Mentor Graphics Corporation (NASDAQ: MENT) today announced
financial results for the company’s fiscal fourth quarter and year
ended January 31, 2013. The company reported revenues of $331.2
million, non-GAAP earnings per share of $.58, and GAAP earnings per
share of $.49. For the full fiscal year, revenues were $1,088.7
million, non-GAAP earnings per share were a record $1.42, and GAAP
earnings per share were $1.17.
“The fourth quarter was our sixteenth quarter in a row of
exceeding non-GAAP earnings guidance. It capped a year in which
Mentor Graphics achieved all-time records in revenue, operating
margin and non-GAAP earnings per share,” said Walden C. Rhines,
chairman and CEO of Mentor Graphics. “Like our peers in EDA, we
continue to benefit from semiconductor retooling requirements
driven by advanced design activity. Also like some others in our
industry, our business benefits from the growth of the market for
system-level design, which is outpacing the market for chip design
software.”
In fiscal year 2013 revenue grew 7.3 % while non-GAAP and GAAP
earnings per share grew 26% and 58% respectively. Non-GAAP and GAAP
operating margins for the year were all-time records at 19.3% and
14.8% respectively. For the full fiscal year, non-GAAP operating
expense was up 2.0% and up 1.2% on a GAAP basis.
“The company delivered record operating results in fiscal 2013,
primarily as a result of continued expense control,” said Gregory
K. Hinckley, president of Mentor Graphics. “We solidly exceeded our
non-GAAP operating margin target in fiscal 2013 and on a GAAP basis
our margins are among the best in technical software. In recent
years we have successfully balanced our investment in product and
market development and the sales channel while delivering
continuous improvement in operating results.”
During the fourth quarter the company announced two products
related to printed circuit board design: the next-generation PADS®
flow, with enhancements to interactive routing, improved usability
and Chinese language support; and the newest release of the
market-leading HyperLynx® product for high-speed design and
analysis. Another announcement this quarter was the Tessent® IJTAG
solution, which allows designers to reuse existing test, monitoring
and debugging logic embedded in IP blocks. With the new T3Ster®
DynTIM Tester™ technology, the company launched a new method of
measuring thermal characteristics of interface materials. The
company also introduced a hardware emulation solution for testing
ARM Cortex-A9 MPCore processor-based System-on-Chip (SoC) designs
using Veloce® emulators.
During the quarter the company also announced that Tesla Motors,
a world leader in the production of electric automobiles, has
standardized on the Capital® toolset for their electrical systems
design. India-based Mahindra & Mahindra Ltd., a leading global
tractor manufacturer, also standardized on the Capital products for
design, engineering and analysis in their tractor and automotive
divisions.
Share Repurchase
In the fourth quarter of fiscal year 2013 the company used $14
million to repurchase 825 thousand shares at an average price of
$16.85. During fiscal year 2013 the company repurchased 2.2 million
shares for $34 million at an average cost of $15.11 per share. The
company has repurchased $124 million of Mentor Graphics stock over
the past two fiscal years and has $76 million available under its
current share repurchase program.
Outlook
For the full fiscal year 2014, the company expects revenues of
about $1.155 billion, non-GAAP earnings per share of about $1.53,
and GAAP earnings per share of approximately $1.41. For the first
quarter of fiscal 2014, the company expects revenues of about $225
million, non-GAAP earnings per share of about $.05, and GAAP
earnings per share that are approximately break-even.
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, and earnings per share which we refer to as
non-GAAP gross margin, operating margin, net income, and earnings
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, the equity in income (loss) of unconsolidated entities
(except Frontline PCB Solutions Limited Partnership (Frontline)),
and the impact on diluted earnings per share of changes in the
calculated redemption value of the noncontrolling interests, 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 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 or amortization 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.
Although we do not exert control, 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 year ended January 31, 2013 is 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.
- Our agreement with the owners of
noncontrolling interests in one of our subsidiaries gives them a
right to require us to purchase their interests at a future date
for a price based on a formula defined in the agreement. Under
GAAP, increases (or decreases to the extent they offset previous
increases), in the calculated redemption value of the
noncontrolling interests are recorded directly to retained earnings
and therefore do not affect net income. These amounts are applied
to increase or decrease the numerator in the calculation of diluted
earnings per share. Management does not consider fluctuations in
the calculated redemption value of noncontrolling interests to be
relevant to our core operating performance.
