Mentor Graphics Corporation (NASDAQ:MENT) today announced
financial results for the company’s fiscal second quarter ended
July 31, 2012. The company reported revenue of $240.8 million,
non-GAAP earnings per share of $.21, and GAAP earnings per share of
$.16. During the quarter, the company continued its share buy-back,
repurchasing 1.4 million shares for $20 million. Since the first
fiscal quarter of 2012, the company has repurchased 8.2 million
shares for $110 million.
“Revenues and earnings were an all-time record for a second
quarter, and bookings were at the second highest level for any
second quarter in company history,” said Walden C. Rhines, chairman
and CEO of Mentor Graphics. “Like the whole electronic design
automation industry, Mentor is benefiting from the transition to
20nm and 28nm which is driving significant design activity and
resultant software demand. Additionally, the company’s investments
in system design, and non-traditional electronic design automation
markets like embedded software, helped produce the strong results
in the quarter. We are on track for record revenue and earnings for
fiscal year 2013.”
During the quarter, the company announced collaborations with
TSMC, GLOBALFOUNDRIES and Samsung in advanced process nodes. Mentor
also introduced a GENIVI 2.0-compliant, Linux-based, in-vehicle
infotainment solution. The company’s Capital tool suite for
transportation electrical systems design was accredited to IBM’s
“Ready for IBM Rational” program. Mentor also introduced a unique,
general-purpose software solution that combines one-dimensional and
three-dimensional computational fluid dynamics—the first result
from the merged technologies made possible by the recent
acquisition of Flowmaster Ltd.
“We are pleased with our performance this quarter, beating our
guidance by four cents. With continued focus on cost controls, 55%
of incremental year-over-year revenues dropped through to operating
income,” said Gregory K. Hinckley, president of Mentor Graphics. “A
weak euro, a weak rupee, and a strong yen worked to our advantage.
We reaffirm revenue guidance of $1.1 billion and are raising our
earnings estimate.”
Outlook
For the full fiscal year 2013, the company reaffirms that it
expects revenues of about $1.1 billion, and raises the outlook for
non-GAAP earnings per share by $0.01 to approximately $1.38, and
GAAP earnings per share by $0.03 to about $1.23. For the third
fiscal quarter 2013, the company expects revenues of about $265
million, non-GAAP earnings per share of about $0.28, and GAAP
earnings per share of approximately $0.23.
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.
- Equity in earnings or losses of
unconsolidated entities 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 (with the exception of our
investment in Frontline as discussed below) 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 this investment as 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 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 six months ended July 31, 2012 is (5%),
after the consideration of period specific items. Without period
specific items of ($5.2) million, our GAAP tax rate is 8%. Our full
fiscal year 2013 GAAP tax rate, inclusive of period specific items,
is projected to be 4%. 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 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 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 also
facilitates comparison with other companies in our industry, which
use similar financial measures to supplement their GAAP results.
