|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Unless otherwise indicated, numerical references are in millions, except for percentages and per share data.
Overview
The following discussion should be read in conjunction with the consolidated financial statements and notes included elsewhere in this Form 10-K. Certain of the statements below contain forward-looking statements. These statements are predictions based upon our current expectations about future trends and events. Actual results could vary materially as a result of certain factors, including but not limited to, those expressed in these statements. In particular, we refer you to the risks discussed in Part I, Item 1A. “Risk Factors” and in our other Securities and Exchange Commission filings, which identify important risks and uncertainties that could cause our actual results to differ materially from those contained in the forward-looking statements.
We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Form 10-K. All subsequent written or spoken forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Form 10-K are made only as of the date of this Form 10-K. We do not intend, and undertake no obligation, to update these forward-looking statements.
The Company
We are a supplier of electronic design automation (EDA) tools — advanced computer software and emulation hardware systems used to automate the design, analysis, and testing of complex electro-mechanical systems, electronic hardware, and embedded systems software in electronic systems and components. We market our products and services worldwide, primarily to large companies in the communications, computer, consumer electronics, semiconductor, networking, multimedia, military and aerospace, and transportation industries. Through the diversification of our customer base among these various customer markets, we attempt to reduce our exposure to fluctuations within each market. We sell and license our products through our direct sales force and a channel of distributors and sales representatives. In addition to our corporate offices in Wilsonville, Oregon, we have sales, support, software development, and professional service offices worldwide.
We focus on products and design platforms where we have or believe we can attain leading market share. Part of this approach includes developing new applications and exploring new markets where EDA companies have not generally participated. We believe this strategy leads to a more diversified product and customer mix and can help reduce the volatility of our business and our risk as a creditor, while increasing our potential for growth.
We derive system and software revenues primarily from the sale of term software license contracts, which are typically three to four years in length. We generally recognize revenue for these arrangements upon product delivery at the beginning of the license term. Larger enterprise-wide customer contracts, which can represent
50%
or more of our system and software revenue, drive the majority of our period-to-period revenue variances. We identify term licenses where collectibility is not probable and recognize revenue on those licenses when cash is received. Ratable license revenues also include short-term term licenses as well as other term licenses where we provide the customer with rights to unspecified or unreleased future products. For these reasons, the timing of large contract renewals, customer circumstances, and license terms are the primary drivers of revenue changes from period to period, with revenue changes also being driven by new contracts and increases in the capacity of existing contracts, to a lesser extent.
The EDA industry is competitive and is characterized by very strong leadership positions in specific segments of the EDA market. These strong leadership positions can be maintained for significant periods of time as the software can be difficult to master and customers are disinclined to make changes once their employees, as well as others in the industry, have developed familiarity with a particular software product. For these reasons, much of our profitability arises from areas in which we are the leader. We will continue our strategy of developing high quality tools with number one market share potential, rather than being a broad-line supplier with undifferentiated product offerings. This strategy allows us to focus investment in areas where customer needs are greatest and where we have the opportunity to build significant market share.
Our products and services are dependent to a large degree on new design projects initiated by customers in the integrated circuit (IC) and electronics system industries. These industries can be cyclical and are subject to constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, short product life cycles, and wide fluctuations in product supply and demand. Furthermore, extended economic downturns can result in reduced funding for development due to downsizing and other business restructurings. These pressures are offset by the need for the development and introduction of next generation products once an economic recovery occurs.
Known Trends and Uncertainties Impacting Future Results of Operations
Our revenue has historically fluctuated quarterly and has generally been the highest in the fourth quarter of our fiscal year due to our customers’ corporate calendar year-end spending trends and the timing of contract renewals.
Ten accounts make up approximately
50%
of our receivables, including both short and long-term balances. We have not experienced and do not presently expect to experience collection issues with these customers. Net of reserves, we have no receivables greater than
60
days past due, and continue to experience no difficulty in factoring our high quality receivables.
Bad debt expense recorded for the year ended
January 31, 2013
was not material. However, we do have exposures within our receivables portfolio to customers with weak credit ratings. These receivable balances do not represent a material portion of our portfolio but could have a material adverse effect on earnings in any given quarter, should significant additional allowances for doubtful accounts be necessary.
Bookings during fiscal
2013
decreased
by approximately
20%
compared to fiscal
2012
primarily due to the timing of term license contract renewals. Bookings are the value of executed orders during a period for which revenue has been or will be recognized within six months for software products and within twelve months for emulation hardware systems, professional services, and training. Ten customers for fiscal
2013
accounted for approximately
35%
of total bookings compared to
45%
for fiscal
2012
. The number of new customers for fiscal
2013
, excluding PADS (our ready to use printed circuit board design tools)
decreased
approximately
5%
from the levels experienced during fiscal
2012
.
Product Development
During the year ended
January 31, 2013
, we continued to execute our strategy of focusing on technical challenges encountered by customers, as well as building upon our well-established product families. We believe that customers, faced with leading-edge design challenges in creating new products, generally choose the best EDA products in each category to build their design environment. Through both internal development and strategic acquisitions, we have focused on areas where we believe we can build a leading market position or extend an existing leading market position.
We believe that the development and commercialization of EDA software tools is generally a three to five year process with limited customer adoption and sales in the first years of tool availability. Once tools are adopted, however, their life spans tend to be long. During the year ended
January 31, 2013
, we introduced new products and upgrades to existing products and did not have any significant products reaching the end of their useful economic life.
Critical Accounting Policies
We base our discussion and analysis of our financial condition and results of operations upon our consolidated financial statements which have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our estimates on an on-going basis. We base our estimates on historical experience, current facts, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs, and expenses that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results could differ from those estimates.
We believe that the accounting for revenue recognition, valuation of trade accounts receivable, valuation of deferred tax assets, income tax reserves, business combinations, goodwill, intangible assets, long-lived assets, special charges, stock-based compensation, and noncontrolling interest with redemption feature are the critical accounting estimates and judgments used in the preparation of our consolidated financial statements. For further information on our significant accounting policies, see Note 2. “Summary of Significant Accounting Policies” in Part II, Item 8. “Financial Statements and Supplementary Data.”
Revenue Recognition
We report revenue in two categories based on how the revenue is generated: (i) system and software and (ii) service and support.
System and software revenues
– We derive system and software revenues from the sale of licenses of software products, emulation hardware systems, and finance fee revenues from our long-term installment receivables resulting from product sales. We primarily license our products using two different license types:
1.
Term licenses – We use this license type primarily for software sales. This license type provides the customer with the right to use a fixed list of software products for a specified time period, typically three to four years, with payments spread over the license term, and does not provide the customer with the right to use the products after the end of the term. Term license arrangements may allow the customer to share products between multiple locations and remix product usage from the fixed list of products at regular intervals during the license term. We generally recognize product revenue from term license arrangements upon product delivery and start of the license term. In a term license agreement where we provide the customer with rights to unspecified or unreleased future products, we recognize revenue ratably over the license term.
2.
Perpetual licenses – We use this license type for software and emulation hardware system sales. This license type provides the customer with the right to use the product in perpetuity and typically does not provide for extended payment terms. We generally recognize product revenue from perpetual license arrangements upon product delivery assuming all other criteria for revenue recognition have been met.
We include finance fee revenues from the accretion of the discount on long-term installment receivables in system and software revenues.
Service and support revenues
– We derive service and support revenues from software and hardware post-contract maintenance or support services and professional services, which include consulting, training, and other services. We recognize revenues ratably over the support services term. We record professional service revenues as the services are provided to the customer.
We determine whether product revenue recognition is appropriate based upon the evaluation of whether the following four criteria have been met:
1.
Persuasive evidence of an arrangement exists – Generally, we use either a customer signed contract or qualified customer purchase order as evidence of an arrangement for both term and perpetual licenses. For professional service engagements, we generally use a signed professional services agreement and a statement of work to evidence an arrangement. Sales through our distributors are evidenced by an agreement governing the relationship, together with binding purchase orders from the distributor on a transaction-by-transaction basis.
2.
Delivery has occurred – We generally deliver software and the corresponding access keys to customers electronically. Electronic delivery occurs when we provide the customer access to the software. We may also deliver the software on a compact disc. With respect to emulation hardware systems, we transfer title to the customer upon shipment. Our software license and emulation hardware system agreements generally do not contain conditions for acceptance.
3.
Fee is fixed or determinable – We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We have established a history of collecting under the original contract with installment terms without providing concessions on payments, products, or services. Additionally, for installment contracts, we determine that the fee is fixed or determinable if the arrangement has a payment schedule that is within the term of the licenses and the payments are collected in equal or nearly equal installments, when evaluated on a cumulative basis. If the fee is not deemed to be fixed or determinable, we recognize revenue as payments become due and payable.
Significant judgment is involved in assessing whether a fee is fixed or determinable. We must also make these judgments when assessing whether a contract amendment to a term arrangement (primarily in the context of a license extension or renewal) constitutes a concession. Our experience has been that we are able to determine whether a fee is fixed or determinable for term licenses. If we no longer were to have a history of collecting under the original contract without providing concessions on term licenses, revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable. Such a change could have a material impact on our results of operations.
4.
