Mentor Graphics Corporation (NASDAQ: MENT) today announced
financial results for the company’s fiscal fourth quarter and year
ended January 31, 2012. The company reported revenues of $320.4
million, non-GAAP earnings per share of $.58, and GAAP earnings per
share of $.52. For the full fiscal year, revenues were $1,014.6
million, non-GAAP earnings per share were $1.13, and GAAP earnings
per share were $.74.
“It was a quarter and a year of records for the company,
including the significant milestone of crossing one billion dollars
in revenues,” said Walden C. Rhines, chairman and CEO of Mentor
Graphics. “We exited the year with very strong momentum as our
strategy of diversification has driven growth in non-traditional
EDA applications like manufacturing, thermal analysis and embedded
software, all of which grew bookings faster than the overall
company. Additionally, the growing complexity of chips and the
challenges of the 28nm and 20nm process nodes have generated
substantial demand for both our functional verification and our
design-to-silicon products.”
For the full fiscal year, the company grew staffing 1.4%,
including acquisitions, while growing revenues 10.9%. Non-GAAP
operating margins for the year reached 16.5% and 11.1% on a GAAP
basis. For the fourth quarter, operating expense was flat
year-on-year on a non-GAAP basis, and up 2.3% on a GAAP basis. For
the full fiscal year, non-GAAP operating expense was up 3.0%, and
3.3% on a GAAP basis.
During the quarter, the company announced the Hyperlynx® 8.2
product which now offers three-dimensional full-wave field solving
and thermal/power co-simulation capability. The company also
announced a partnership with Freescale Semiconductor to deliver
high-speed simulation and virtual prototyping environments for
next-generation Freescale multi-core embedded processors. In
December, Mentor acquired Flowmaster, a world leader in
one-dimensional computational fluid dynamics simulation software
used to analyze complex fluid flow network systems. Also in the
quarter, the company announced a new version of its
three-dimensional computational fluid dynamics simulation software
that offers new analytic capabilities for radiation, combustion and
hypersonic flows. The company introduced the first solution that
addresses the challenges of light emitting diode (LED) and
semiconductor packaging thermal characterization, combining the
FloTHERM® and T3ster® products. In manufacturing, the company
announced Capital Harness MPM, a product that helps wire harness
manufacturers cut production costs.
“The company has delivered significant improvements in our
SG&A to revenues ratio over the year, driven by both strong
cost controls and improvements in the business,” said Gregory K.
Hinckley, president of Mentor Graphics. “We made great strides this
year toward the company’s goal of achieving 20% operating margins,
and with incremental improvements, expect to achieve that target in
FY2014. With continued discipline in the business, we expect to
grow earnings per share at twice the rate of revenue growth in the
coming fiscal year. Our past investments in a multi-tiered sales
channel allow us to address the universe of tens of thousands of
systems companies versus the hundreds of semiconductor companies
which gives us, uniquely among our competitors, the reach to
penetrate traditionally under-served adjacent design markets.”
Outlook
For the full fiscal year 2013, the company expects revenues of
about $1.1 billion, non-GAAP earnings per share of about $1.32, and
GAAP earnings per share of approximately $1.13. For the first
quarter of fiscal 2013, the company expects revenues of about $255
million, non-GAAP earnings per share of about $.25, and GAAP
earnings per share of approximately $.19.
Share Repurchase Authorization
The company’s board has increased the share repurchase
authorization to $200 million from the original $150 million.
During fiscal year 2012 the company repurchased 6.8 million shares
for $90 million at an average cost of $13.22 per share. Under this
increased authorization, $110 million is available for share
repurchase over the next two years.
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, 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 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.