Non-GAAP net income 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 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
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
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, 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) recession or weakness in the EU, US, Japan, China or
other economies, including recession or weakness associated with
the EU debt crisis; (ii) the company’s ability to successfully
offer products and services that compete in the highly competitive
EDA industry, including the risk of production delays or
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) effects of unanticipated shifts in
hardware and software product mix on gross margin; (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) possible delayed or canceled customer
orders resulting from the uncertainty created by actions of
activist shareholders; 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 INCOME (In
thousands, except earnings per share data)
Three Months Ended July 31, Six
Months Ended July 31, 2012 2011
2012 2011 Revenues: System and
software $ 139,957 $ 117,495 $ 289,313 $ 257,140 Service and
support 100,854 96,245 199,416
186,635 Total revenues 240,811
213,740 488,729 443,775
Cost of revenues: (1) System and software 15,292 14,294
30,082 30,371 Service and support 29,130 26,844 57,544 52,055
Amortization of purchased technology 2,154
2,754 4,333 6,111 Total cost of
revenues 46,576 43,892 91,959
88,537 Gross margin 194,235
169,848 396,770 355,238
Operating expenses: Research and development (2) 72,951
69,905 143,997 139,273 Marketing and selling (3) 79,068 75,758
158,820 153,682 General and administration (4) 19,865 17,348 36,514
34,133 Equity in earnings of Frontline (5) (662 ) (1,139 ) (1,249 )
(2,156 ) Amortization of intangible assets (6) 1,599 1,455 3,305
3,065 Special charges (7) 1,507 1,677
2,654 6,224 Total operating expenses
174,328 165,004 344,041
334,221
Operating income 19,907 4,844 52,729
21,017 Other income (expense), net (8) (379 ) 529 (296 ) 54
Interest expense (9) (4,737 ) (4,634 ) (9,331
) (22,074 ) Income (loss) before income tax 14,791 739
43,102 (1,003 ) Income tax benefit (10) (2,764 )
(3,595 ) (1,983 ) (2,984 ) Net income 17,555 4,334
45,085 1,981 Less: Loss attributable to noncontrolling interest
(11) (612 ) - (1,264 ) -
Net income attributable to Mentor Graphics shareholders $ 18,167
$ 4,334 $ 46,349 $ 1,981 Net income per
share attributable to Mentor Graphics shareholders: Basic $ 0.17
$ 0.04 $ 0.42 $ 0.02 Diluted $ 0.16
$ 0.04 $ 0.41 $ 0.02 Weighted average
number of shares outstanding: Basic 109,875
110,027 109,891 110,888 Diluted
113,046 112,844 113,078
113,892 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 July 31, Six Months
Ended July 31, 2012 2011
2012 2011 (1) Cost of revenues:
Equity plan-related compensation $ 368 $ 237 $ 687 $ 504
Amortization of purchased technology 2,154
2,754 4,333 6,111 $ 2,522
$ 2,991 $ 5,020 $ 6,615
(2) Research
and development: Equity plan-related compensation $ 2,215
$ 1,975 $ 4,332 $ 4,114
(3)
Marketing and selling: Equity plan-related compensation $ 1,625
$ 1,413 $ 3,174 $ 3,028
(4)
General and administration: Equity plan-related compensation $
2,098 $ 2,204 $ 3,260 $ 3,863
(5) Equity in earnings of Frontline:
Amortization of purchased technology and
other identified intangible assets
$ 1,242 $ 1,242 $ 2,484 $ 2,484
(6) Amortization of intangible assets: Amortization of other
identified intangible assets $ 1,599 $ 1,455 $ 3,305
$ 3,065
(7) Special charges: Rebalance,
restructuring, and other costs $ 1,507 $ 1,677 $
2,654 $ 6,224
(8) Other income (expense),
net: Net (gain) loss of unconsolidated entities $ (59 ) $ 52
$ (72 ) $ 52
(9) Interest expense:
Amortization of debt discount and premium, net $ 1,318 $ 1,228 $
2,613 $ 2,403 Premium and costs related to debt retirement -
- - 11,504 $ 1,318
$ 1,228 $ 2,613 $ 13,907