Collectibility is probable – To recognize revenue, we must judge collectibility of the arrangement fees on a customer-by-customer basis pursuant to our credit review process. We typically sell to customers with whom there is a history of successful collection. We evaluate the financial position and a customer’s ability to pay whenever an existing customer purchases new products, renews an existing arrangement, or requests an increase in credit terms. For certain industries for which our products are not considered core to the industry or the industry is generally considered troubled, we impose higher credit standards. If we determine that collectibility is not probable based upon our credit review process or the customer’s payment history, we recognize revenue as payments are received.
Multiple element arrangements involving software licenses – For multiple element arrangements involving software and other software-related deliverables, vendor-specific objective evidence of fair value (VSOE) must exist to allocate the total fee among all delivered and non-essential undelivered elements of the arrangement. If undelivered elements of the arrangement are essential to the functionality of the product, we defer revenue until the essential elements are delivered. If VSOE does not exist for one or more non-essential undelivered elements, we defer revenue until such evidence exists for the undelivered elements,
or until all elements are delivered, whichever is earlier. If VSOE of all non-essential undelivered elements exist but VSOE does not exist for one or more delivered elements, we recognize revenue using the residual method. Under the residual method, we defer revenue related to the undelivered elements based upon VSOE and we recognize the remaining portion of the arrangement fee as revenue for the delivered elements, assuming all other criteria for revenue recognition are met. If we can no longer establish VSOE for non-essential undelivered elements of multiple element arrangements, we defer revenue until all elements are delivered or VSOE is established for the undelivered elements, whichever is earlier.
We base our VSOE for certain elements of an arrangement upon the pricing in comparable transactions when the element is sold separately. We primarily base our VSOE for term and perpetual support services upon customer renewal history where the services are sold separately. We also base VSOE for professional services and installation services for emulation hardware systems upon the price charged when the services are sold separately.
Multiple element arrangements involving hardware – For multiple element arrangements involving our emulation hardware systems, we allocate revenue to each element based on the relative selling price of each deliverable. In order to meet the separation criteria to allocate revenue to each element we must determine the standalone selling price of each element using a hierarchy of evidence. The authoritative guidance requires that, in the absence of VSOE or third-party evidence (TPE), a company must develop an estimated selling price (ESP). ESP is defined as the price at which the vendor would transact if the deliverable was sold by the vendor regularly on a standalone basis. A company should consider market conditions as well as entity-specific factors when estimating a selling price.
When VSOE or TPE does not exist, we base our ESP for certain elements in arrangements on either costs incurred to manufacture a product plus a reasonable profit margin or standalone sales to similar customers. In determining profit margins, we consider current market conditions, pricing strategies related to the class of customer, and the level of penetration we have with the customer. In other cases, we may have limited sales on a standalone basis to the same or similar customers and/or guaranteed pricing on future purchases of the same item.
Valuation of Trade Accounts Receivable
We maintain allowances for doubtful accounts on trade accounts receivable and term receivables, long-term for estimated losses resulting from the inability of our customers to make required payments. We regularly evaluate the collectibility of our trade accounts receivable based on a combination of factors. When we become aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy or deterioration in the customer’s operating results, financial position, or credit rating, we record a specific reserve for bad debt to reduce the related receivable to the amount believed to be collectible. We also record unspecified reserves for bad debt for all other customers based on a variety of factors including length of time the receivables are past due, the financial health of the customers, the current business environment, and historical experience. Current economic conditions we have considered include forecasted spending in the semiconductor industry, consumer spending for electronics, integrated circuit research and development spending, and volatility in gross domestic product. If these factors change or circumstances related to specific customers change, we adjust the estimates of the recoverability of receivables resulting in either additional selling expense or a reduction in selling expense in the period such determination is made.
Valuation of Deferred Tax Assets
Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards if it is more likely than not that the tax benefits will be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances. We have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In the event we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, we would adjust the valuation allowance associated with such deferred tax assets in the period such determination was made. Also, if we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would record a valuation allowance on such net deferred tax assets with an offset to expense in the period such determination was made.
Income Tax Reserves
We are subject to income taxes in the U.S. and in numerous foreign jurisdictions, and in the ordinary course of business there are many transactions and calculations where the ultimate tax determination is uncertain. While we believe the positions we have taken are appropriate, we have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by taxing authorities. We record a benefit on a tax position when we determine that it is more likely than not that the position is sustainable upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions that are more likely than not to be sustained, we measure the tax position at the largest amount of benefit that has a greater than 50 percent likelihood of being realized when it
is effectively settled. We review the tax reserves as circumstances warrant and adjust the reserves as events occur that affect our potential liability for additional taxes. We follow the applicable Financial Accounting Standards Board guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition with respect to tax positions. We reflect interest and penalties related to income tax liabilities as income tax expense.
Business Combinations
When we acquire businesses, we allocate the purchase price, including the fair value of contingent consideration, to acquired tangible assets and liabilities, including deferred revenue, and acquired identifiable intangible assets. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires us to make significant estimates in determining the fair value of contingent consideration as well as acquired assets and assumed liabilities, especially with respect to intangible assets and goodwill. These estimates are based on information obtained from management of the acquired companies, our assessment of this information, and historical experience. These estimates can include, but are not limited to, the cash flows that an acquired business is expected to generate in the future, the cash flows that specific assets acquired with that business are expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable, and if different estimates were used, the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made to the acquired assets and assumed liabilities. In addition, unanticipated events and circumstances may occur that may affect the accuracy or validity of such estimates, and if such events occur, we may be required to adjust the value allocated to acquired assets or assumed liabilities.
We also make significant judgments and estimates when we assign useful lives to the definite lived intangible assets identified as part of our acquisitions. These estimates are inherently uncertain and if we used different estimates, the useful life over which we amortize intangible assets would be different. In addition, unanticipated events and circumstances may occur that may impact the useful life over which we amortize our intangible assets, which would impact our amortization of intangible assets expense and our results of operations.
Goodwill, Intangible Assets, and Long-Lived Assets
We review long-lived assets, including intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. We assess the recoverability of our long-lived assets by determining whether their carrying values are greater than the forecasted undiscounted net cash flows of the related assets. If we determine the assets are impaired, we write down the assets to their estimated fair value. We determine fair value based on forecasted discounted net cash flows or appraised values, depending upon the nature of the assets. Significant management judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation. The estimates we have used are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans may change and estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges.
We test goodwill and intangible assets with indefinite lives for impairment at least annually and whenever events or changes in circumstances indicate an impairment may exist. The value of our intangible assets, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, (iii) a significant slowdown in the worldwide economy or the semiconductor industry, or (iv) any failure to meet the performance projections included in our forecasts of future operating results. In the event that we determine that our goodwill, intangible assets, or other long-lived assets are impaired, we make an adjustment that results in a charge to earnings for the write-down in the period that determination is made.
Special Charges
We record restructuring charges within special charges in the consolidated statements of income in connection with our plans to better align our cost structure with projected operations in the future. We have recorded restructuring charges in connection with employee rebalances based on estimates of the expected costs associated with severance benefits. If the actual cost incurred exceeds the estimated cost, an addition to special charges will be recognized. If the actual cost is less than the estimated cost, a benefit to special charges will be recognized.
We have also recorded restructuring charges in connection with excess leased facilities to offset future rent, net of estimated sublease income that could be reasonably obtained. Additionally, we also write-off leasehold improvements on abandoned office space. We work with external real estate experts in each of the markets where properties are located to develop assumptions used to determine a reasonable estimate of the net loss. Our estimates of expected sublease income could change based on factors that affect our ability to sublease those facilities such as general economic conditions and the local real estate
market. If the real estate market weakens and we are not able to sublease the properties as expected, an addition to special charges will be recognized in the period such determination is made. Likewise, if the real estate market strengthens and we are able to sublease the properties earlier or at more favorable rates than projected, a benefit to special charges will be recognized.
Special charges may also include expenses incurred related to acquisitions.
Stock-Based Compensation
We measure stock-based compensation cost at the grant date, based on the fair value of the award, and recognize the expense on a straight-line basis over the employee’s requisite service period. For options and stock awards that vest fully on any termination of service, there is no requisite service period and consequently we recognize the expense fully in the period in which the award is granted.
We estimate the fair value of stock options and purchase rights under our employee stock purchase plans using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model incorporates several highly subjective assumptions including expected volatility, expected term, and interest rates.
In determining expected volatility for options, we include the elements listed below at the weighted percentages presented:
|
|
•
|
Historical volatility of our shares of common stock at
35%
;
|
|
|
•
|
Historical volatility of shares of comparable companies at
20%
;
|
|
|
•
|
Implied volatility of our traded options at
30%
; and
|
|
|
•
|
Implied volatility of traded options of comparable companies at
15%
.
|
The greatest weighting is provided to the historic volatility of our common stock based on the amount of consistent historic information available. A lesser weighting is applied to the implied volatility of our traded options due to a low volume of trades and shorter terms. We also include the historic and implied volatility of comparable companies in our industry in an effort to capture a broader view of the marketplace.
The relative weighting percentages are periodically reviewed for reasonableness and are subject to change depending on market conditions and our particular facts and circumstances.
In reaching our determination of expected volatility for purchase rights under our employee stock purchase plans, we use the historical volatility of our shares of common stock.