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 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 $1,090 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, PADS, HyperLynx, Tessent, T3ster, Veloce and
Capital are registered trademarks and DynTIM Tester 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, 2013
2012 2013
2012 Revenues: System and software $ 226,267 $
220,046 $ 681,881 $ 631,549 Service and support 104,971
100,309 406,846 383,089
Total revenues 331,238 320,355
1,088,727 1,014,638
Cost of
revenues: (1) System and software 14,984 13,737 64,280 54,972
Service and support 30,775 29,014 117,609 108,690 Amortization of
purchased technology 1,709 1,924
7,801 9,796 Total cost of revenues
47,468 44,675 189,690
173,458 Gross margin 283,770 275,680
899,037 841,180
Operating
expenses: Research and development (2) 93,751 90,180 313,962
310,758 Marketing and selling (3) 95,160 89,890 338,653 326,608
General and administration (4) 20,016 22,756 74,324 74,811 Equity
in earnings of Frontline (5) (134 ) (246 ) (1,764 ) (2,268 )
Amortization of intangible assets (6) 1,368 1,544 5,915 5,905
Special charges (7) 2,514 5,786
6,314 13,174 Total operating expenses
212,675 209,910 737,404
728,988
Operating income 71,095 65,770 161,633
112,192 Other income (expense), net (8) (1,193 ) (314 ) (1,432 )
1,576 Interest expense (9) (4,883 ) (4,755 )
(18,866 ) (31,444 ) Income before income tax 65,019 60,701
141,335 82,324 Income tax expense (benefit) (10) 3,536
3,366 2,701 (1,063 ) Net
income 61,483 57,335 138,634 83,387 Less: Loss attributable to
noncontrolling interest (11) (263 ) (485 )
(102 ) (485 )
Net income attributable to Mentor Graphics
shareholders
$ 61,746 $ 57,820 $ 138,736 $ 83,872
Net income per share attributable to
Mentor Graphics shareholders:
Basic $ 0.55 $ 0.53 $ 1.25 $ 0.76
Diluted (a) $ 0.49 $ 0.52 $ 1.17 $ 0.74
Weighted average number of shares outstanding: Basic 112,623
109,290 110,998 110,138
Diluted 115,167 112,122
114,017 112,915 Refer to following page
for a description of footnotes. (a) We have reduced the
numerator of our diluted earnings per share calculation by $5,272
for both the three and twelve months ended January 31, 2013 for the
accumulated adjustment of the noncontrolling interest with
redemption feature to its calculated redemption value at January
31, 2013, recorded directly to retained earnings.
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,
2013 2012 2013
2012 (1) Cost of revenues:
Equity plan-related compensation $ 449 $ 312 $ 1,529 $ 1,065
Amortization of purchased technology 1,709
1,924 7,801 9,796 $ 2,158
$ 2,236 $ 9,330 $ 10,861
(2)
Research and development: Equity plan-related compensation $
2,602 $ 2,084 $ 9,206 $ 8,203
(3) Marketing and selling: Equity plan-related compensation
$ 1,836 $ 1,481 $ 6,654 $ 5,874
(4) General and administration: Equity plan-related
compensation $ 1,648 $ 1,158 $ 6,308 $ 6,516
(5) Equity in earnings of Frontline:
Amortization of purchased technology and other identified
intangible assets $ 1,242 $ 1,242 $ 4,968 $
4,968
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 1,368 $
1,544 $ 5,915 $ 5,905
(7) Special
charges: Rebalance, restructuring, and other costs $ 2,514
$ 5,786 $ 6,314 $ 13,174
(8)
Other income (expense), net: Net (gain) loss of unconsolidated
entities $ (18 ) $ 40 $ (128 ) $ (1,392 )
(9)
Interest expense: Amortization of debt discount and premium,
net $ 1,367 $ 1,272 $ 5,322 $ 4,925 Premium and costs related to
debt retirement - - -
11,504 $ 1,367 $ 1,272 $ 5,322 $
16,429
(10) Income tax expense (benefit):
Non-GAAP income tax effects $ (10,019 ) $ (9,817 ) $ (30,487 ) $
(27,050 )
(11) Loss attributable to noncontrolling
interest: Amortization of intangible assets and income tax
effects $ (193 ) $ (151 ) $ (699 ) $ (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, 2013
2012 2013 2012
GAAP net income attributable to Mentor Graphics shareholders
$ 61,746 $ 57,820 $ 138,736 $ 83,872 Non-GAAP adjustments: Equity
plan-related compensation: (1) Cost of revenues 449 312 1,529 1,065
Research and development 2,602 2,084 9,206 8,203 Marketing and