(10)
Income tax benefit: Non-GAAP income tax effects $ (7,670 ) $
(6,141 ) $ (13,861 ) $ (10,183 )
(11) Loss attributable
to noncontrolling interest: Amortization of intangible assets
and income tax effects $ (333 ) $ - $ (602 ) $ -
MENTOR GRAPHICS CORPORATION
UNAUDITED RECONCILIATION OF NON-GAAP
ADJUSTMENTS (In thousands, except earnings per share
data)
Three Months Ended July
31, Six Months Ended July 31, 2012
2011 2012 2011 GAAP net
income attributable to Mentor Graphics shareholders $ 18,167 $
4,334 $ 46,349 $ 1,981 Non-GAAP adjustments: Equity plan-related
compensation: (1) Cost of revenues 368 237 687 504 Research and
development 2,215 1,975 4,332 4,114 Marketing and selling 1,625
1,413 3,174 3,028 General and administration 2,098 2,204 3,260
3,863 Acquisition - related items: Amortization of purchased assets
Cost of revenues (2) 2,154 2,754 4,333 6,111 Frontline purchased
technology and intangible assets (3) 1,242 1,242 2,484 2,484
Amortization of intangible assets (4) 1,599 1,455 3,305 3,065
Special charges (5) 1,507 1,677 2,654 6,224 Other income (expense),
net (6) (59 ) 52 (72 ) 52 Interest expense (7) 1,318 1,228 2,613
13,907 Non-GAAP income tax effects (8) (7,670 ) (6,141 ) (13,861 )
(10,183 ) Noncontrolling interest (9) (333 ) -
(602 ) - Total of non-GAAP adjustments
6,064 8,096 12,307 33,169
Non-GAAP net income attributable to Mentor Graphics
shareholders $ 24,231 $ 12,430 $ 58,656 $
35,150 GAAP and Non-GAAP weighted average shares
(diluted) 113,046 112,844
113,078 113,892 Net income per share
attributable to Mentor Graphics shareholders: GAAP (diluted) $ 0.16
$ 0.04 $ 0.41 $ 0.02 Non-GAAP adjustments detailed above
0.05 0.07 0.11 0.29
Non-GAAP (diluted) $ 0.21 $ 0.11 $ 0.52
$ 0.31
(1 ) Equity plan-related
compensation expense is the fair value of all share-based payments
to employees for stock options and restricted stock units, and
purchases made as a result of the employee stock purchase plans.
(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. 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
July 31, 2012: Special charges consist of (i) $1,029 of costs
incurred for employee rebalances which includes severance benefits,
notice pay, and outplacement services and (ii) $478 in other
adjustments. Three months ended July 31, 2011: Special charges
consist of (i) $1,207 of costs incurred for employee rebalances
which includes severance benefits, notice pay, and outplacement
services, (ii) $736 of costs related to consulting fees associated
with our proxy contest, and (iii) $(266) in other adjustments. Six
months ended July 31, 2012: Special charges consist of (i) $2,017
of costs incurred for employee rebalances which includes severance
benefits, notice pay, and outplacement services and (ii) $637 in
other adjustments. Six months ended July 31, 2011: Special charges
consist of (i) $3,838 of costs related to consulting fees
associated with our proxy contest , (ii) $2,354 of costs incurred
for employee rebalances which includes severance benefits, notice
pay, and outplacement services, and (iii) $32 in other adjustments.
(6 ) Three months ended July 31, 2012: Income of $59
on investment accounted for under the equity method of accounting.
Three months ended July 31, 2011: Loss of $(52) on investment
accounted for under the equity method of accounting. Six months
ended July 31, 2012: Income of $72 on investment accounted for
under the equity method of accounting. Six months ended July 31,
2011: Loss of $(52) on investment accounted for under the equity
method of accounting.
(7 ) Three months ended July
31, 2012: $1,318 in amortization of original issuance debt
discount. Three months ended July 31, 2011: $1,228 in amortization
of original issuance debt discount. Six months ended July 31, 2012:
$2,613 in amortization of original issuance debt discount. Six
months ended July 31, 2011: $2,403 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.