We base the expected term of our stock options on historical experience.
The input factors used in Black-Scholes option-pricing model are based on subjective future expectations combined with management judgment. If there is a difference between the assumptions used in determining stock-based compensation cost and the actual factors which become known over time, we may change the input factors used in determining stock-based compensation costs. These changes may materially impact the results of operations in the period such changes are made. In addition, if we were to modify any awards, additional charges would be taken.
Noncontrolling Interest with Redemption Feature
Our balance sheet includes a noncontrolling interest resulting from a business combination in which we acquired majority ownership in a privately-held company. In conjunction with this business combination, we also entered into an agreement which provides us a call option to acquire the noncontrolling interests and the noncontrolling interest holders a put option to sell their interests to us, at a future date for prices based on formulas defined in the agreement. The noncontrolling interest adjusted for this redemption feature based on the put option price formula is presented on the consolidated balance sheet under the caption “Noncontrolling interest with redemption feature.” Because the redemption of the noncontrolling interest is outside of our control, we have presented this interest outside of stockholders’ equity.
Increases (or decreases to the extent they offset previous increases) in the calculated redemption feature put value are recorded directly to retained earnings as if the balance sheet date were also the redemption date. Changes in the redemption feature put value, to the extent they are significant, also result in an adjustment to net income attributable to shareholders in the calculation of basic and diluted net income per share.
RECENT BUSINESS COMBINATIONS
For each business we acquire, the excess of the fair value of the consideration transferred over the fair value of the net tangible assets acquired and net tangible liabilities assumed is allocated to various identifiable intangible assets and goodwill. Identifiable intangible assets typically consist of purchased technology and customer-related intangibles, which are amortized to expense over their useful lives. Goodwill, representing the excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets, is not amortized.
Acquisitions during the year ended
January 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Consideration
|
|
Net Tangible
Assets Acquired
|
|
Identifiable
Intangible
Assets
Acquired
|
|
Goodwill
|
Total Acquisitions
|
$
|
12.1
|
|
|
$
|
0.4
|
|
|
$
|
3.4
|
|
|
$
|
8.3
|
|
Acquisitions for the year ended
January 31, 2013
consisted of one privately-held company, certain assets of another privately-held company, and a business unit of a public company, all of which were accounted for as business combinations. These acquisitions were not material individually or in the aggregate.
The identified intangible assets acquired for all fiscal
2013
acquisitions consisted of purchased technology of
$2.0
and other intangibles of
$1.4
. We are amortizing purchased technology to cost of revenues over
three
to
four
years and other intangibles to operating expense over
one
to
five
years. A portion of the goodwill created by these transactions is deductible for tax purposes. Key factors that make up the goodwill created by the transactions include expected synergies from the combination of operations and the knowledge and experience of the acquired workforce.
RESULTS OF OPERATIONS
Revenues and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
Change
|
|
2012
|
|
Change
|
|
2011
|
System and software revenues
|
$
|
681.9
|
|
|
8
|
%
|
|
$
|
631.5
|
|
|
12
|
%
|
|
$
|
562.4
|
|
System and software gross profit
|
$
|
609.8
|
|
|
8
|
%
|
|
$
|
566.8
|
|
|
12
|
%
|
|
$
|
505.7
|
|
Gross profit percent
|
89
|
%
|
|
|
|
90
|
%
|
|
|
|
90
|
%
|
Service and support revenues
|
$
|
406.8
|
|
|
6
|
%
|
|
$
|
383.1
|
|
|
9
|
%
|
|
$
|
352.4
|
|
Service and support gross profit
|
$
|
289.2
|
|
|
5
|
%
|
|
$
|
274.4
|
|
|
9
|
%
|
|
$
|
252.8
|
|
Gross profit percent
|
71
|
%
|
|
|
|
72
|
%
|
|
|
|
72
|
%
|
Total revenues
|
$
|
1,088.7
|
|
|
7
|
%
|
|
$
|
1,014.6
|
|
|
11
|
%
|
|
$
|
914.8
|
|
Total gross profit
|
$
|
899.0
|
|
|
7
|
%
|
|
$
|
841.2
|
|
|
11
|
%
|
|
$
|
758.5
|
|
Gross profit percent
|
83
|
%
|
|
|
|
83
|
%
|
|
|
|
83
|
%
|
System and Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
Change
|
|
2012
|
|
Change
|
|
2011
|
Upfront license revenues
|
$
|
584.3
|
|
|
8
|
%
|
|
$
|
541.7
|
|
|
14
|
%
|
|
$
|
473.9
|
|
Ratable license revenues
|
97.6
|
|
|
9
|
%
|
|
89.8
|
|
|
1
|
%
|
|
88.5
|
|
Total system and software revenues
|
$
|
681.9
|
|
|
8
|
%
|
|
$
|
631.5
|
|
|
12
|
%
|
|
$
|
562.4
|
|
We derive system and software revenues from the sale of licenses of software products and emulation hardware systems, including finance fee revenues from our long-term installment receivables resulting from product sales. Upfront license revenues consist of perpetual licenses and term licenses for which we recognize revenue upon product delivery at the start of a license term. We identify licenses where collectibility is not probable and recognize revenue on those licenses when cash is received. Ratable license revenues primarily consist of short-term term licenses, term licenses where we provide the customer
with rights to unspecified or unreleased future products, and finance fees from the accretion of the discount on long-term installment receivables.
Ten customers accounted for approximately
40%
of system and software revenues for fiscal
2013
compared to approximately
45%
for fiscal
2012
and approximately
35%
for fiscal
2011
.
System and software revenues
increase
d for fiscal
2013
compared to fiscal
2012
primarily due to an increase in sales of scalable verification products. The effect of acquisitions completed in fiscal
2013
and fiscal
2012
on system and software revenues was
$13.6
. System and software revenues increased for fiscal
2012
compared to fiscal
2011
as a result of an increase in term license revenues of $57.0 driven by both large contract renewals and an increase in what we refer to as base business (contracts less than $1.0).
For fiscal years
2013
,
2012
, and
2011
, no single customer accounted for 10% or more of total revenues.
Service and Support
We derive service and support revenues from software and hardware post-contract maintenance or support services and professional services, which includes consulting, training, and other services. Professional services are a lower margin offering which is staffed according to fluctuations in demand. Support services operate under a less variable cost structure.
The
increase
in service and support revenues for fiscal
2013
compared to fiscal
2012
was driven by
increase
d support revenues of
$18.7
resulting from an
increase
in our installed base including the effect of acquisitions completed in fiscal
2013
and fiscal
2012
of
$9.6
. The
increase
in service and support revenues for fiscal
2012
compared to fiscal
2011
was driven by
increase
d support revenues of $18.3 due to an increase in installed base including the effect of acquisitions completed in fiscal
2012
and in fiscal
2011
of $3.5.
Geographic Revenues Information
Revenue by Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
Change
|
|
2012
|
|
Change
|
|
2011
|
North America
|
$
|
481.1
|
|
|
16
|
%
|
|
$
|
416.1
|
|
|
4
|
%
|
|
$
|
401.1
|
|
Europe
|
261.4
|
|
|
6
|
%
|
|
247.1
|
|
|
11
|
%
|
|
223.2
|
|
Japan
|
127.8
|
|
|
10
|
%
|
|
116.5
|
|
|
(6
|
%)
|
|
124.3
|
|
Pacific Rim
|
218.4
|
|
|
(7
|
%)
|
|
234.9
|
|
|
41
|
%
|
|
166.2
|
|
Total revenue
|
$
|
1,088.7
|
|
|
7
|
%
|
|
$
|
1,014.6
|
|
|
11
|
%
|
|
$
|
914.8
|
|
The changes in revenues in North America and Japan for fiscal
2013
compared to fiscal
2012
were the result of the timing and geographic location of contract renewals. The changes in revenues in the Pacific Rim and Europe for fiscal
2012
compared to fiscal
2011
were the result of timing and geographic location of contract renewals.
For fiscal year
2013
, approximately one-fourth of European and three-fourths of Japanese revenues were subject to exchange rate fluctuations as they were booked in local currencies. For fiscal years
2012
and
2011
, approximately one-third of European and substantially all Japanese revenues were subject to exchange rate fluctuations as they were booked in local currencies. We recognize additional revenues in periods when the U.S. dollar weakens in value against foreign currencies. Likewise, we recognize lower revenues in periods when the U.S. dollar strengthens in value against foreign currencies.
Foreign currency had an unfavorable impact of
$5.4
for fiscal
2013
compared to fiscal
2012
primarily as a result of the strengthening of the U.S. dollar against the Japanese yen and euro. Foreign currency had a favorable impact of
$12.1
for fiscal 2012 compared to fiscal 2011 primarily as a result of the weakening of the U.S. dollar against the Japanese yen.
For additional description of how changes in foreign exchange rates affect our consolidated financial statements, see discussion in Part II, Item 7A., “Quantitative and Qualitative Disclosures About Market Risk–Foreign Currency Risk.”
