Mentor Graphics Corporation (NASDAQ:MENT) today announced
financial results for the company’s fiscal third quarter ended
October 31, 2011. The company reported revenues of $250.5 million,
non-GAAP earnings per share of $.25, and GAAP earnings per share of
$.22.
“Bookings were again a record, up over 20% from the previous
third quarter record, and for the second consecutive year our
book-to-bill through the third quarter is positive,” said Walden C.
Rhines, chairman and CEO of Mentor Graphics. “This quarter saw the
beginning of the strength we predicted in our Design to Silicon
category for the second half, with bookings in the third quarter up
year-on-year by over 55%, and by about 15% year to date. Looking
forward, we expect the technical challenges of advanced nodes to
drive significant opportunity for us.”
During the quarter, the company expanded the Valor® product line
with a new business intelligence product. The Mentor® Nucleus®
real-time operating system was upgraded to include new power
management technology, making it an even more compelling solution
for mobile computing and telecommunication. The company also
advanced its embedded systems software suite for automobile
infotainment with a GENIVI compliant product and a partnership with
Freescale Semiconductor. ARM and Mentor announced a joint
manufacturing test solution for ARM processor-based designs.
NuFlare Technology and Mentor announced a partnership on advanced
IC mask generation. The company announced improvements to its
design-for-test products that will allow it to find new classes of
chip defects. GlobalFoundries and Mentor announced new support for
GlobalFoundries’ third generation design sign-off for leading-edge
IC manufacturing. The Mentor transportation Capital® product suite
won an EDN Hot 100 products of 2011 award.
“Leading indicators for the business continued to be strong,
with third quarter support declines down and consulting and
training bookings doubling. Annual fees for renewing contracts in
the top ten transactions were up 40% over their prior annual fees.
Base business, contracts below $1 million in value that booked and
billed in the quarter, grew 15% over last year,” said Gregory K.
Hinckley, president of Mentor Graphics. “The company’s earnings
have historically been very back-end loaded with much of our
business closing in the fourth quarter. For the last several years,
we have been working with our customers to create more linearity in
our financial results, and are pleased with the progress we have
been showing. With our newly raised guidance, we now expect 48% of
annual non-GAAP earnings to occur in the fourth quarter this fiscal
year, compared to 69% in Fiscal 2011.”
Outlook
For the fourth quarter, the company expects revenues of about
$316 million, non-GAAP earnings per share of approximately $.50,
and GAAP earnings per share of $.46. For the full fiscal year,
ending January 31, 2012, the company expects revenues of $1.01
billion, non-GAAP earnings per share of $1.05, and GAAP earnings
per share of $.69.
Fiscal Year Definition
The 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
The 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, 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, and the equity in income (loss) of unconsolidated
entities (except Frontline PCB Solutions Limited Partnership
(Frontline)), which management does not consider reflective of our
core operating business.
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:
- Identified intangible assets consist
primarily of purchased technology, backlog, trade names, and
customer relationships. Amortization charges for our intangible
assets can vary in frequency and amount due to the timing and
magnitude of acquisition transactions. We consider our operating
results without these charges when evaluating our core performance
due to the variability. 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 primarily consist of
restructuring costs incurred for employee terminations, including
severance and benefits, driven by modifications of business
strategy or business emphasis. Special charges may also include
expenses incurred related to potential acquisitions, excess
facility costs, and asset-related charges. 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.
- Equity plan-related compensation
expenses represent the fair value of all share-based payments to
employees, including grants of employee stock options and
restricted stock units. We do not consider equity plan-related
compensation expense in evaluating our manager’s performance
internally or our 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.
- In connection with the Company’s
acquisition of Valor on March 18, 2010, we also acquired the Valor
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.