(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,
equity plan-related compensation, 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 July 31, Six Months Ended July
31, 2012 2011 2012
2011 GAAP gross margin $ 194,235 $ 169,848 $ 396,770
$ 355,238 Reconciling items to non-GAAP gross margin: Equity
plan-related compensation 368 237 687 504 Amortization of purchased
technology 2,154 2,754 4,333
6,111 Non-GAAP gross margin $ 196,757 $
172,839 $ 401,790 $ 361,853
Three Months Ended July 31, Six Months Ended July 31,
2012 2011 2012
2011 GAAP gross margin as a percent of total revenues
80.7 % 79.5 % 81.2 % 80.0 % Non-GAAP adjustments detailed above
1.0 % 1.4 % 1.0 % 1.5 % Non-GAAP gross
margin as a percent of total revenues 81.7 % 80.9 %
82.2 % 81.5 %
Three Months Ended
July 31, Six Months Ended July 31, 2012
2011 2012 2011 GAAP
operating expenses $ 174,328 $ 165,004 $ 344,041 $ 334,221
Reconciling items to non-GAAP operating expenses: Equity
plan-related compensation (5,938 ) (5,592 ) (10,766 ) (11,005 )
Amortization of Frontline purchased
technology and other identified intangible assets
(1,242 ) (1,242 ) (2,484 ) (2,484 ) Amortization of other
identified intangible assets (1,599 ) (1,455 ) (3,305 ) (3,065 )
Special charges (1,507 ) (1,677 ) (2,654 )
(6,224 ) Non-GAAP operating expenses $ 164,042 $
155,038 $ 324,832 $ 311,443
Three Months Ended July 31, Six Months Ended July 31,
2012 2011 2012
2011 GAAP operating income $ 19,907 $ 4,844 $ 52,729
$ 21,017 Reconciling items to non-GAAP operating income: Equity
plan-related compensation 6,306 5,829 11,453 11,509 Amortization of
purchased technology 2,154 2,754 4,333 6,111
Amortization of Frontline purchased
technology and other identified intangible assets
1,242 1,242 2,484 2,484 Amortization of other identified intangible
assets 1,599 1,455 3,305 3,065 Special Charges 1,507
1,677 2,654 6,224
Non-GAAP operating income $ 32,715 $ 17,801 $ 76,958
$ 50,410
Three Months Ended July
31, Six Months Ended July 31, 2012
2011 2012 2011 GAAP
operating income as a percent of total revenues 8.3 % 2.3 % 10.8 %
4.7 % Non-GAAP adjustments detailed above 5.3 % 6.0 %
4.9 % 6.7 % Non-GAAP operating income as a percent of
total revenues 13.6 % 8.3 % 15.7 % 11.4
%
Three Months Ended July 31, Six Months
Ended July 31, 2012 2011
2012 2011 GAAP other expense, net and
interest expense $ (5,116 ) $ (4,105 ) $ (9,627 ) $ (22,020 )
Reconciling items to non-GAAP other
expense, net and interest expense:
Net gain of unconsolidated entities (59 ) 52 (72 ) 52 Amortization
of debt discount and retirement costs 1,318
1,228 2,613 13,907 Non-GAAP
other expense, net and interest expense $ (3,857 ) $ (2,825 ) $
(7,086 ) $ (8,061 )
MENTOR GRAPHICS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31, January
31, 2012 2012 Assets Current
assets: Cash and cash equivalents $ 146,361 $ 146,499
Restricted cash - 4,237 Trade accounts receivable, net 99,097
133,494 Term receivables, short-term 242,359 221,430 Prepaid
expenses and other 41,248 43,972 Deferred income taxes
15,386 17,803 Total current assets 544,451 567,435
Property, plant, and equipment, net 155,081 148,019
Term
receivables, long-term 217,338 220,355
Goodwill and
intangible assets, net 548,723 555,671
Other assets
64,067 59,195 Total assets $ 1,529,660 $
1,550,675
Liabilities and Stockholders' Equity