Revenue by Category
We segregate revenues into five categories of similar products and services. Each category includes both product and related support revenues. Revenues for each category as a percent of total revenues are as follows (percentages rounded to the nearest 5%):
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Revenues:
|
|
|
|
|
|
IC Design to Silicon
|
35
|
%
|
|
40
|
%
|
|
35
|
%
|
Scalable Verification
|
25
|
%
|
|
25
|
%
|
|
25
|
%
|
Integrated System Design
|
25
|
%
|
|
25
|
%
|
|
30
|
%
|
New and Emerging Products
|
10
|
%
|
|
5
|
%
|
|
5
|
%
|
Services and Other
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
Total revenues
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
Change
|
|
2012
|
|
Change
|
|
2011
|
Research and development
|
$
|
314.0
|
|
|
1
|
%
|
|
$
|
310.8
|
|
|
5
|
%
|
|
$
|
296.7
|
|
Marketing and selling
|
338.7
|
|
|
4
|
%
|
|
326.6
|
|
|
4
|
%
|
|
312.8
|
|
General and administration
|
74.3
|
|
|
(1
|
%)
|
|
74.8
|
|
|
(8
|
%)
|
|
81.0
|
|
Equity in earnings of Frontline
|
(1.8
|
)
|
|
(22
|
%)
|
|
(2.3
|
)
|
|
10
|
%
|
|
(2.1
|
)
|
Amortization of intangible assets
|
5.9
|
|
|
—
|
%
|
|
5.9
|
|
|
(19
|
%)
|
|
7.3
|
|
Special charges
|
6.3
|
|
|
(52
|
%)
|
|
13.2
|
|
|
28
|
%
|
|
10.3
|
|
Total operating expenses
|
$
|
737.4
|
|
|
1
|
%
|
|
$
|
729.0
|
|
|
3
|
%
|
|
$
|
706.0
|
|
Selected Operating expenses as a percentage of Total Revenues
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Research and development
|
29
|
%
|
|
31
|
%
|
|
32
|
%
|
Marketing and selling
|
31
|
%
|
|
32
|
%
|
|
34
|
%
|
General and administration
|
7
|
%
|
|
7
|
%
|
|
9
|
%
|
Total selected operating expenses
|
67
|
%
|
|
70
|
%
|
|
75
|
%
|
Research and Development
Research and development expenses
increase
d by
$3.2
for fiscal
2013
compared to fiscal
2012
and
increase
d by
$14.1
for fiscal
2012
compared to fiscal
2011
. The components of these changes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Change
|
Year ended January 31,
|
2013 vs 2012
|
|
2012 vs 2011
|
Salaries, variable compensation, and benefits expenses
|
$
|
(9.9
|
)
|
|
$
|
9.1
|
|
Expenses associated with acquired businesses
|
7.3
|
|
|
6.4
|
|
Other expenses
|
5.8
|
|
|
(1.4
|
)
|
Total change in research and development expenses
|
$
|
3.2
|
|
|
$
|
14.1
|
|
Marketing and Selling
Marketing and selling expenses
increase
d by
$12.1
for fiscal
2013
compared to fiscal
2012
and
increase
d by
$13.8
for fiscal
2012
compared to fiscal
2011
. The components of these changes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Change
|
Year ended January 31,
|
2013 vs 2012
|
|
2012 vs 2011
|
Salaries, variable compensation, and benefits expenses
|
$
|
8.0
|
|
|
$
|
7.3
|
|
Expenses associated with acquired businesses
|
5.9
|
|
|
3.6
|
|
Other expenses
|
(1.8
|
)
|
|
2.9
|
|
Total change in marketing and selling expenses
|
$
|
12.1
|
|
|
$
|
13.8
|
|
General and Administration
General and administration expenses
decrease
d by
$0.5
for fiscal
2013
compared to fiscal
2012
and
decrease
d by
$6.2
for fiscal
2012
compared to fiscal
2011
. The components of these changes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Change
|
Year ended January 31,
|
2013 vs 2012
|
|
2012 vs 2011
|
Salaries, variable compensation, and benefits expenses
|
$
|
(2.8
|
)
|
|
$
|
(1.4
|
)
|
Expenses associated with acquired businesses
|
1.8
|
|
|
0.3
|
|
Other expenses
|
0.5
|
|
|
(5.1
|
)
|
Total change in general and administration expenses
|
$
|
(0.5
|
)
|
|
$
|
(6.2
|
)
|
We incur a substantial portion of our operating expenses outside the U.S. in various foreign currencies. We recognize additional operating expense in periods when the U.S. dollar weakens in value against foreign currencies and lower operating expenses in periods when the U.S. dollar strengthens in value against foreign currencies. For fiscal
2013
compared to fiscal
2012
, we experienced
favorable
currency movements of
$13.2
in total operating expenses. For fiscal
2012
compared to fiscal
2011
, we experienced
unfavorable
currency movements of
$11.0
in total operating expenses. The impact of these currency effects is reflected in the movements in operating expenses detailed above.
Equity in Earnings of Frontline
In connection with our acquisition of Valor Computerized Systems, Ltd. (Valor) on March 18, 2010, we acquired Valor’s 50% interest in a joint venture, Frontline P.C.B. Solutions Limited Partnership (Frontline). Frontline is owned equally by Mentor and Orbotech, Ltd., an Israeli company.
Frontline reports on a calendar year basis. As such, we record our interest in the earnings of Frontline on a one-month lag. The following presents the summarized financial information of Mentor's 50% interest in Frontline for the twelve months ended December 31,
2012
and
2011
, and the period from March 18, 2010 through December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period
January 1, 2012
through
December 31, 2012
|
|
For the period
January 1, 2011
through
December 31, 2011
|
|
For the period
from March 18, 2010
through
December 31, 2010
|
Net income-as reported
|
$
|
6.8
|
|
|
$
|
7.3
|
|
|
$
|
6.4
|
|
Amortization of purchased technology and other identified intangible assets
|
(5.0
|
)
|
|
(5.0
|
)
|
|
(4.3
|
)
|
Equity in earnings of Frontline
|
$
|
1.8
|
|
|
$
|
2.3
|
|
|
$
|
2.1
|
|
Special Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
Change
|
|
2012
|
|
Change
|
|
2011
|
Employee severance and related costs
|
$
|
4.0
|
|
|
(52
|
%)
|
|
$
|
8.4
|
|
|
38
|
%
|
|
$
|
6.1
|
|
Other costs
|
2.3
|
|
|
(52
|
%)
|
|
4.8
|
|
|
14
|
%
|
|
4.2
|
|
Total special charges
|
$
|
6.3
|
|
|
(52
|
%)
|
|
$
|
13.2
|
|
|
28
|
%
|
|
$
|
10.3
|
|
Special charges primarily consist of costs incurred for employee terminations, due to a reduction of personnel resources driven by modifications of business strategy or business emphasis. Employee severance and related costs include severance benefits, notice pay, and outplacement services. These rebalance charges generally represent the aggregate of numerous unrelated rebalance plans which impact several employee groups, none of which is individually material to our financial position or
results of operations. We determine termination benefit amounts based on employee status, years of service, and local statutory requirements. We communicate termination benefits to the affected employees prior to the end of the quarter in which we record the charge. Special charges may also include expenses incurred related to acquisitions, excess facility costs, and asset related charges.
Other special charges for fiscal
2012
primarily consisted of costs of
$4.1
for advisory fees associated with our proxy contest.
Other special charges for fiscal
2011
consisted primarily of advisory fees of
$2.1
and leased facility restoration costs of
$1.4
.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
Change
|
|
2012
|
|
Change
|
|
2011
|
Interest Expense
|
$
|
18.9
|
|
|
(40
|
)%
|
|
$
|
31.4
|
|
|
71
|
%
|
|
$
|
18.4
|
|
The decrease in interest expense for fiscal
2013
compared to fiscal
2012
is primarily due to the higher expenses recorded in fiscal 2012 related to the early extinguishment of debt. The increase in interest expense for fiscal
2012
compared to fiscal
2011
was primarily due to the repayment of debt in April 2011 and the resulting losses of $11.5 on the early extinguishment of debt, which included a $6.2 write-off of the net unamortized debt discount, a $3.5 premium for the redemption of the 6.25% Convertible Subordinated Debentures (6.25% Debentures), and a write-off of $1.8 for the remaining portion of unamortized debt issuance costs.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
Change
|
|
2012
|
|
Change
|
|
2011
|
Income tax expense (benefit)
|
$
|
2.7
|
|
|
345
|
%
|
|
$
|
(1.1
|
)
|
|
(132
|
)%
|
|
$
|
3.4
|
|
In fiscal
2013
, our income before taxes of
$141.3
consisted of
$131.6
of pre-tax income in foreign jurisdictions and
$9.7
of pre-tax income in the U.S., reflecting substantial earnings by certain foreign operations, including our Irish subsidiaries, and a higher proportion of our operating expenses and financing costs occurring in the U.S.
Generally, the provision for income taxes is the result of the mix of profits and losses earned in various tax jurisdictions with a broad range of income taxes, withholding taxes (primarily in certain foreign jurisdictions), changes in tax reserves, and the application of valuation allowances on deferred tax assets.