- Equity in earnings or losses of
unconsolidated entities, with the exception of our investment in
Frontline, represents our equity in the net income (loss) of a
common stock investment accounted for under the equity method. The
carrying amount of our investment is adjusted for our share of
earnings or losses of the investee. The amounts are excluded from
our non-GAAP results as we do not control the results of operations
for this investment and we do not participate in regular and
periodic operating activities; therefore, management does not
consider these businesses a part of our core 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 U.S. 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 nine months ended October 31, 2011 is
(20%), after the consideration of period specific items. Without
period specific items of ($8.8) million, our GAAP tax rate is 20%.
Our full fiscal year 2012 GAAP tax rate, inclusive of period
specific items, is projected to be 2%. 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 and
restricted stock units 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.
- 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 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 in the last
fiscal year 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, Nucleus and Capital are registered
trademarks of Mentor Graphics Corporation. All other company and/or
product names are the trademarks and/or registered 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 EU, US, Japan,
China or other economies, including the possibility of a
“double-dip” recession; (ii) the company’s ability to
successfully offer products and services that compete in the highly
competitive EDA industry, including the risk of obsolescence for
our hardware products; (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 actions
of activist shareholders; (v) effects of the 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 which 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.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)
Three Months Ended October 31, Nine Months Ended
October 31, 2011 2010 2011
2010 Revenues: System and software $ 154,363 $
148,101 $ 411,503 $ 346,042 Service and support 96,145
90,836 282,780 261,406
Total revenues 250,508 238,937
694,283 607,448
Cost of revenues:
(1) System and softwarea 10,864 14,261 41,235 28,881 Service
and supporta 27,621 25,430 79,676 72,230 Amortization of purchased
technology 1,761 3,299 7,872
10,428 Total cost of revenuesa 40,246
42,990 128,783 111,539
Gross margina 210,262 195,947
565,500 495,909
Operating
expenses: Research and developmenta (2) 81,305 73,622 220,578
208,058 Marketing and sellinga (3) 83,036 80,591 236,718 225,135
General and administrationa (4) 17,922 18,485 52,055 55,527 Equity
in losses (earnings) of Frontline (5) 134 (415 ) (2,022 ) (1,761 )
Amortization of intangible assets (6) 1,296 1,445 4,361 5,742
Special charges (7) 1,164 1,578
7,388 8,052 Total operating expensesa
184,857 175,306 519,078
500,753
Operating income (loss)a 25,405 20,641
46,422 (4,844 ) Other income (expense), net (8) 1,836 (206 ) 1,890
(1,361 ) Interest expense (9) (4,615 ) (4,324 )
(26,689 ) (13,378 ) Income (loss) before income tax
22,626 16,111 21,623 (19,583 ) Income tax expense (benefit) (10)
(1,445 ) 854 (4,429 ) 2,432
Net income (loss)a $ 24,071 $ 15,257 $ 26,052
$ (22,015 ) Net income (loss) per share: Basic $ 0.22
$ 0.14 $ 0.24 $ (0.21 ) Diluted $ 0.22 $ 0.14
$ 0.23 $ (0.21 ) Weighted average number of shares
outstanding: Basic 109,501 109,364
110,423 106,942 Diluted 111,563
112,139 113,181 106,942
a Certain items have been reclassified between cost
of revenues and operating expenses, and within operating expenses
for the nine months ended October 31, 2011, and the three and nine
months ended October 31, 2010. These reclassifications were made to
conform to the current period presentation, more closely align with
other companies in our industry, and provide a clearer depiction of
where certain operating costs are being utilized. While these
reclassifications reduced gross margin, they had no impact on
operating income (loss) or net income (loss) for the nine months
ended October 31, 2011, and the three and nine months ended October
31, 2010. Additional discussion regarding the reclassifications
will be provided in our Quarterly Report on Form 10-Q for the
quarter ended October 31, 2011.