selling 1,836 1,481 6,654 5,874 General and administration 1,648
1,158 6,308 6,516 Acquisition - related items: Amortization of
purchased assets Cost of revenues (2) 1,709 1,924 7,801 9,796
Frontline purchased technology and intangible assets (3) 1,242
1,242 4,968 4,968 Amortization of intangible assets (4) 1,368 1,544
5,915 5,905 Special charges (5) 2,514 5,786 6,314 13,174 Other
income (expense), net (6) (18 ) 40 (128 ) (1,392 ) Interest expense
(7) 1,367 1,272 5,322 16,429 Non-GAAP income tax effects (8)
(10,019 ) (9,817 ) (30,487 ) (27,050 ) Noncontrolling interest (9)
(193 ) (151 ) (699 ) (151 ) Total of
non-GAAP adjustments 4,505 6,875
22,703 43,337 Non-GAAP net income attributable
to Mentor Graphics shareholders $ 66,251 $ 64,695 $
161,439 $ 127,209 GAAP and Non-GAAP weighted
average shares (diluted) 115,167 112,122
114,017 112,915 Net
income per share attributable to Mentor Graphics shareholders: GAAP
(diluted) $ 0.49 $ 0.52 $ 1.17 $ 0.74 Noncontrolling interest
adjustment (10) 0.05 - 0.05 - Non-GAAP adjustments detailed above
0.04 0.06 0.20
0.39 Non-GAAP (diluted) $ 0.58 $ 0.58 $ 1.42
$ 1.13
(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. 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 January 31,
2013: Special charges consist of (i) $1,387 of costs incurred for
employee rebalances which includes severance benefits, notice pay,
and outplacement services and (ii) $1,127 in other adjustments.
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) $99
of costs related to consulting fees associated with our proxy
contest, and (iii) $831 in other adjustments. Twelve months ended
January 31, 2013: Special charges consist of (i) $4,016 of costs
incurred for employee rebalances which includes severance benefits,
notice pay, and outplacement services and (ii) $2,298 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 of costs related to consulting fees
associated with our proxy contest, and (iii) $671 in other
adjustments.
(6 ) Amount represents income (loss) on
investments accounted for under the equity method of accounting.
The twelve months ended January 31, 2012 also includes a gain of
$(1,519) resulting from a change from an equity method investment
to a controlling interest.
(7 ) Amount represents the
amortization of original issuance debt discount. The amount for the
twelve months ended January 31, 2012 also includes $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.
(10 ) The numerator of our
GAAP diluted earnings per share calculation has been reduced by
$5,272 for both the three and twelve months ended January 31, 2013
for the accumulated adjustment of the noncontrolling interest with
redemption feature to its calculated redemption value at January
31, 2013, recorded directly to retained earnings. We do not
consider the adjustment to redemption feature part of our core
operations and accordingly the amount has been adjusted for the
non-GAAP presentation.
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, 2013
2012 2013 2012
GAAP gross margin $ 283,770 $ 275,680 $ 899,037 $ 841,180
Reconciling items to non-GAAP gross margin: Equity plan-related
compensation 449 312 1,529 1,065 Amortization of purchased
technology 1,709 1,924 7,801
9,796 Non-GAAP gross margin $ 285,928 $
277,916 $ 908,367 $ 852,041
Three Months Ended January 31, Twelve Months Ended
January 31, 2013 2012
2013 2012 GAAP gross
margin as a percent of total revenues 85.7 % 86.1 % 82.6 % 82.9 %
Non-GAAP adjustments detailed above 0.6 % 0.7 %
0.8 % 1.1 % Non-GAAP gross margin as a percent of
total revenues 86.3 % 86.8 % 83.4 %
84.0 %
Three Months Ended January 31,
Twelve Months Ended January 31, 2013
2012 2013
2012 GAAP operating expenses $ 212,675 $ 209,910 $
737,404 $ 728,988 Reconciling items to non-GAAP operating expenses:
Equity plan-related compensation (6,086 ) (4,723 ) (22,168 )
(20,593 )
Amortization of Frontline purchased
technology and other identified intangible assets
(1,242 ) (1,242 ) (4,968 ) (4,968 ) Amortization of other
identified intangible assets (1,368 ) (1,544 ) (5,915 ) (5,905 )
Special charges (2,514 ) (5,786 ) (6,314 )