Our effective tax rate was
2%
for fiscal
2013
. Our tax expense differs from tax computed at the U.S. federal statutory rate primarily due to:
|
|
•
|
The benefit of lower tax rates on earnings of foreign subsidiaries;
|
|
|
•
|
Utilization of net operating loss carryforwards for which no benefit was previously recognized;
|
|
|
•
|
Reduction in reserves for uncertain tax positions; and
|
|
|
•
|
The application of tax incentives for research and development.
|
These differences are partially offset by:
|
|
•
|
Inclusion of foreign subsidiary earnings in the U.S. offset by U.S. tax credits for which no tax benefit has been recognized;
|
|
|
•
|
Non-deductible employee stock purchase plan compensation expense; and
|
|
|
•
|
Withholding taxes in certain foreign jurisdictions.
|
We have not provided for income taxes on the undistributed earnings of our foreign subsidiaries to the extent they are considered permanently reinvested outside of the U.S. As of January 31,
2013
, the cumulative amount of earnings upon which income taxes have not been provided for is approximately
$431.2
.
Upon repatriation, some of these earnings may be sheltered by U.S. loss carryforwards, research and development credits and foreign tax credits, which may reduce the federal tax liability associated with any future foreign dividend. Determination of the amount of unrecognized deferred U.S. income tax liability on permanently reinvested foreign earnings is not practicable.
Where the earnings of our foreign subsidiaries are not treated as permanently reinvested, we have considered the impact in our provision.
As of January 31,
2013
, for U.S. federal income tax purposes, we had net operating loss carryforwards of approximately
$206.4
, foreign tax credits of
$12.8
, research and experimentation credit carryforwards of
$60.8
, alternative minimum tax credits of
$2.7
, and childcare credits of
$1.5
. For state income tax purposes, we had net operating loss carryforwards, after apportionment, totaling
$186.1
from multiple jurisdictions, and research and experimentation and other miscellaneous state credits of
$14.8
. Portions of our loss carryforwards, inherited through various acquisitions, are subject to annual limitations due to the change in ownership provisions of the Internal Revenue Code. If we do not use the carryforwards to reduce U.S. taxable income in future periods, portions of the net operating loss carryforwards will expire in fiscal years ending
2019
through
2032
. The foreign tax credits will expire in fiscal years ending
2015
through
2023
, research and experimentation credit carryforwards will expire between fiscal years ending
2019
through
2033
, and childcare credits will expire between fiscal years ending
2023
and
2033
. The alternative minimum tax credits do not expire. As of January 31,
2013
, we have net operating losses in multiple foreign jurisdictions of
$33.6
. In general, we can carry forward the net operating losses for these foreign jurisdictions indefinitely.
We determine deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities. In addition, we record deferred tax assets for net operating loss carryforwards and tax credit carryovers. We calculated the deferred tax assets and liabilities using the enacted laws and tax rates that will be in effect when we expect the differences to reverse. A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred tax asset will not be realized. Since 2004, we have determined it is uncertain whether our U.S. entity will generate sufficient taxable income and foreign source income to utilize net operating loss carryforwards, research and experimentation credit carryforwards, and foreign tax credit carryforwards before expiration. Accordingly, we recorded a valuation allowance against those deferred tax assets for which realization does not meet the more likely than not standard. We have established valuation allowances related to certain foreign deferred tax assets based on historical losses as well as future expectations in certain jurisdictions. We continue to evaluate the realizability of the deferred tax assets on a periodic basis.
From January 31, 2012 to January 31, 2013, net deferred tax assets
increase
d from
$12.4
to
$14.0
. Gross deferred tax assets
decrease
d by
$5.4
from January 31,
2012
to January 31,
2013
principally due to the utilization of net operating losses and tax credits in the U.S. and the timing of the deduction on accrued expenses. There was a
$13.7
decrease
in deferred tax liabilities from January 31,
2012
to January 31,
2013
principally related to a decrease in the amount, and tax thereon, of earnings treated as not permanently reinvested and basis differences in intangible assets acquired in a stock acquisitions. The valuation allowance
increase
d by
$6.7
from January 31,
2012
to January 31,
2013
.
We are subject to income taxes in the U.S. and in numerous foreign jurisdictions. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. The statute of limitations for adjustments to our historic tax obligations varies from jurisdiction to jurisdiction. In some cases it may be extended or be unlimited. Furthermore, net operating loss and tax credit carryforwards may be subject to adjustment after the expiration of the statute of limitations of the year such net operating losses and tax credits originated. Our larger jurisdictions generally provide for a statute of limitations from three to five years. We are currently under examination in various jurisdictions. The examinations are in different stages and timing of their resolution is difficult to predict. For U.S. federal income tax purposes, the tax years that remain open are fiscal
2010
and forward although net operating loss and credit carryforwards from all years are subject to examination and adjustments for three years following the year in which utilized. The statute of limitations remains open for years on or after fiscal
2008
in Japan and fiscal
2009
in Ireland.
We have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by taxing authorities even though we believe that the positions we have taken are appropriate. We believe our tax reserves are adequate to cover potential liabilities. We review the tax reserves quarterly and as circumstances warrant and adjust the reserves as events occur that affect our potential liability for additional taxes. Many of these events cannot be predicted, such as clarifications of tax law by administrative or judicial means, and it is often difficult to predict the final outcome or timing for resolution of any particular tax matter. We expect to record additional reserves in future periods with respect to our tax filing positions. It is reasonably possible that unrecognized tax positions may decrease from
$0.0
to
$11.0
due to settlements or expirations of the statute of limitations within the next twelve months. To the extent that uncertain tax positions resolve in our favor, it could have a positive impact on our effective tax rate. A portion of reserves, which could settle or expire within the next twelve months, may result in the booking of deferred tax assets subject to a valuation allowance for which no benefit would be recognized. Income tax-related interest and penalties were a benefit of
$0.3
for the year ended January 31,
2013
a benefit of
$0.7
for the year ended January 31,
2012
, an expense of
$0.2
for the year ended January 31,
2011
.
The liability for income taxes associated with uncertain tax positions was
$28.2
as of January 31,
2013
and
$34.3
as of January 31,
2012
. As of January 31,
2013
within the liability,
$5.5
was classified as a short-term liability in income tax payable in our consolidated balance sheet as we generally anticipate the settlement of such liabilities will require payment of cash within the next twelve months. The remaining
$22.7
of income tax associated with uncertain tax positions was classified as a long-term income tax liability. Tax benefits that could offset this liability were
$0.5
as of January 31,
2013
and
$0.4
as of January 31,
2012
. Such offsetting tax benefits consider the correlative effects of deductible interest and state income taxes. We expect uncertain tax positions of
$25.5
, if recognized, would favorably affect our effective tax rate.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2011-11, “Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions subject to a master netting arrangement. ASU 2011-11 is intended to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2011-11 is effective retrospectively for annual reporting periods beginning on or after January 31, 2013 and interim periods within those annual periods. Other than additional disclosures, we do not anticipate a material impact on our financial statements upon adoption.
LIQUIDITY AND CAPITAL RESOURCES
Our primary ongoing cash requirements are for product development, operating activities, capital expenditures, debt service, and acquisition opportunities that may arise. Our primary sources of liquidity are cash generated from operations and borrowings under our revolving credit facility.
We currently have sufficient funds for domestic operations and do not anticipate the need to repatriate funds associated with our permanently reinvested foreign earnings for use in U.S. operations. As of
January 31, 2013
, we have cash totaling
$130.6
held by our foreign subsidiaries. A significant portion of our offshore cash is accessible without a significant tax cost as some of our foreign earnings were previously taxed in the U.S. and other foreign earnings may be sheltered from U.S. tax by net operating loss and tax credit carryforwards. To the extent our foreign earnings are not permanently reinvested, we have provided for the tax consequences that would ensue upon their repatriation. In the event funds which are treated as permanently reinvested are repatriated, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.
To date, we have experienced no loss or lack of access to our invested cash; however, we can provide no assurances that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
At any point in time, we have significant balances in operating accounts that are with individual third-party financial institutions, which may exceed the Federal Deposit Insurance Corporation insurance limits or other regulatory insurance program limits. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.
We anticipate that the following will be sufficient to meet our working capital needs on a short-term (twelve months or less) and a long-term (more than twelve months) basis:
|
|
•
|
Anticipated cash flows from operating activities, including the effects of selling and financing customer term receivables;
|
|
|
•
|
Amounts available under existing revolving credit facilities; and
|
|
|
•
|
Other available financing sources, such as the issuance of debt or equity securities.
|
We have experienced no difficulties to date in raising debt. However, capital markets have been volatile, and we cannot assure you that we will be able to raise debt or equity capital on acceptable terms, if at all.
Cash Flow Information
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
Cash provided by operating activities
|
$
|
139.3
|
|
|
$
|
103.9
|
|
Cash used in investing activities
|
$
|
(60.8
|
)
|
|
$
|
(60.8
|
)
|
Cash (used in) provided by financing activities
|
$
|
1.9
|
|
|
$
|
(29.8
|
)
|
Operating Activities
Cash flows from operating activities consist of our net income adjusted for certain non-cash items and changes in operating assets and liabilities. Our cash flows from operating activities are significantly influenced by the payment terms on our license agreements and by our sales of qualifying accounts receivable. Our customers’ inability to fulfill payment obligations could adversely affect our cash flow. Though we have not, to date, experienced a material level of defaults, material payment defaults by our customers as a result of negative economic conditions or otherwise could have a material adverse effect on our financial condition. We monitor our accounts receivable portfolio for customers with low or declining credit ratings and increase our collection efforts when necessary.