Refer to following table 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 October
31, Nine Months Ended October 31, 2011
2010 2011 2010 (1) Cost of
revenues: Equity plan-related compensation $ 249 $ 221 $ 753 $
671 Amortization of purchased technology 1,761
3,299 7,872 10,428 $ 2,010
$ 3,520 $ 8,625 $ 11,099
(2)
Research and development: Equity plan-related compensation $
2,005 $ 1,798 $ 6,119 $ 6,007
(3) Marketing and selling: Equity plan-related compensation
$ 1,365 $ 1,299 $ 4,393 $ 4,802
(4) General and administration: Equity plan-related
compensation $ 1,495 $ 1,589 $ 5,358 $ 5,111
(5) Equity in losses (earnings) of Frontline:
Amortization of purchased technology and other identified
intangible assets $ 1,242 $ 1,242 $ 3,726 $
3,105
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 1,296 $
1,445 $ 4,361 $ 5,742
(7) Special
charges: Rebalance, restructuring, and other costs $ 1,164
$ 1,578 $ 7,388 $ 8,052
(8)
Other income (expense), net: Net (gain) loss of unconsolidated
entities $ (1,484 ) $ - $ (1,432 ) $ 271
(9) Interest expense: Amortization of debt discount and
premium, net $ 1,250 $ 753 $ 3,653 $ 2,226 Premium and costs
related to debt retirement - -
11,504 345 $ 1,250 $ 753 $
15,157 $ 2,571
(10) Income tax expense
(benefit): Non-GAAP income tax effects $ (7,050 ) $ (4,133 ) $
(17,233 ) $ (2,188 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three Months Ended October 31,
Nine Months Ended October 31, 2011
2010 2011 2010 GAAP net income (loss) $
24,071 $ 15,257 $ 26,052 $ (22,015 ) Non-GAAP adjustments: Equity
plan-related compensation: (1) Cost of revenues 249 221 753 671
Research and development 2,005 1,798 6,119 6,007 Marketing and
selling 1,365 1,299 4,393 4,802 General and administration 1,495
1,589 5,358 5,111 Acquisition - related items: Amortization of
purchased assets Cost of revenues (2) 1,761 3,299 7,872 10,428
Frontline purchased technology and intangible assets (3) 1,242
1,242 3,726 3,105 Amortization of intangible assets (4) 1,296 1,445
4,361 5,742 Special charges (5) 1,164 1,578 7,388 8,052 Other
income (expense), net (6) (1,484 ) - (1,432 ) 271 Interest expense
(7) 1,250 753 15,157 2,571 Non-GAAP income tax effects (8)
(7,050 ) (4,133 ) (17,233 ) (2,188 ) Total of
non-GAAP adjustments 3,293 9,091
36,462 44,572 Non-GAAP net income $ 27,364
$ 24,348 $ 62,514 $ 22,557 GAAP
weighted average shares (diluted) 111,563 112,139 113,181 106,942
Non-GAAP adjustment - - -
2,239 Non-GAAP weighted average shares (diluted)
111,563 112,139 113,181
109,181 GAAP net income (loss) per share
(diluted) $ 0.22 $ 0.14 $ 0.23 $ (0.21 ) Non-GAAP adjustments
detailed above 0.03 0.08 0.32
0.42 Non-GAAP net income per share (diluted) $
0.25 $ 0.22 $ 0.55 $ 0.21
(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) 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) above
and (4) below.
(4) Other identified intangible assets are
amortized to other operating expense over two to five years. Other
identified intangible assets include trade names, customer
relationships, and backlog which are the result of acquisition
transactions.
(5) Three months ended October 31, 2011:
Special charges consist of (i) $1,227 of costs incurred for
employee rebalances which includes severance benefits, notice pay,
and outplacement services, (ii) $(19) in acquisition costs, (iii)
$(173) related to the abandonment of excess lease space, and (iv)
$129 in consulting fees associated with our proxy contest. Three
months ended October 31, 2010: Special charges consist of (i)
$1,191 of costs incurred for employee rebalances which includes
severance benefits, notice pay, and outplacement services, (ii)
$432 in lease restoration costs, (iii) $302 related to the
abandonment of excess lease space, (iv) $(513) in acquisition
costs, (v) $83 in advisory fees, and (vi) $83 in other adjustments.