Current liabilities: Short-term borrowings $ 9,235 $ 14,617
Current portion of notes payable 1,369 1,349 Accounts payable
14,492 17,261 Income taxes payable 7,389 2,538 Accrued payroll and
related liabilities 50,796 112,349 Accrued and other liabilities
35,437 34,284 Deferred revenue 202,136 191,540
Total current liabilities 320,854 373,938
Long-term notes
payable 215,837 213,224
Deferred revenue, long-term
10,849 14,883
Other long-term liabilities 58,063
73,290 Total liabilities 605,603 675,335
Noncontrolling interest with redemption feature 8,226
9,266
Stockholders' equity: Common stock 785,755
775,362 Retained earnings 108,123 62,032 Accumulated other
comprehensive income 21,953 28,680 Total
stockholders' equity 915,831 866,074 Total
liabilities and stockholders' equity $ 1,529,660 $ 1,550,675
MENTOR GRAPHICS CORPORATION UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION (In thousands, except days sales
outstanding)
Three Months Ended July
31, Six Months Ended July 31, 2012
2011 2012 2011
Operating activities Net income $ 17,555 $ 4,334 $ 45,085 $
1,981 Depreciation and amortization (1) 13,199 13,779 27,012 36,190
Other adjustments to reconcile: Operating cash 3,493 5,761 10,193
12,916 Changes in working capital (6,005 ) 10,242
(47,903 ) (26,233 ) Net cash provided
by operating activities 28,242 34,116 34,387 24,854
Investing activities Net cash used in investing activities
(11,929 ) (10,279 ) (23,986 ) (18,660 )
Financing
activities Net cash used in financing activities (3,838 )
(17,662 ) (8,072 ) (17,409 ) Effect of exchange rate changes
on cash and cash equivalents (925 ) 813
(2,467 ) 1,571 Net change in cash and cash
equivalents 11,550 6,988 (138 ) (9,644 ) Cash and cash equivalents
at beginning of period 134,811 116,481
146,499 133,113 Cash and cash
equivalents at end of period $ 146,361 $ 123,469 $
146,361 $ 123,469
(1 )
Depreciation and amortization includes a write-off of note issuance
costs in the amount of $8,010 for the six months ended July 31,
2011.
Other data: Capital expenditures $
10,579 $ 10,279 $ 22,183 $ 16,624 Days
sales outstanding 128 116
MENTOR GRAPHICS CORPORATION UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION (Rounded
to nearest 5%)
2013 2012 2011
Product Group Bookings (a) Q1 Q2 Year
Q1 Q2 Q3 Q4 Year Q1
Q2 Q3 Q4 Year IC DESIGN TO SILICON 35 %
25 % 30 % 20 % 25 % 60 % 40 % 40 % 35 % 40 % 45 % 30 % 35 %
SCALABLE VERIFICATION 15 % 30 % 25 % 35 % 30 % 15 % 35 % 30 % 35 %
25 % 25 % 30 % 25 % INTEGRATED SYSTEMS DESIGN 25 % 25 % 25 % 25 %
25 % 15 % 15 % 15 % 15 % 25 % 20 % 25 % 25 % NEW & EMERGING
MARKETS 10 % 10 % 10 % 10 % 15 % 5 % 5 % 10 % 10 % 5 % 5 % 10 % 10
% SERVICES / OTHER 15 % 10 % 10 % 10 % 5 % 5 % 5 % 5 % 5 % 5 % 5 %
5 % 5 %
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100
% 100 % 100 % 100 % 100 % 100 %
2013 2012
2011 Product Group Revenue (b) Q1 Q2
Year Q1 Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4 Year IC DESIGN TO
SILICON 40 % 35 % 40 % 40 % 25 % 40 % 45 % 40 % 40 % 40 % 35 % 30 %
35 % SCALABLE VERIFICATION 25 % 25 % 25 % 25 % 30 % 25 % 25 % 25 %
20 % 20 % 30 % 25 % 25 % INTEGRATED SYSTEMS DESIGN 25 % 25 % 25 %
20 % 25 % 25 % 20 % 25 % 25 % 25 % 25 % 30 % 30 % NEW &
EMERGING MARKETS 5 % 10 % 5 % 10 % 10 % 5 % 5 % 5 % 5 % 5 % 5 % 10
% 5 % SERVICES / OTHER 5 % 5 % 5 % 5 % 10 % 5 % 5 % 5 % 10 % 10 % 5
% 5 % 5 %