Trade Accounts and Term Receivables
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Trade accounts receivable, net
|
$
|
412.2
|
|
|
$
|
354.9
|
|
Term receivables, long-term
|
$
|
250.5
|
|
|
$
|
220.4
|
|
Average days sales outstanding in trade accounts receivable, net
|
112
|
|
|
100
|
|
Average days sales outstanding in trade accounts receivable, net, excluding the current portion of term receivables
|
48
|
|
|
38
|
|
The
increase
in the average days sales outstanding in short-term receivables as of
January 31, 2013
was due to an
increase
in accounts receivable as
January 31, 2013
compared to
January 31, 2012
offset in part by an increase in revenue in the fourth quarter of fiscal
2013
compared to fiscal
2012
.
The current portion of term receivables is
$233.9
as of
January 31, 2013
compared to
$221.4
as of
January 31, 2012
. Term receivables are attributable to multi-year term license sales agreements. We include amounts for term agreements that are due within one year in trade accounts receivable, net, and balances that are due in more than one year in term receivables, long-term. We use term agreements as a standard business practice and have a history of successfully collecting under the original payment terms without making concessions on payments, products, or services. Total term receivables were
$484.4
as of
January 31, 2013
compared to
$441.8
as of
January 31, 2012
. The increase in term receivables as of
January 31, 2013
compared to
January 31, 2012
was due to an increase in revenue for fiscal
2013
compared to fiscal
2012
.
We enter into agreements to sell qualifying accounts receivable from time to time to certain financing institutions on a non-recourse basis. We received net proceeds from the sale of receivables of
$20.2
for fiscal
2013
compared to
$29.1
for fiscal
2012
. We continue to be able to secure factoring sources and to evaluate the economics of the sale of accounts receivable. We have not set a target for the sale of accounts receivables for fiscal
2014
.
Accrued Payroll and Related Liabilities
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Accrued payroll and related liabilities
|
$
|
101.4
|
|
|
$
|
112.3
|
|
The decrease in accrued payroll and related liabilities was primarily due to lower variable compensation for fiscal
2013
compared to fiscal
2012
.
Deferred Revenue
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Deferred revenue
|
$
|
251.5
|
|
|
$
|
206.4
|
|
The increase in deferred revenue is primarily due to increased billings of support and other services revenue during the fourth quarter of fiscal
2013
to be recognized over the contract term.
Investing Activities
Cash used in investing activities for fiscal
2013
primarily consisted of cash paid for capital expenditures.
Expenditures for property, plant, and equipment increased to
$45.1
for fiscal
2013
compared to
$41.6
for fiscal
2012
. The expenditures for property, plant, and equipment for fiscal
2013
were primarily a result of spending on information technology and infrastructure improvements within our facilities.
During fiscal
2013
, we acquired one privately-held company, certain assets of another privately-held company, and a business unit of a public company for cash of
$12.1
, net of cash acquired. We plan to finance future business acquisitions through cash and possible common stock issuances. The cash expected to be utilized includes cash on hand, cash generated from operating activities, and borrowings on our revolving credit facility.
Financing Activities
For fiscal
2013
, cash provided by financing activities consisted primarily of proceeds from the issuance of common stock offset in part by repurchases of our common stock and repayments of short-term borrowings.
In April 2011, we announced a share repurchase program under which we may purchase up to $150.0 of our common stock over a three year period through April 2014. In February 2012, the Board of Directors approved an increase in the amount we may repurchase under this program from $150.0 to $200.0. During fiscal
2013
, we repurchased
2.2
shares of common stock for a cost of
$33.9
under this program. As of January 31, 2013,
$76.1
remained available for repurchases under this program.
On March 7, 2013, the Board of Directors announced the adoption of a dividend policy under which we intend to pay an annual cash dividend of $0.18 per share of common stock. The first dividend of $0.045 per share of outstanding common stock will be paid to shareholders of record as of the close of business on March 22, 2013, with a payment date of April 10, 2013. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the quarterly determination of our Board of Directors.
Under the terms of our revolving credit facility, the combination of the amount of our common stock we can repurchase and the amount of dividends we can pay is limited to $50.0 plus 70% of our cumulative net income for periods after January 31, 2011. An additional
$106.9
is available for common stock repurchases or dividend payments under this limit as of January 31, 2013.
Other factors affecting liquidity and capital resources
4.00% Debentures due 2031
In
April 2011
, we issued
$253.0
of the 4.00% Debentures. Interest on the 4.00% Debentures is payable semi-annually in April and October. The 4.00% Debentures are convertible, under certain circumstances, into our common stock at a conversion price of
$20.538
per share for a total of
12.3
shares as of
January 31, 2013
. Upon conversion of any 4.00% Debentures, a holder will receive:
|
|
(i)
|
Cash up to the principal amount of the 4.00% Debentures that are converted; and
|
|
|
(ii)
|
Cash or shares of common stock, at our election, for the excess, if any, of the value of the converted shares over the principal amount.
|
If a holder elects to convert their 4.00% Debentures in connection with a fundamental change in the company that occurs prior to April 5, 2016, the holder will also be entitled to receive a make whole premium upon conversion in some circumstances. Any make whole premium would have the effect of increasing the amount of any cash, securities, or other property or assets otherwise due to holders of debentures upon conversion.
We may redeem some or all of the 4.00% Debentures for cash on or after April 5, 2016 at the following redemption prices expressed as a percentage of principal, plus any accrued and unpaid interest:
|
|
|
|
Period
|
Redemption Price
|
Beginning on April 5, 2016 and ending on March 31, 2017
|
101.143
|
%
|
Beginning on April 1, 2017 and ending on March 31, 2018
|
100.571
|
%
|
On April 1, 2018 and thereafter
|
100.000
|
%
|
The holders, at their option, may redeem the 4.00% Debentures in whole or in part for cash on April 1, 2018, April 1, 2021, and April 1, 2026, and in the event of a fundamental change in the company. In each case, the repurchase price will be 100% of the principal amount of the 4.00% Debentures plus any accrued and unpaid interest.
Revolving Credit Facility
In April 2011, we entered into a syndicated, senior, unsecured, four-year revolving credit facility with a maximum borrowing capacity of $125.0. We have the option to pay interest on this revolving credit facility based on:
|
|
(i)
|
London Interbank Offered Rate (LIBOR) with varying maturities which are commensurate with the borrowing period we select, plus a spread of between 2.25% and 3.25% based on a pricing grid tied to a financial covenant; or
|
|
|
(ii)
|
A base rate plus a spread of between 1.25% and 2.25%, based on a pricing grid tied to a financial covenant.
|
The base rate is defined as the highest of:
|
|
(i)
|
The federal funds rate, as defined, plus 0.5%;
|
|
|
(ii)
|
The prime rate of the lead bank; or
|
|
|
(iii)
|
One-month LIBOR plus 1.0%.
|
As a result of these interest rate options, our interest expense associated with borrowings under this revolving credit facility will vary with market interest rates. In addition, commitment fees are payable on the unused portion of the revolving credit facility at rates between 0.40% and 0.50% based on a pricing grid tied to a financial covenant.
We had no borrowings against the revolving credit facility during fiscal
2013
. The base interest rate was
4.5%
as of
January 31, 2013
.
For further information on the revolving credit facility, see Note 7. “Short-Term Borrowings” in Part II, Item 8. “Financial Statements and Supplementary Data.”
OFF-BALANCE SHEET ARRANGEMENTS
We do not have off-balance sheet arrangements, financings, or other similar relationships with unconsolidated entities or other persons, also known as special purpose entities. In the ordinary course of business, we lease certain real properties, primarily field sales offices, research and development facilities, and equipment.
CONTRACTUAL OBLIGATIONS
We are contractually obligated to make the following payments as of
January 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5
years
|
Notes payable
|
$
|
253.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
253.0
|
|
Interest on debt
|
183.8
|
|
|
10.1
|
|
|
20.2
|
|
|
20.2
|
|
|
133.3
|
|
Other liabilities (1)
|
27.6
|
|
|
10.8
|
|
|
5.6
|
|
|
3.6
|
|
|
7.6
|
|
Other borrowings
|
6.0
|
|
|
6.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating leases
|
76.0
|
|
|
25.2
|
|
|
32.7
|
|
|
12.7
|
|
|
5.4
|
|
Total contractual obligations
|
$
|
546.4
|
|
|
$
|
52.1
|
|
|
$
|
58.5
|
|
|
$
|
36.5
|
|
|
$
|
399.3
|
|
|
|
(1)
|
In addition, our balance sheet as of
January 31, 2013
included additional long-term taxes payable of
$26.5
related to tax positions for which the timing of the ultimate resolution is uncertain. At this time, we are unable to make a reasonably reliable estimate of the period of cash settlement with the respective taxing authorities and the total amount of taxes payable. The timing of such tax payments may depend on the resolution of current and future tax examinations which cannot be estimated. As a result, this amount is not included in the above table.
|
OUTLOOK FOR FISCAL
2014
We expect revenues for the
first
quarter of fiscal
2014
to be approximately
$225.0
, with earnings per share for the same period of approximately break-even. For the full year fiscal
2014
, we expect revenues to be approximately
$1.155
billion, with earnings per share of approximately
$1.41
. We are focused on continued expense control in the operation of our business.