Nine months ended October 31, 2011: Special charges consist of (i)
$3,967 in consulting fees associated with our proxy contest, (ii)
$3,581 of costs incurred for employee rebalances which includes
severance benefits, notice pay, and outplacement services, (iii)
$281 related to the abandonment of excess lease space, (iv) $(545)
in acquisition costs, and (v) $104 in other adjustments. Nine
months ended October 31, 2010: Special charges consist of (i)
$4,640 of costs incurred for employee rebalances which includes
severance benefits, notice pay, and outplacement services, (ii)
$2,083 in advisory fees, (iii) $1,020 in lease restoration costs,
(iv) $804 related to the abandonment of excess leased facility
space, (v) $(566) related to a casualty loss, (vi) $(93) in
acquisition costs, and (vii) $164 in other adjustments.
(6)
Three months ended October 31, 2011: Gain of $1,519 resulting from
a change from an equity method investment to a controlling interest
and loss of $(35) on investments accounted for under the equity
method of accounting. Nine months ended October 31, 2011: Gain of
$1,519 resulting from a change from an equity method investment to
a controlling interest and loss of $(87) on investments accounted
for under the equity method of accounting. Nine months ended
October 31, 2010: Loss of $271 on investment accounted for under
the equity method of accounting.
(7) Three months ended
October 31, 2011: $1,250 in amortization of original issuance debt
discount. Three months ended October 31, 2010: $753 in amortization
of original issuance debt discount and bond premiums, net. Nine
months ended October 31, 2011: $3,653 in amortization of original
issuance debt discount and bond premium, and $11,504 for the
premium and other costs related to the retirement of the 6.25%
convertible debentures and the term loan. Nine months ended October
31, 2010: $2,226 in amortization of original issuance debt discount
and bond premiums, net and $345 in premium on partial redemption of
the $110M 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 October 31, Nine Months Ended October
31, 2011 2010 2011
2010 GAAP gross margin $ 210,262 $ 195,947 $ 565,500 $
495,909 Reconciling items to non-GAAP gross margin: Equity
plan-related compensation 249 221 753 671 Amortization of purchased
technology 1,761 3,299 7,872
10,428 Non-GAAP gross margin $ 212,272
$ 199,467 $ 574,125 $ 507,008
Three Months Ended October 31, Nine Months Ended October
31, 2011 2010 2011 2010 GAAP gross
margin as a percent of total revenues 84 % 82 % 81 % 82 % Non-GAAP
adjustments detailed above 1 % 1 % 2 %
1 % Non-GAAP gross margin as a percent of total revenues 85
% 83 % 83 % 83 %
Three Months
Ended October 31, Nine Months Ended October 31,
2011 2010 2011 2010 GAAP operating
expenses $ 184,857 $ 175,306 $ 519,078 $ 500,753 Reconciling items
to non-GAAP operating expenses: Equity plan-related compensation
(4,865 ) (4,686 ) (15,870 ) (15,920 )
Amortization of Frontline purchased
technology and other identified intangible assets
(1,242 ) (1,242 ) (3,726 ) (3,105 ) Amortization of other
identified intangible assets (1,296 ) (1,445 ) (4,361 ) (5,742 )
Special charges (1,164 ) (1,578 ) (7,388 )
(8,052 ) Non-GAAP operating expenses $ 176,290 $
166,355 $ 487,733 $ 467,934
Three Months Ended October 31, Nine Months Ended October
31, 2011 2010 2011 2010 GAAP
operating income (loss) $ 25,405 $ 20,641 $ 46,422 $ (4,844 )
Reconciling items to non-GAAP operating income: Equity plan-related
compensation 5,114 4,907 16,623 16,591 Amortization of purchased
technology 1,761 3,299 7,872 10,428
Amortization of Frontline purchased
technology and other identified intangible assets