- 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 year ended January 31, 2012 is a benefit
of (1)%. 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 business 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 incentive 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 $1,015 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, HyperLynx, FloTHERM, T3ster and
Capital are registered trademarks and Harness is a trademark 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) 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;
(ii) 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; (iii) possible
delayed or canceled customer orders resulting from the business
disruption and uncertainty of actions of activist shareholders;
(iv) effects of the volatility of foreign currency fluctuations on
the company’s business and operating results; (v) changes in
accounting or reporting rules or interpretations; (vi) 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; (vii) effects of unanticipated
shifts in product mix on gross margin; and (viii) 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 INCOME
(In thousands, except earnings per share data)
Three Months Ended January 31, Twelve Months Ended
January 31, 2012 2011
2012 2011
Revenues: System and software $ 220,046 $ 216,313 $ 631,549
$ 562,355 Service and support 100,309 90,992
383,089 352,398 Total revenues
320,355 307,305 1,014,638
914,753
Cost of revenues: (1) System and
softwarea 13,737 13,984 54,972 42,865 Service and supporta 29,014
27,382 108,690 99,612 Amortization of purchased technology
1,924 3,343 9,796 13,771
Total cost of revenuesa 44,675 44,709
173,458 156,248 Gross margina
275,680 262,596 841,180
758,505
Operating expenses: Research and
developmenta (2) 90,180 88,573 310,758 296,631 Marketing and
sellinga (3) 89,890 87,699 326,608 312,834 General and
administrationa (4) 22,756 25,421 74,811 80,948 Equity in earnings
of Frontline (5) (246 ) (290 ) (2,268 ) (2,051 ) Amortization of
intangible assets (6) 1,544 1,605 5,905 7,347 Special charges (7)
5,786 2,205 13,174
10,257 Total operating expensesa 209,910
205,213 728,988 705,966
Operating incomea 65,770 57,383 112,192 52,539 Other
income (expense), net (8) (314 ) (755 ) 1,576 (2,116 ) Interest
expense (9) (4,755 ) (5,033 ) (31,444 )
(18,411 ) Income before income tax 60,701 51,595 82,324 32,012
Income tax expense (benefit) (10) 3,366 996
(1,063 ) 3,428 Net incomea 57,335
50,599 83,387 28,584 Less: Loss attributable to noncontrolling
interest (11) (485 ) - (485 ) -
Net income attributable to Mentor Graphics
shareholdersa
$ 57,820 $ 50,599 $ 83,872 $ 28,584
Net income per share attributable to
Mentor Graphics shareholders:
Basic $ 0.53 $ 0.46 $ 0.76 $ 0.27
Diluted $ 0.52 $ 0.45 $ 0.74 $ 0.26
Weighted average number of shares outstanding: Basic 109,290
110,128 110,138 107,743
Diluted 112,122 113,082
112,915 109,861
a Certain items have been reclassified
between cost of revenues and operating expenses, and within
operating expenses for the twelve months ended January 31, 2012,
and the three and twelve months ended January 31, 2011. 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 or net
income for the twelve months ended January 31, 2012, and the three
and twelve months ended January 31, 2011. Additional discussion
regarding the reclassifications will be provided in our Annual
Report on Form 10-K for the year ended January 31, 2012.
Refer to following page for a description of footnotes.
MENTOR GRAPHICS
CORPORATION
FOOTNOTES TO
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(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,
2012 2011 2012
2011 (1) Cost of revenues:
Equity plan-related compensation $ 312 $ 217 $ 1,065 $ 888
Amortization of purchased technology 1,924
3,343 9,796 13,771 $ 2,236
$ 3,560 $ 10,861 $ 14,659
(2)
Research and development: Equity plan-related compensation $
2,084 $ 1,778 $ 8,203 $ 7,785
(3) Marketing and selling: Equity plan-related compensation
$ 1,481 $ 1,310 $ 5,874 $ 6,112
(4) General and administration: Equity plan-related
compensation $ 1,158 $ 615 $ 6,516 $ 5,726
(5) Equity in earnings of Frontline:
Amortization of purchased technology and
other identified intangible assets
$ 1,242 $ 1,242 $ 4,968 $ 4,347
(6) Amortization of intangible assets: Amortization of other
identified intangible assets $ 1,544 $ 1,605 $ 5,905
$ 7,347
(7) Special charges: Rebalance,
restructuring, and other costs $ 5,786 $ 2,205 $
13,174 $ 10,257
(8) Other income (expense),
net: Net (gain) loss of unconsolidated entities $ 40 $
667 $ (1,392 ) $ 938
(9) Interest
expense: Amortization of debt discount and premium, net $ 1,272