|
|
Item 8.
|
Financial Statements and Supplementary Data
|
Mentor Graphics Corporation
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
In thousands, except per share data
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
System and software
|
$
|
681,881
|
|
|
$
|
631,549
|
|
|
$
|
562,355
|
|
Service and support
|
406,846
|
|
|
383,089
|
|
|
352,398
|
|
Total revenues
|
1,088,727
|
|
|
1,014,638
|
|
|
914,753
|
|
Cost of revenues:
|
|
|
|
|
|
System and software
|
64,280
|
|
|
54,972
|
|
|
42,865
|
|
Service and support
|
117,609
|
|
|
108,690
|
|
|
99,612
|
|
Amortization of purchased technology
|
7,801
|
|
|
9,796
|
|
|
13,771
|
|
Total cost of revenues
|
189,690
|
|
|
173,458
|
|
|
156,248
|
|
Gross profit
|
899,037
|
|
|
841,180
|
|
|
758,505
|
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
313,962
|
|
|
310,758
|
|
|
296,631
|
|
Marketing and selling
|
338,653
|
|
|
326,608
|
|
|
312,834
|
|
General and administration
|
74,324
|
|
|
74,811
|
|
|
80,948
|
|
Equity in earnings of Frontline
|
(1,764
|
)
|
|
(2,268
|
)
|
|
(2,051
|
)
|
Amortization of intangible assets
|
5,915
|
|
|
5,905
|
|
|
7,347
|
|
Special charges
|
6,314
|
|
|
13,174
|
|
|
10,257
|
|
Total operating expenses
|
737,404
|
|
|
728,988
|
|
|
705,966
|
|
Operating income
|
161,633
|
|
|
112,192
|
|
|
52,539
|
|
Other (expense) income, net
|
(1,432
|
)
|
|
1,576
|
|
|
(2,116
|
)
|
Interest expense
|
(18,866
|
)
|
|
(31,444
|
)
|
|
(18,411
|
)
|
Income before income tax
|
141,335
|
|
|
82,324
|
|
|
32,012
|
|
Income tax expense (benefit)
|
2,701
|
|
|
(1,063
|
)
|
|
3,428
|
|
Net income
|
$
|
138,634
|
|
|
$
|
83,387
|
|
|
$
|
28,584
|
|
Less: Loss attributable to noncontrolling interest
|
(102
|
)
|
|
(485
|
)
|
|
—
|
|
Net income attributable to Mentor Graphics shareholders
|
$
|
138,736
|
|
|
$
|
83,872
|
|
|
$
|
28,584
|
|
Net income per share:
|
|
|
|
|
|
Basic
|
$
|
1.20
|
|
|
$
|
0.76
|
|
|
$
|
0.27
|
|
Diluted
|
$
|
1.17
|
|
|
$
|
0.74
|
|
|
$
|
0.26
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
Basic
|
110,998
|
|
|
110,138
|
|
|
107,743
|
|
Diluted
|
114,017
|
|
|
112,915
|
|
|
109,861
|
|
See accompanying notes to consolidated financial statements.
Mentor Graphics Corporation
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
In thousands
|
|
|
|
|
|
Net income
|
$
|
138,634
|
|
|
$
|
83,387
|
|
|
$
|
28,584
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
Change in unrealized gain (loss) on derivative instruments
|
193
|
|
|
(203
|
)
|
|
1,585
|
|
Change in accumulated translation adjustment
|
(3,110
|
)
|
|
(3,149
|
)
|
|
1,595
|
|
Change in pension liability
|
(420
|
)
|
|
212
|
|
|
2,349
|
|
Comprehensive income
|
135,297
|
|
|
80,247
|
|
|
34,113
|
|
Less amounts attributable to the noncontrolling interest:
|
|
|
|
|
|
Net loss
|
(102
|
)
|
|
(485
|
)
|
|
—
|
|
Change in accumulated translation adjustment
|
(56
|
)
|
|
(127
|
)
|
|
—
|
|
Comprehensive loss attributable to the noncontrolling interest
|
(158
|
)
|
|
(612
|
)
|
|
—
|
|
Comprehensive income attributable to Mentor Graphics shareholders
|
$
|
135,455
|
|
|
$
|
80,859
|
|
|
$
|
34,113
|
|
See accompanying notes to consolidated financial statements.
Mentor Graphics Corporation
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
In thousands
|
|
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
223,783
|
|
|
$
|
146,499
|
|
Restricted cash
|
—
|
|
|
4,237
|
|
Trade accounts receivable, net of allowance for doubtful accounts of $5,331 as of January 31, 2013 and $4,432 as of January 31, 2012
|
412,245
|
|
|
354,924
|
|
Other receivables
|
10,974
|
|
|
11,085
|
|
Inventory
|
18,036
|
|
|
8,136
|
|
Prepaid expenses and other
|
24,941
|
|
|
24,751
|
|
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
|
250,497
|
|
|
220,355
|
|
Goodwill
|
535,932
|
|
|
527,102
|
|
Intangible assets, net
|
21,838
|
|
|
28,569
|
|
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
|
|
Notes payable
|
218,546
|
|
|
213,224
|
|
Deferred revenue
|
17,755
|
|
|
14,883
|
|
Income tax liability
|
22,663
|
|
|
34,257
|
|
Other long-term liabilities
|
28,318
|
|
|
39,033
|
|
Total liabilities
|
699,107
|
|
|
675,335
|
|
Commitments and contingencies (Note 10)
|
|
|
|
Noncontrolling interest with redemption feature
|
12,698
|
|
|
9,266
|
|
Stockholders’ equity:
|
|
|
|
Common stock, no par value, 300,000 shares authorized as of January 31, 2013 and January 31, 2012; 112,902 shares issued and outstanding as of January 31, 2013 and 109,346 shares issued and outstanding as of January 31, 2012
|
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
|
|
See accompanying notes to consolidated financial statements.
Mentor Graphics Corporation
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
In thousands
|
|
|
|
|
|
Operating Cash Flows:
|
|
|
|
|
|
Net income
|
$
|
138,634
|
|
|
$
|
83,387
|
|
|
$
|
28,584
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization of property, plant, and equipment
|
33,305
|
|
|
31,948
|
|
|
30,814
|
|
Amortization of intangible assets and debt costs
|
20,246
|
|
|
22,239
|
|
|
26,129
|
|
Loss on debt extinguishment
|
—
|
|
|
3,518
|
|
|
—
|
|
Write-off of debt discount and debt issuance costs
|
—
|
|
|
8,010
|
|
|
132
|
|
Stock-based compensation
|
23,697
|
|
|
21,658
|
|
|
20,511
|
|
Deferred income taxes
|
(1,634
|
)
|
|
2,754
|
|
|
(3,541
|
)
|
Changes in other long-term liabilities
|
(6,143
|
)
|
|
2,889
|
|
|
(7,054
|
)
|
Gain on conversion of equity method investment to controlling interest
|
—
|
|
|
(1,519
|
)
|
|
—
|
|
In-process research and development
|
—
|
|
|
—
|
|
|
120
|
|
Dividends received from unconsolidated entities, net of equity in income
|
4,358
|
|
|
4,874
|
|
|
3,587
|
|
Loss (gain) on disposal of property, plant, and equipment, net
|
74
|
|
|
(7
|
)
|
|
(30
|
)
|
Changes in operating assets and liabilities, net of effect of acquired businesses:
|
|
|
|
|
|
Trade accounts receivable, net
|
(58,389
|
)
|
|
(8,915
|
)
|
|
(44,735
|
)
|
Prepaid expenses and other
|
(21,861
|
)
|
|
(16,295
|
)
|
|
(3,013
|
)
|
Term receivables, long-term
|
(30,980
|
)
|
|
(54,637
|
)
|
|
(4,409
|
)
|
Accounts payable and accrued liabilities
|
(2,720
|
)
|
|
(3,122
|
)
|
|
20,951
|
|
Income taxes payable
|
(5,084
|
)
|
|
(11,725
|
)
|
|
(1,424
|
)
|
Deferred revenue
|
45,784
|
|
|
18,881
|
|
|
15,586
|
|
Net cash provided by operating activities
|
139,287
|
|
|
103,938
|
|
|
82,208
|
|
Investing Cash Flows:
|
|
|
|
|
|
Proceeds from the sales and maturities of short-term investments
|
—
|
|
|
—
|
|
|
3
|
|
Increase in restricted cash
|
—
|
|
|
(3,977
|
)
|
|
—
|
|
Purchases of property, plant, and equipment
|
(45,130
|
)
|
|
(41,555
|
)
|
|
(47,175
|
)
|
Acquisitions of businesses and equity interests and other intangible assets, net of cash acquired
|
(15,652
|
)
|
|
(15,260
|
)
|
|
(25,578
|
)
|
Net cash used in investing activities
|
(60,782
|
)
|
|
(60,792
|
)
|
|
(72,750
|
)
|
Financing Cash Flows:
|
|
|
|
|
|
Proceeds from issuance of common stock
|
46,756
|
|
|
37,460
|
|
|
27,530
|
|
Repurchase of common stock
|
(33,914
|
)
|
|
(89,996
|
)
|
|
—
|
|
Tax benefit from share options exercised
|
266
|
|
|
—
|
|
|
—
|
|
Net decrease in short term borrowing
|
(8,149
|
)
|
|
(1,284
|
)
|
|
(2,162
|
)
|
Debt and equity issuance costs
|
—
|
|
|
(9,020
|
)
|
|
(1,220
|
)
|
Proceeds from notes payable and revolving credit facility
|
—
|
|
|
253,000
|
|
|
100,225
|
|
Repayments of notes payable and revolving credit facility
|
(3,016
|
)
|
|
(219,919
|
)
|
|
(102,263
|
)
|
Net cash provided by (used in) financing activities
|
1,943
|
|
|
(29,759
|
)
|
|
22,110
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(3,164
|
)
|
|
(1
|
)
|
|
2,205
|
|
Net change in cash and cash equivalents
|
77,284
|
|
|
13,386
|
|
|
33,773
|
|
Cash and cash equivalents at the beginning of the period
|
146,499
|
|
|
133,113
|
|
|
99,340
|
|
Cash and cash equivalents at the end of the period
|
$
|
223,783
|
|
|
$
|
146,499
|
|
|
$
|
133,113
|
|
See accompanying notes to consolidated financial statements.