1,242 1,242 3,726 3,105 Amortization of other identified intangible
assets 1,296 1,445 4,361 5,742 Special Charges 1,164
1,578 7,388 8,052
Non-GAAP operating income $ 35,982 $ 33,112 $ 86,392
$ 39,074
Three Months Ended October
31, Nine Months Ended October 31, 2011
2010 2011 2010 GAAP operating income (loss) as
a percent of total revenues 10 % 9 % 7 % -1 % Non-GAAP adjustments
detailed above 4 % 5 % 5 % 7 % Non-GAAP
operating income as a percent of total revenues 14 %
14 % 12 % 6 %
Three Months Ended
October 31, Nine Months Ended October 31, 2011
2010 2011 2010 GAAP other expense, net and
interest expense $ (2,779 ) $ (4,530 ) $ (24,799 ) $ (14,739 )
Reconciling items to non-GAAP other
expense, net and interest expense:
Net (gain) loss of unconsolidated entities (1,484 ) - (1,432 ) 271
Amortization of debt discount and retirement costs 1,250
753 15,157 2,571
Non-GAAP other expense, net and interest expense $ (3,013 ) $
(3,777 ) $ (11,074 ) $ (11,897 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
October 31,
January 31, 2011 2011 Assets
Current assets: Cash, cash equivalents, and short-term
investments $ 111,989 $ 133,113 Trade accounts receivable, net
113,886 153,733 Term receivables, short-term 177,198 193,342
Prepaid expenses and other 40,401 37,124 Deferred income taxes
16,831 15,992 Total current assets
460,305 533,304
Property, plant, and equipment, net 145,161
139,340
Term receivables, long-term 204,295 167,425
Goodwill and intangible assets, net 542,177 541,697
Other
assets 51,389 46,212 Total assets $
1,403,327 $ 1,427,978
Liabilities and
Stockholders' Equity Current liabilities: Short-term
borrowings $ 7,600 $ 15,544 Current portion of notes payable -
2,000 Accounts payable 10,524 16,724 Income taxes payable 3,026
5,517 Accrued payroll and related liabilities 75,732 109,173
Accrued liabilities 32,009 39,513 Deferred revenue 164,457
171,416 Total current liabilities 293,348
359,887
Long-term notes payable 213,288 207,348
Deferred
revenue, long-term 13,746 13,953
Other long-term
liabilities 57,028 70,076 Total
liabilities 577,410 651,264
Noncontrolling interest with redemption feature 8,196 -
Stockholders' equity: Common stock 776,516 765,179
Retained earnings (accumulated deficit) 5,894 (20,158 ) Accumulated
other comprehensive income 35,311 31,693 Total
stockholders' equity 817,721 776,714
Total liabilities and stockholders' equity $ 1,403,327 $ 1,427,978
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION
(In thousands, except days sales outstanding)
Three Months Ended October 31, Nine Months Ended
October 31, 2011 2010 2011
2010 Operating activities Net income (loss) $ 24,071
$ 15,257 $ 26,052 $ (22,015 ) Depreciation and amortization (1)
13,157 13,596 49,347 43,173 Other adjustments to reconcile:
Operating cash 5,770 (2,562 ) 18,686 11,239 Changes in working
capital (32,660 ) (33,991 ) (58,893 )
(25,302 ) Net cash provided by (used in) operating
activities 10,338 (7,700 ) 35,192 7,095
Investing
activities Net cash used in investing activities (7,571 )
(21,586 ) (26,231 ) (50,972 )
Financing activities
Net cash provided by (used in) financing activities (13,380 ) 2,555
(30,789 ) 6,876 Effect of exchange rate changes on cash and
cash equivalents (867 ) 1,702 704
1,948 Net change in cash and cash
equivalents (11,480 ) (25,029 ) (21,124 ) (35,053 ) Cash and cash
equivalents at beginning of period 123,469
89,316 133,113 99,340
Cash and cash equivalents at end of period $ 111,989 $
64,287 $ 111,989 $ 64,287
(1) Depreciation and amortization
includes a write-off of note issuance costs in the amount of $8,010
for the nine months ended October 31, 2011 and $132 for the nine
months ended October 31, 2010.