(13,174 ) Non-GAAP operating expenses $ 201,465 $
196,615 $ 698,039 $ 684,348
Three Months Ended January 31, Twelve Months Ended
January 31, 2013 2012
2013 2012 GAAP operating
income $ 71,095 $ 65,770 $ 161,633 $ 112,192 Reconciling items to
non-GAAP operating income: Equity plan-related compensation 6,535
5,035 23,697 21,658 Amortization of purchased technology 1,709
1,924 7,801 9,796
Amortization of Frontline purchased
technology and other identified intangible assets
1,242 1,242 4,968 4,968 Amortization of other identified intangible
assets 1,368 1,544 5,915 5,905 Special Charges 2,514
5,786 6,314 13,174
Non-GAAP operating income $ 84,463 $ 81,301 $ 210,328
$ 167,693
Three Months Ended January
31, Twelve Months Ended January 31, 2013
2012 2013
2012 GAAP operating income as a percent of total
revenues 21.5 % 20.5 % 14.8 % 11.1 % Non-GAAP adjustments detailed
above 4.0 % 4.9 % 4.5 % 5.4 % Non-GAAP
operating income as a percent of total revenues 25.5 %
25.4 % 19.3 % 16.5 %
Three
Months Ended January 31, Twelve Months Ended January 31,
2013 2012
2013 2012 GAAP other expense,
net and interest expense $ (6,076 ) $ (5,069 ) $ (20,298 ) $
(29,868 )
Reconciling items to non-GAAP other
expense, net and interest expense:
Net gain of unconsolidated entities (18 ) 40 (128 ) (1,392 )
Amortization of debt discount and retirement costs 1,367
1,272 5,322 16,429
Non-GAAP other expense, net and interest expense $ (4,727 ) $
(3,757 ) $ (15,104 ) $ (14,831 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31,
January 31, 2013 2012
Assets Current assets: Cash and cash equivalents $
223,783 $ 146,499 Restricted cash - 4,237 Trade accounts
receivable, net 178,351 133,494 Term receivables, short-term
233,894 221,430 Prepaid expenses and other 53,951 43,972 Deferred
income taxes 14,973 17,803 Total current
assets 704,952 567,435
Property, plant, and equipment, net
162,402 148,019
Term receivables, long-term 250,497 220,355
Goodwill and intangible assets, net 557,770 555,671
Other
assets 69,663 59,195 Total assets $
1,745,284 $ 1,550,675
Liabilities and Stockholders'
Equity Current liabilities: Short-term borrowings $
5,964 $ 14,617 Current portion of notes payable - 1,349 Accounts
payable 20,906 17,261 Income taxes payable 9,180 2,538 Accrued
payroll and related liabilities 101,354 112,349 Accrued and other
liabilities 40,662 34,284 Deferred revenue 233,759
191,540 Total current liabilities 411,825 373,938
Long-term notes payable 218,546 213,224
Deferred revenue,
long-term 17,755 14,883
Other long-term liabilities
50,981 73,290 Total liabilities 699,107
675,335
Noncontrolling interest with redemption
feature 12,698 9,266
Stockholders' equity: Common
stock 810,902 775,362 Retained earnings 197,178 62,032 Accumulated
other comprehensive income 25,399 28,680 Total
stockholders' equity 1,033,479 866,074 Total
liabilities and stockholders' equity $ 1,745,284 $ 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 January 31,
Twelve Months Ended January 31, 2013
2012 2013
2012 Operating activities Net income $ 61,483
$ 57,335 $ 138,634 $ 83,387 Depreciation and amortization (1)
13,350 12,850 53,551 62,197 Other adjustments to reconcile:
Operating cash 6,042 15,481 20,352 34,167 Changes in working
capital 5,540 (16,920 ) (73,250 )
(75,813 ) Net cash provided by operating activities
86,415 68,746 139,287 103,938
Investing activities
Net cash used in investing activities (23,262 ) (34,561 ) (60,782 )
(60,792 )
Financing activities Net cash provided by
(used in) financing activities 2,079 1,030 1,943 (29,759 )
Effect of exchange rate changes on cash and cash equivalents
(1,179 ) (705 ) (3,164 ) (1 ) Net
change in cash and cash equivalents 64,053 34,510 77,284 13,386
Cash and cash equivalents at beginning of period 159,730
111,989 146,499 133,113
Cash and cash equivalents at end of period $ 223,783
$ 146,499 $ 223,783 $ 146,499
(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.
Other data: Capital expenditures $ 9,653
$ 16,493 $ 45,228 $ 41,555 Days sales
outstanding 112 100
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 Q1'14
and fiscal year 2014.