$ 755 $ 4,925 $ 2,981 Premium and costs related to debt retirement
- - 11,504 345
$ 1,272 $ 755 $ 16,429 $ 3,326
(10) Income tax expense (benefit): Non-GAAP income
tax effects $ (9,817 ) $ (10,110 ) $ (27,050 ) $ (12,298 )
(11) Loss attributable to noncontrolling interest:
Amortization of intangible assets and income tax effects $ (151 ) $
- $ (151 ) $ -
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, 2012 2011
2012 2011 GAAP net income
attributable to Mentor Graphics shareholders $ 57,820 $ 50,599 $
83,872 $ 28,584 Non-GAAP adjustments: Equity plan-related
compensation: (1) Cost of revenues 312 217 1,065 888 Research and
development 2,084 1,778 8,203 7,785 Marketing and selling 1,481
1,310 5,874 6,112 General and administration 1,158 615 6,516 5,726
Acquisition - related items: Amortization of purchased assets Cost
of revenues (2) 1,924 3,343 9,796 13,771 Frontline purchased
technology and intangible assets (3) 1,242 1,242 4,968 4,347
Amortization of intangible assets (4) 1,544 1,605 5,905 7,347
Special charges (5) 5,786 2,205 13,174 10,257 Other income
(expense), net (6) 40 667 (1,392 ) 938 Interest expense (7) 1,272
755 16,429 3,326 Non-GAAP income tax effects (8) (9,817 ) (10,110 )
(27,050 ) (12,298 ) Noncontrolling interest (9) (151 )
- (151 ) - Total of non-GAAP
adjustments 6,875 3,627 43,337
48,199 Non-GAAP net income attributable to
Mentor Graphics shareholders $ 64,695 $ 54,226 $
127,209 $ 76,783 GAAP weighted average shares
(diluted) 112,122 113,082 112,915 109,861 Non-GAAP adjustment
- - - -
Non-GAAP weighted average shares (diluted) 112,122
113,082 112,915 109,861
Net income per share attributable to Mentor Graphics
shareholders: GAAP (diluted) $ 0.52 $ 0.45 $ 0.74 $ 0.26 Non-GAAP
adjustments detailed above 0.06 0.03
0.39 0.44 Non-GAAP (diluted) $ 0.58
$ 0.48 $ 1.13 $ 0.70
(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 note (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 January 31, 2012: Special charges consist of (i) $4,856 of
costs incurred for employee rebalances which includes severance
benefits, notice pay, and outplacement services, (ii) $490 in
acquisition costs, (iii) $234 related to the abandonment of excess
lease space, (iv) $99 in consulting fees associated with our proxy
contest, and (v) $107 in other adjustments. 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. Twelve months
ended January 31, 2012: Special charges consist of (i) $8,437 of
costs incurred for employee rebalances which includes severance
benefits, notice pay, and outplacement services, (ii) $4,066 in
consulting fees associated with our proxy contest, (iii) $515
related to the abandonment of excess lease space, (iv) $(55) in
acquisition costs, and (v) $211 in other adjustments. 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 adjustments.
(6) Three months ended January 31, 2012:
Loss of $40 on investment accounted for under the equity method of
accounting. Three months ended January 31, 2011: Loss of $667 on
investment accounted for under the equity method of accounting.
Twelve months ended January 31, 2012: Gain of $(1,519) resulting
from a change from an equity method investment to a controlling
interest and loss of $127 on investments 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.
(7) Three months ended January 31, 2012: $1,272
in amortization of original issuance debt discount. Three months
ended January 31, 2011: $755 in amortization of original issuance
debt discount and bond premiums, net. Twelve months ended January
31, 2012: $4,925 in amortization of original issuance debt discount
and bond premiums, net and $11,504 for the premium and other costs
related to the retirement of the 6.25% convertible debentures and
the term loan. Twelve months ended January 31, 2011: $2,981 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.
(9) Adjustment for the impact of amortization of
intangible assets and income tax expense on noncontrolling
interest.
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,
2012 2011 2012
2011 GAAP gross margin $ 275,680 $
262,596 $ 841,180 $ 758,505 Reconciling items to non-GAAP gross
margin: Equity plan-related compensation 312 217 1,065 888
Amortization of purchased technology 1,924
3,343 9,796 13,771 Non-GAAP
gross margin $ 277,916 $ 266,156 $ 852,041 $
773,164
Three Months Ended January 31,
Twelve Months Ended January 31, 2012
2011 2012
2011 GAAP gross margin as a percent of total revenues
86.1 % 85.5 % 82.9 % 82.9 % Non-GAAP adjustments detailed above
0.7 % 1.1 % 1.1 % 1.6 % Non-GAAP gross
margin as a percent of total revenues 86.8 % 86.6 %