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 %
100 % 100 % 100 % 100 % 100 % 100 %
2013 2012 2011 Bookings by Geography
Q1 Q2 Year Q1 Q2 Q3
Q4 Year Q1 Q2 Q3 Q4
Year North America 35 % 40 % 35 % 45 % 45 % 40 % 50 % 45 %
45 % 40 % 45 % 50 % 45 % Europe 20 % 35 % 30 % 20 % 30 % 15 % 25 %
20 % 20 % 25 % 20 % 20 % 20 % Japan 10 % 5 % 10 % 15 % 5 % 5 % 10 %
10 % 15 % 5 % 15 % 15 % 15 % Pac Rim 35 % 20 % 25 % 20 % 20 % 40 %
15 % 25 % 20 % 30 % 20 % 15 % 20 %
Total 100 % 100 % 100 %
100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
2013 2012 2011 Revenue by Geography
Q1 Q2 Year Q1 Q2 Q3
Q4 Year Q1 Q2 Q3 Q4
Year North America 50 % 45 % 45 % 40 % 50 % 45 % 35 % 40 %
35 % 40 % 50 % 45 % 40 % Europe 20 % 20 % 20 % 25 % 20 % 25 % 25 %
25 % 25 % 25 % 25 % 25 % 25 % Japan 10 % 15 % 15 % 15 % 10 % 10 % 5
% 10 % 15 % 10 % 10 % 15 % 15 % Pac Rim 20 % 20 % 20 % 20 % 20 % 20
% 35 % 25 % 25 % 25 % 15 % 15 % 20 %
Total 100 % 100 % 100 %
100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
2013 2012 2011 Bookings by Business
Model (c) Q1 Q2 Year Q1 Q2
Q3 Q4 Year Q1 Q2 Q3
Q4 Year Perpetual 25 % 20 % 25 % 40 % 20 % 15 % 25 %
20 % 40 % 30 % 10 % 15 % 20 % Ratable 25 % 15 % 15 % 20 % 10 % 5 %
5 % 10 % 20 % 15 % 10 % 5 % 10 % Up Front 50 % 65 % 60 % 40 % 70 %
80 % 70 % 70 % 40 % 55 % 80 % 80 % 70 %
Total 100 % 100 %
100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
2013 2012 2011 Revenue by
Business Model (c) Q1 Q2 Year Q1
Q2 Q3 Q4 Year Q1 Q2
Q3 Q4 Year Perpetual 20 % 25 % 25 % 30 % 25 %
15 % 15 % 20 % 20 % 25 % 20 % 15 % 20 % Ratable 10 % 10 % 10 % 10 %
10 % 10 % 5 % 10 % 25 % 15 % 10 % 5 % 10 % Up Front 70 % 65 % 65 %
60 % 65 % 75 % 80 % 70 % 55 % 60 % 70 % 80 % 70 %
Total 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 Q3 FY13 and fiscal 2013.
Estimated Estimated Q3 FY13 FY13
Diluted GAAP net income per share $ 0.23 $ 1.23 Non-GAAP
Adjustments: Amortization of purchased intangible assets (1) 0.01
0.07 Amortization of other identified intangible assets (2) 0.02
0.09 Equity plan-related compensation (3) 0.04 0.17 Special charges
(4) - 0.02 Other income (expense), net and interest expense (5)
0.01 0.05 Non-GAAP income tax effects (6) (0.03 ) (0.24 )
Noncontrolling Interest (7) - (0.01 ) Non-GAAP
net income per share $ 0.28 $ 1.38
(1 ) Excludes
amortization of purchased intangible assets resulting from
acquisition transactions. Purchased intangible assets are amortized
over three 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
one 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 for the fair value of all share-based payments to employees
for stock options and restricted stock units, and purchases made as
a result of the employee stock purchase plans.
(4 )
Excludes special charges consisting primarily of costs incurred for
employee rebalances (which includes severance benefits, notice pay
and outplacement services), facility closures, and acquisition
costs.
(5 ) Adjustment for fiscal 2013 reflects the
amortization of original issuance debt discount for our 4.00%
Convertible Subordinated Debentures due 2031.
(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.
(7 )
Adjustment for the impact of amortization of intangible assets,
equity plan-related compensation expense and income tax expense on
noncontrolling interest.
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