Other data: Capital expenditures $ 8,438
$ 18,281 $ 25,062 $ 36,769 Days sales
outstanding 105 113
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to nearest 5%)
Fiscal Year Ended January
31, 2012 Fiscal Year Ended January 31, 2011
Fiscal year ended January 31, 2010 Product Group
Bookings (a) Q1 Q2 Q3
YEAR Q1 Q2 Q3
Q4 YEAR Q1 Q2
Q3 Q4 YEAR Integrated Systems
Design 25% 25% 15%
20% 15% 20%
20% 25%
20% 20% 20% 20%
20%
20% IC Design to Silicon 15% 25% 60%
40% 35% 40% 45% 30%
40% 45% 40% 45% 45%
45%
Scalable Verification 35% 30% 15%
25% 35% 25% 20% 30%
25% 20% 25% 15% 20%
20% New & Emerging Products
10% 15% 5%
10% 10% 5% 10% 10%
10% 10% 10% 15% 10%
10% Services & Other 15% 5% 5%
5% 5% 10% 5% 5%
5% 5%
5% 5% 5%
5% Total
100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% Fiscal Year Ended January 31, 2012
Fiscal Year Ended January 31, 2011 Fiscal year ended
January 31, 2010 Product Group Revenue (b) Q1
Q2 Q3 YEAR Q1
Q2 Q3 Q4
YEAR Q1 Q2 Q3
Q4 YEAR Integrated Systems Design 20% 25% 25%
25% 25% 30% 25% 30%
25% 20% 20% 30% 25%
25% IC
Design to Silicon 40% 25% 40%
35% 40% 35% 35% 30%
35%
45% 40% 35% 40%
40% Scalable Verification 25% 30% 25%
25% 20% 20% 30% 25%
25% 20% 25% 20% 25%
20%
New & Emerging Products 10% 10% 5%
10% 5% 5% 5% 10%
5% 10% 10% 10% 5%
10% Services & Other 5%
10% 5%
5% 10% 10% 5% 5%
10% 5% 5% 5% 5%
5%
Total 100% 100% 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% Fiscal Year Ended January 31, 2012
Fiscal Year Ended January 31, 2011 Fiscal year ended
January 31, 2010 Bookings by Geography Q1
Q2 Q3 YEAR Q1
Q2 Q3 Q4 YEAR
Q1 Q2 Q3 Q4
YEAR North America 45% 40% 40%
40% 45% 40% 45% 50%
45% 40% 55% 45% 40%
45% Europe 20% 30% 15%
20%
20% 25% 20% 20%
20% 25% 25% 15% 25%
20% Japan 15% 10%
10%
10% 15% 5% 15% 15%
15% 25% 5% 20% 15%
15%
Pac Rim 20% 20% 35%
30% 20% 30%
20% 15%
20% 10% 15% 20%
20%
20% Total 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% Fiscal Year Ended
January 31, 2012 Fiscal Year Ended January 31, 2011
Fiscal year ended January 31, 2010 Revenue by
Geography Q1 Q2 Q3
YEAR Q1 Q2 Q3
Q4 YEAR Q1 Q2
Q3 Q4 YEAR North America 40% 45%
45%
45% 35% 40% 50% 50%
45% 40% 50% 40% 40%
45% Europe 20% 20% 25%
20% 25% 25% 25% 20%
25%
20% 30% 25% 30%
25% Japan 20% 15% 10%
15% 20% 10% 10%
15%
10% 20% 5% 15% 15%
15% Pac Rim 20% 20%
20%
20% 20% 25% 15% 15%
20% 20% 15% 20% 15%
15% Total 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 100% Fiscal Year Ended January
31, 2012 Fiscal Year Ended January 31, 2011 Fiscal
year ended January 31, 2010 Bookings by Business Model
(c) Q1 Q2 Q3
YEAR Q1 Q2 Q3
Q4 YEAR Q1 Q2
Q3 Q4 YEAR Perpetual 40% 20% 15%
20% 40% 30% 15% 15%
25% 15% 25% 20% 10%
15%
Ratable 20% 10% 5%
10% 20% 15% 5% 5%
10% 15% 15% 15%
15%
15% Up Front 40% 70% 80%
70%
40% 55% 80% 80%
65% 70%
60% 65% 75%
70% Total
100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% Fiscal Year Ended January 31, 2012
Fiscal Year Ended January 31, 2011 Fiscal year ended
January 31, 2010 Revenue by Business Model (c) Q1
Q2 Q3 YEAR Q1
Q2 Q3 Q4
YEAR Q1 Q2 Q3
Q4 YEAR Perpetual 30% 25% 15%
25% 20%
25% 25% 15%
20% 15% 25% 15% 10%