84.0 % 84.5 %
Three Months Ended
January 31, Twelve Months Ended January 31,
2012 2011 2012
2011 GAAP operating expenses $ 209,910
$ 205,213 $ 728,988 $ 705,966 Reconciling items to non-GAAP
operating expenses: Equity plan-related compensation (4,723 )
(3,703 ) (20,593 ) (19,623 )
Amortization of Frontline purchased
technology and other identified intangible assets
(1,242 ) (1,242 ) (4,968 ) (4,347 ) Amortization of other
identified intangible assets (1,544 ) (1,605 ) (5,905 ) (7,347 )
Special charges (5,786 ) (2,205 ) (13,174 )
(10,257 ) Non-GAAP operating expenses $ 196,615 $
196,458 $ 684,348 $ 664,392
Three Months Ended January 31, Twelve Months Ended
January 31, 2012 2011
2012 2011 GAAP operating
income $ 65,770 $ 57,383 $ 112,192 $ 52,539 Reconciling items to
non-GAAP operating income: Equity plan-related compensation 5,035
3,920 21,658 20,511 Amortization of purchased technology 1,924
3,343 9,796 13,771
Amortization of Frontline purchased
technology and other identified intangible assets
1,242 1,242 4,968 4,347 Amortization of other identified intangible
assets 1,544 1,605 5,905 7,347 Special Charges 5,786
2,205 13,174 10,257
Non-GAAP operating income $ 81,301 $ 69,698 $ 167,693
$ 108,772
Three Months Ended January
31, Twelve Months Ended January 31, 2012
2011 2012
2011 GAAP operating income as a percent of total
revenues 20.5 % 18.7 % 11.1 % 5.7 % Non-GAAP adjustments detailed
above 4.9 % 4.0 % 5.4 % 6.2 % Non-GAAP
operating income as a percent of total revenues 25.4 %
22.7 % 16.5 % 11.9 %
Three
Months Ended January 31, Twelve Months Ended January 31,
2012 2011
2012 2011 GAAP other expense,
net and interest expense $ (5,069 ) $ (5,788 ) $ (29,868 ) $
(20,527 )
Reconciling items to non-GAAP other
expense, net and interest expense:
Net (gain) loss of unconsolidated entities 40 667 (1,392 ) 938
Amortization of debt discount and retirement costs 1,272
755 16,429 3,326
Non-GAAP other expense, net and interest expense $ (3,757 ) $
(4,366 ) $ (14,831 ) $ (16,263 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31, January 31,
2012 2011 Assets
Current assets: Cash, cash equivalents, and short-term
investments $ 146,499 $ 133,113 Restricted cash 4,237 - Trade
accounts receivable, net 133,494 153,733 Term receivables,
short-term 197,192 193,342 Prepaid expenses and other 43,972 37,124
Deferred income taxes 17,803 15,992
Total current assets 543,197 533,304
Property, plant, and
equipment, net 148,019 139,340
Term receivables,
long-term 244,593 167,425
Goodwill and intangible assets,
net 555,671 541,697
Other assets 53,850
46,212 Total assets $ 1,545,330 $ 1,427,978
Liabilities and Stockholders' Equity Current
liabilities: Short-term borrowings $ 14,617 $ 15,544 Current
portion of notes payable 1,349 2,000 Accounts payable 17,261 16,724
Income taxes payable 2,538 5,517 Accrued payroll and related
liabilities 112,349 109,173 Accrued liabilities 34,284 39,513
Deferred revenue 191,540 171,416 Total
current liabilities 373,938 359,887
Long-term notes payable
213,224 207,348
Deferred revenue, long-term 14,883 13,953
Other long-term liabilities 67,945 70,076
Total liabilities 669,990 651,264
Noncontrolling interest with redemption feature 9,266
-
Stockholders' equity: Common stock 775,362 765,179
Retained earnings (accumulated deficit) 62,032 (20,158 )
Accumulated other comprehensive income 28,680 31,693
Total stockholders' equity 866,074 776,714
Total liabilities and stockholders' equity $
1,545,330 $ 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 January 31,
Twelve Months Ended January 31, 2012
2011 2012
2011 Operating activities Net income $ 57,335
$ 50,599 $ 83,387 $ 28,584 Depreciation and amortization (1) 12,850
13,902 62,197 57,075 Other adjustments to reconcile: Operating cash
15,481 2,354 34,167 13,593 Changes in working capital
(16,920 ) 8,258 (75,813 ) (17,044 )
Net cash provided by operating activities 68,746 75,113
103,938 82,208
Investing activities Net cash used in
investing activities (34,561 ) (21,778 ) (60,792 ) (72,750 )
Financing activities Net cash provided by (used in)
financing activities 1,030 15,234 (29,759 ) 22,110 Effect of
exchange rate changes on cash and cash equivalents (705 )
257 (1 ) 2,205 Net change
in cash and cash equivalents 34,510 68,826 13,386 33,773 Cash and
cash equivalents at beginning of period 111,989
64,287 133,113 99,340
Cash and cash equivalents at end of period $ 146,499
$ 133,113 $ 146,499 $ 133,113
(1) Depreciation and amortization
includes a write-off of note issuance costs in the amount of $8,010
for the twelve months ended January 31, 2012 and $132 for the
twelve months ended January 31, 2011.