Estimated Estimated
Q1'14 FY'14 Diluted GAAP net income per share $ - $
1.41 Non-GAAP Adjustments: Amortization of purchased intangible
assets (1) $ 0.01 $ 0.02 Amortization of other identified
intangible assets (2) $ 0.01 $ 0.05 Equity plan-related
compensation (3) $ 0.05 $ 0.24 Other expense, net and interest
expense (4) $ 0.01 $ 0.05 Non-GAAP income tax effects (5) $ (0.03 )
$ (0.23 ) Non-controlling interest (6) $ - $ (0.01 )
Non-GAAP net income per share $ 0.05 $ 1.53
(1 )
Excludes amortization of purchased intangible assets resulting from
acquisitions. 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 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 income (loss) on investment accounted for under the equity
method of accounting, and amortization of original issuance debt
discount.
(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 the impact of
amortization of intangible assets, equity plan-related
compensation, and income tax expense on noncontrolling interest.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to nearest 5%)
2013 2012 2011
Product Group Bookings (a) Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4
Year IC DESIGN TO SILICON 35% 25% 30% 35% 30% 20% 25% 60%
40% 40% 35% 40% 45% 30% 35% SCALABLE VERIFICATION 15% 30% 25% 25%
25% 35% 30% 15% 35% 30% 35% 25% 25% 30% 25% INTEGRATED SYSTEMS
DESIGN 25% 25% 25% 25% 25% 25% 25% 15% 15% 15% 15% 25% 20% 25% 25%
NEW & EMERGING MARKETS 10% 10% 15% 10% 10% 10% 15% 5% 5% 10%
10% 5% 5% 10% 10% SERVICES / OTHER 15% 10% 5%
5% 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% 100%
100%
2013 2012 2011 Product
Group Revenue (b) Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4
Year IC DESIGN TO SILICON 40% 35% 25% 35% 35% 40% 25% 40%
45% 40% 40% 40% 35% 30% 35% SCALABLE VERIFICATION 25% 25% 30% 30%
25% 25% 30% 25% 25% 25% 20% 20% 30% 25% 25% INTEGRATED SYSTEMS
DESIGN 25% 25% 30% 25% 25% 20% 25% 25% 20% 25% 25% 25% 25% 30% 30%
NEW & EMERGING MARKETS 5% 10% 10% 5% 10% 10% 10% 5% 5% 5% 5% 5%
5% 10% 5% SERVICES / OTHER 5% 5% 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% 100%
100%
2013 2012 2011 Bookings by
Geography Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
North America 35% 40% 50% 35% 40% 45% 45% 40% 50% 45% 45% 40% 45%
50% 45% Europe 20% 35% 20% 30% 25% 20% 30% 15% 25% 20% 20% 25% 20%
20% 20% Japan 10% 5% 5% 10% 10% 15% 5% 5% 10% 10% 15% 5% 15% 15%
15% Pac Rim 35% 20% 25% 25% 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% 100% 100%
2013 2012 2011 Revenue by
Geography Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
North America 50% 45% 50% 40% 45% 40% 50% 45% 35% 40% 35% 40% 50%
45% 40% Europe 20% 20% 20% 30% 25% 25% 20% 25% 25% 25% 25% 25% 25%
25% 25% Japan 10% 15% 10% 10% 10% 15% 10% 10% 5% 10% 15% 10% 10%
15% 15% Pac Rim 20% 20% 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% 100% 100%
2013 2012 2011 Bookings by Business
Model (c) Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
Perpetual 25% 20% 20% 15% 20% 40% 20% 15% 25% 20% 40% 30% 10% 15%
20% Term Ratable 25% 15% 10% 5% 10% 20% 10% 5% 5% 10% 20% 15% 10%
5% 10% Term Up Front 50% 65% 70% 80%
70% 40% 70% 80% 70% 70% 40% 55%
80% 80% 70%
Total 100% 100%
100% 100% 100% 100% 100% 100%
100% 100% 100% 100% 100% 100%
100%
2013 2012 2011 Revenue
by Business Model (c) Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4
Year Perpetual 20% 25% 25% 15% 20% 30% 25% 15% 15% 20% 20%
25% 20% 15% 20% Term Ratable 10% 10% 10% 5% 10% 10% 10% 10% 5% 10%
25% 15% 10% 5% 10% Term Up Front 70% 65% 65%
80% 70% 60% 65% 75% 80% 70% 55%
60% 70% 80% 70%
Total 100%
100% 100% 100% 100% 100% 100%
100% 100% 100% 100% 100% 100%
100% 100% (a) Product Group Bookings
excludes support bookings for all sub-flow categories. (b) Product
Group Revenue includes support revenue for each sub-flow category
as appropriate. (c) Bookings and Revenue by Business Model are
System and Software only (excludes finance fee).
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