15% Ratable 10% 15%
10%
10% 25% 15% 10% 10%
15% 10% 15% 15% 10%
15% Up Front 60% 60% 75%
65% 55%
60% 65% 75%
65% 75% 60%
70% 80%
70% Total 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
The following table reconciles management's estimates of the
specific items excluded from GAAP in the calculation of estimated
non-GAAP net income per share for Q4'12 and fiscal 2012.
Estimated Estimated Q412
FY12 Diluted GAAP net income per share $0.46 $0.69 Non-GAAP
Adjustments: Amortization of purchased intangible assets (1) 0.02
0.09 Amortization of other identified intangible assets (2) 0.02
0.09 Equity plan-related compensation (3) 0.05 0.19 Special charges
(4) - 0.07 Other expense, net and interest expense (5) - 0.13
Non-GAAP income tax effects (6) (0.05) (0.21) Non-GAAP net income
per share $0.50 $1.05
(1) Excludes
amortization of purchased intangible assets resulting from
acquisition transactions. Purchased intangible assets are amortized
over two to five years.
(2) Excludes amortization of other
identified intangible assets including trade names, customer
relationships, and backlog resulting from acquisition transactions.
Other identified intangible assets are amortized over two to five
years. This line item also excludes amortization of purchased
intangible assets identified as part of the fair value of the
Frontline P.C.B. Solutions Limited Partnership investment. The
purchased technology will be amortized over three years and other
identified intangible assets will be amortized over three to four
years.
(3) Excludes equity plan-related compensation
expense.
(4) Excludes special charges consisting primarily
of consulting fees associated with our proxy contest, costs
incurred for employee rebalances (which includes severance
benefits, notice pay and outplacement services), facility closures,
and acquisition costs.
(5) Adjustment for fiscal 2012,
reflects the amortization of original issuance debt discount and
premium for our 6.25% Convertible Subordinated Debentures due 2026,
the amortization of original issuance debt discount for our 4.00%
Convertible Subordinated Debentures due 2031, and charges
associated with the retirement of our 6.25% Convertible
Subordinated Debentures and Term Loan.
(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
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
MEASURES
(In millions, except percentages)
Estimated
Twelve Months Ended January 31, FY 2012 GAAP
operating income $ 108.1 Reconciling items to non-GAAP operating
income: Equity plan-related compensation 21.4 Amortization of
purchased technology 9.7
Amortization of Frontline purchased
technology and other identified intangible assets
4.9 Amortization of other identified intangible assets 5.8 Special
Charges 7.4 Non-GAAP operating income $ 157.3
Twelve Months Ended January 31, 2012 GAAP
operating income as a percent of total revenues 11% Non-GAAP
adjustments detailed above 5% Non-GAAP operating income as a
percent of total revenues 16%
Mentor Graphics Corp. (NASDAQ:MENT)
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