Other data: Capital expenditures $ 16,493
$ 10,406 $ 41,555 $ 47,175 Days sales
outstanding 93 102
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 Q4 Year
Q1 Q2 Q3 Q4 Year Q1
Q2 Q3 Q4 Year IC Design to Silicon 20%
25% 60% 40% 40% 35% 40% 45% 30% 35% 45% 40% 45% 45% 45% Scalable
Verification 35% 30% 15% 35% 30% 35% 25% 25% 30% 25% 20% 25% 15%
20% 20% Integrated Systems Design 25% 25% 15% 15% 15% 15% 25% 20%
25% 25% 20% 20% 20% 20% 20% New & Emerging Markets 10% 15% 5%
5% 10% 10% 5% 5% 10% 10% 10% 5% 10% 10% 5% Services & Other 10%
5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 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, 2012 Fiscal Year
Ended January 31, 2011 Fiscal Year Ended January 31,
2010 Product Group Revenue (b) Q1 Q2
Q3 Q4 Year Q1 Q2 Q3
Q4 Year Q1 Q2 Q3 Q4
Year IC Design to Silicon 40% 25% 40% 45% 40% 40% 40% 35%
30% 35% 50% 40% 35% 40% 40% Scalable Verification 25% 30% 25% 25%
25% 20% 20% 30% 30% 25% 20% 25% 20% 25% 25% Integrated Systems
Design 20% 30% 25% 20% 25% 25% 30% 25% 30% 30% 20% 25% 30% 25% 25%
New & Emerging Markets 10% 10% 5% 5% 5% 10% 5% 5% 5% 5% 5% 5%
10% 5% 5% Services & Other 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
5% 5% 5%
Total 100% 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 Q4 Year
Q1 Q2 Q3 Q4 Year Q1
Q2 Q3 Q4 Year North America 45% 45% 40%
50% 45% 45% 40% 45% 50% 45% 40% 55% 45% 40% 45% Europe 20% 30% 15%
25% 20% 20% 25% 20% 20% 20% 25% 25% 15% 25% 25% Japan 15% 5% 5% 10%
10% 15% 5% 15% 15% 15% 25% 5% 20% 15% 15% Pac Rim 20% 20% 40% 15%
25% 20% 30% 20% 15% 20% 10% 15% 20% 20% 15%
Total 100% 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
Q4 Year Q1 Q2 Q3 Q4
Year Q1 Q2 Q3 Q4 Year
North America 40% 50% 45% 35% 40% 35% 40% 50% 45% 40% 40% 45% 40%
40% 40% Europe 25% 20% 25% 25% 25% 25% 25% 25% 25% 25% 20% 30% 25%
25% 25% Japan 15% 10% 10% 5% 10% 15% 10% 10% 15% 15% 20% 10% 15%
20% 15% Pac Rim 20% 20% 20% 35% 25% 25% 25% 15% 15% 20% 20% 15% 20%
15% 20%
Total 100% 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 Q4 Year
Q1 Q2 Q3 Q4 Year Q1
Q2 Q3 Q4 Year Perpetual 40% 15% 15% 25%
20% 40% 30% 15% 15% 20% 15% 25% 20% 10% 20% Ratable 20% 10% 5% 5%
10% 20% 10% 5% 5% 10% 15% 10% 10% 10% 10% Up Front 40% 75% 80% 70%
70% 40% 60% 80% 80% 70% 70% 65% 70% 80% 70%
Total 100% 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 Q4 Year Q1 Q2 Q3
Q4 Year Q1 Q2 Q3 Q4
Year Perpetual 30% 25% 15% 15% 20% 20% 25% 20% 15% 20% 10%
30% 15% 10% 15% Ratable 10% 10% 10% 5% 10% 15% 15% 10% 5% 10% 10%
10% 10% 10% 10% Up Front 60% 65% 75% 80% 70% 65% 60% 70% 80% 70%
80% 60% 75% 80% 75%
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
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 Q1'13 and fiscal 2013.
Estimated Estimated Q1'13
FY'13 Diluted GAAP net income per share $0.19 $1.13 Non-GAAP
Adjustments: Amortization of purchased intangible assets (1) 0.02
0.07 Amortization of other identified intangible assets (2) 0.03
0.09 Equity plan-related compensation (3) 0.05 0.18 Other expense,
net and interest expense (4) 0.01 0.05 Non-GAAP income tax effects
(5) (0.05 ) (0.19 ) Noncontrolling Interest (6) - (0.01 )
Non-GAAP net income per share $0.25 $1.32
(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)
Adjustment for fiscal 2013 reflects the amortization of original
issuance debt discount for our 4.00% Convertible Subordinated
Debentures due 2031.
(5) 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.
(6) Adjustment for amortization of
intangible assets and income tax expense on noncontrolling
interest.
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