 % 10 %
5 % 5 %
5 % 5 % 10 % 10 %
5 %
5 % 10 % 10 % 10 %
5 %
10 % Total 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 %
Fiscal year ended January 31, 2011 Fiscal year ended
January 31, 2010 Fiscal year ended January 31, 2009
Bookings by Geography Q1 Q2
Q3 Q4 YEAR Q1
Q2 Q3 Q4 YEAR
Q1 Q2 Q3 Q4
YEAR North America 45 % 40 % 45 % 50 %
45 % 40
% 55 % 45 % 40 %
45 % 40 % 30 % 40 % 35 %
35
% Europe 20 % 25 % 20 % 20 %
20 % 25 % 25 % 15
% 25 %
20 % 35 % 35 % 35 % 35 %
35 %
Japan 15 % 5 % 15 % 15 %
15 % 25 % 5 % 20 % 15 %
15 % 15 % 20 % 10 % 5 %
15 % Pac Rim 20
% 30 % 20 % 15 %
20 % 10
% 15 % 20 % 20 %
20 % 10
% 15 % 15 % 25 %
15 %
Total 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% Fiscal year ended January 31, 2011
Fiscal year ended January 31, 2010 Fiscal year ended
January 31, 2009 Revenue by Geography Q1
Q2 Q3 Q4 YEAR
Q1 Q2 Q3 Q4
YEAR Q1 Q2 Q3
Q4 YEAR North America 35 % 40 % 50 % 50 %
45 % 40 % 50 % 40 % 40 %
45 % 40 % 35 %
40 % 40 %
40 % Europe 25 % 25 % 25 % 20 %
25
% 20 % 30 % 25 % 30 %
25 % 30 % 30 % 35 % 35 %
30 % Japan 20 % 10 % 10 % 15 %
10 % 20
% 5 % 15 % 15 %
15 % 20 % 20 % 10 % 10 %
15
% Pac Rim 20 % 25 % 15 % 15 %
20 % 20 % 15 % 20 % 15 %
15 % 10 % 15 % 15 % 15 %
15 % Total 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % Fiscal year ended
January 31, 2011 Fiscal year ended January 31, 2010
Fiscal year ended January 31, 2009 Bookings by Business
Model (c) Q1 Q2 Q3
Q4 YEAR Q1 Q2
Q3 Q4 YEAR Q1
Q2 Q3 Q4 YEAR
Perpetual 40 % 30 % 15 % 15 %
25 % 15 % 25 % 20 % 10
%
15 % 20 % 20 % 20 % 10 %
15 % Ratable
20 % 15 % 5 % 5 %
10 % 15 % 15 % 15 % 15 %
15
% 25 % 20 % 15 % 10 %
15 % Up Front 40 %
55 % 80 % 80 %
65 % 70 %
60 % 65 % 75 %
70 % 55 %
60 % 65 % 80 %
70 %
Total 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% Fiscal year ended January 31, 2011 Fiscal
year ended January 31, 2010 Fiscal year ended January 31,
2009 Revenue by Business Model (c) Q1
Q2 Q3 Q4 YEAR
Q1 Q2 Q3 Q4
YEAR Q1 Q2 Q3
Q4 YEAR Perpetual 20 % 25 % 25 % 15 %
20 % 15 % 25 % 15 % 10 %
15 % 20 % 20 %
20 % 10 %
15 % Ratable 25 % 15 % 10 % 10 %
15
% 10 % 15 % 15 % 10 %
15 % 20 % 20 % 20 % 10 %
15 % Up Front 55 % 60 % 65 % 75
%
65 % 75 % 60 % 70 % 80
%
70 % 60 % 60 % 60 % 80
%
70 % Total 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % 100 %
100 % 100 % 100
% 100 % (a) Product Group
Bookings excludes support bookings for all sub-flow categories. (b)
Product Group Revenue includes support revenue for each sub-flow
category as appropriate. (c) Bookings and Revenue by Business Model
are System and Software only.
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 earnings per share for the periods shown below:
Q1 FY12 FY12 Diluted GAAP net income per share $ 0.06
$ 0.77 Non-GAAP Adjustments: Amortization of purchased intangible
assets (1) 0.03 0.08 Amortization of other identified intangible
assets (2) 0.02 0.09 Equity plan-related compensation (3) 0.05 0.17
Special charges (4) - - Other expense, net and interest expense (5)
0.01 0.03 Non-GAAP income tax effects (6) (0.02 )
(0.14 ) Non-GAAP net income per share $ 0.15 $ 1.00
(1) Excludes
amortization of purchased intangible assets resulting from
acquisition transactions. Purchased intangible assets are amortized
over two to five years. The guidance for Q1 FY12 and Full Year FY12
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 Q1 FY12 and Full Year FY12 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),
and acquisition costs. The guidance for Q1 FY12 and Full Year FY12
assumes no special charges.
(5) Reflects amortization of
original issuance debt discount and premium, net.
(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.
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