Mentor Graphics Corporation
Consolidated Statements of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Retained Earnings (Accumulated Deficit)
|
|
Accumulated Other
Comprehensive
Income
|
|
Total
Stockholders’
Equity
|
|
Noncontrolling
Interest with
Redemption Feature
|
|
Shares
|
|
Amount
|
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 31, 2010
|
100,478
|
|
|
$
|
662,595
|
|
|
$
|
(48,742
|
)
|
|
$
|
26,164
|
|
|
$
|
640,017
|
|
|
$
|
—
|
|
Net income
|
|
|
|
|
28,584
|
|
|
|
|
28,584
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
5,529
|
|
|
5,529
|
|
|
|
Stock issued under stock options and stock purchase plans
|
5,150
|
|
|
27,530
|
|
|
|
|
|
|
27,530
|
|
|
|
Stock issued for acquisition
|
5,621
|
|
|
54,028
|
|
|
|
|
|
|
54,028
|
|
|
|
Stock compensation expense
|
|
|
21,026
|
|
|
|
|
|
|
21,026
|
|
|
|
Balance as of January 31, 2011
|
111,249
|
|
|
$
|
765,179
|
|
|
$
|
(20,158
|
)
|
|
$
|
31,693
|
|
|
$
|
776,714
|
|
|
$
|
—
|
|
Net income
|
|
|
|
|
83,872
|
|
|
|
|
83,872
|
|
|
(485
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
(3,013
|
)
|
|
(3,013
|
)
|
|
(127
|
)
|
Convertible debt feature
|
|
|
42,531
|
|
|
|
|
|
|
42,531
|
|
|
|
Acquisition of controlling interest
|
|
|
(815
|
)
|
|
|
|
|
|
(815
|
)
|
|
8,196
|
|
Adjustment of noncontrolling interest to redemption value
|
|
|
|
|
(1,682
|
)
|
|
|
|
(1,682
|
)
|
|
1,682
|
|
Stock issued under stock options and stock purchase plans
|
4,902
|
|
|
37,459
|
|
|
|
|
|
|
37,459
|
|
|
|
Stock repurchased
|
(6,805
|
)
|
|
(89,995
|
)
|
|
|
|
|
|
(89,995
|
)
|
|
|
Stock compensation expense
|
|
|
21,003
|
|
|
|
|
|
|
21,003
|
|
|
|
Balance as of January 31, 2012
|
109,346
|
|
|
$
|
775,362
|
|
|
$
|
62,032
|
|
|
$
|
28,680
|
|
|
$
|
866,074
|
|
|
$
|
9,266
|
|
Net income
|
|
|
|
|
138,736
|
|
|
|
|
138,736
|
|
|
(102
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
(3,281
|
)
|
|
(3,281
|
)
|
|
(56
|
)
|
Adjustment of noncontrolling interest to redemption value
|
|
|
|
|
(3,590
|
)
|
|
|
|
(3,590
|
)
|
|
3,590
|
|
Stock issued under stock options and stock purchase plans
|
5,801
|
|
|
46,756
|
|
|
|
|
|
|
46,756
|
|
|
|
Stock repurchased
|
(2,245
|
)
|
|
(33,914
|
)
|
|
|
|
|
|
(33,914
|
)
|
|
|
Stock compensation expense
|
|
|
22,432
|
|
|
|
|
|
|
22,432
|
|
|
|
Tax benefit associated with the exercise of stock options
|
|
|
266
|
|
|
|
|
|
|
266
|
|
|
|
Balance as of January 31, 2013
|
112,902
|
|
|
$
|
810,902
|
|
|
$
|
197,178
|
|
|
$
|
25,399
|
|
|
$
|
1,033,479
|
|
|
$
|
12,698
|
|
See accompanying notes to consolidated financial statements.
Mentor Graphics Corporation
Notes to Consolidated Financial Statements
All numerical dollar and share references are in thousands, except for per share data.
1. Nature of Operations
We are a supplier of electronic design automation systems — advanced computer software and emulation hardware systems used to automate the design, analysis, and testing of complex electro-mechanical systems, electronic hardware, and embedded systems software in electronic systems and components. We market our products and services worldwide, primarily to large companies in the communications, computer, consumer electronics, semiconductor, networking, multimedia, military and aerospace, and transportation industries. We sell and license our products through our direct sales force and a channel of distributors and sales representatives. We were incorporated in Oregon in 1981 and our common stock is traded on The NASDAQ Global Select Market under the symbol “MENT.” In addition to our corporate offices in Wilsonville, Oregon, we have sales, support, software development, and professional service offices worldwide.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include our financial statements and those of our wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
We do not have off-balance sheet arrangements, financings, or other similar relationships with unconsolidated entities or other persons, also known as special purpose entities. In the ordinary course of business, we lease certain real properties, primarily field sales offices, research and development facilities, and equipment, as described in Note 10. “Commitments and Contingencies.”
Foreign Currency Translation
Local currencies are the functional currencies for our foreign subsidiaries except for certain subsidiaries in Ireland, Singapore, Egypt, the Netherlands Antilles, and Israel where the United States (U.S.) dollar is used as the functional currency. We translate assets and liabilities of foreign operations, excluding certain subsidiaries in Ireland, Singapore, Egypt, the Netherlands Antilles, and Israel, to U.S. dollars at current rates of exchange and revenues and expenses are translated using weighted average rates. We include foreign currency translation adjustments in stockholders’ equity as a component of accumulated other comprehensive income. We maintain the accounting records for certain subsidiaries in Ireland, Singapore, Egypt, the Netherlands Antilles, and Israel in the U.S. dollar and accordingly no translation is necessary. We include foreign currency transaction gains and losses as a component of other income (expense), net.
Use of Estimates
U.S. generally accepted accounting principles require management to make estimates and assumptions that affect the reported amount of assets, liabilities, and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include valuation of accounts receivable, goodwill, intangible assets, other long-lived assets, and assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on our best estimates and judgment. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Actual results could differ from these estimates. Any changes in estimates will be reflected in the financial statements in future periods.
Cash and Cash Equivalents
Cash equivalents totaled
$13,224
as of
January 31, 2013
and
$39,769
as of
January 31, 2012
and included certificates of deposit and other highly liquid investments with original maturities of ninety days or less. Restricted cash totaling
$4,237
as of
January 31, 2012
represented funds held in escrow for the purchase of land.
Investments
Long-term investments, included in other assets on the accompanying consolidated balance sheets, include investments with maturities in excess of one year from the balance sheet date, investments with indefinite lives, and equity securities. We determine the appropriate classification of our investments at the time of purchase. For investments in equity securities, we use the equity method of accounting when our investment gives us the ability to exercise significant influence over the operating and financial policies of the investee. Under the equity method, we currently record our share of earnings or losses as a
component of other income (expense), net equal to our proportionate share of the earnings or losses of the investee. For investments in equity securities of private companies without a readily determinable fair value, and as to which we do not exercise significant influence over the investee, we record our investment under the cost method of accounting. Under the cost method of accounting, we carry the investment at historical cost. We periodically evaluate the fair value of all investments to determine if an other-than-temporary decline in value has occurred.
Investment in Frontline
In connection with our acquisition of Valor Computerized Systems, Ltd. (Valor) on
March 18, 2010
, we acquired Valor’s
50%
interest in a joint venture, Frontline P.C.B. Solutions Limited Partnership (Frontline), a provider of engineering software solutions for the printed circuit board industry. We use the equity method of accounting for Frontline, which results in reporting our investment as one line within other assets in the consolidated balance sheet and our share of earnings on one line in the consolidated statement of income. Frontline reports on a calendar year basis. As such, we record our interest in the earnings of Frontline on a one month lag.
Although we do not exert control, we actively participate in regular and periodic activities with respect to Frontline such as budgeting, business planning, marketing, and direction of research and development projects. Accordingly, we have included our interest in the earnings of Frontline as a component of operating income.
Concentrations of Credit Risk
We place our cash, cash equivalents, and short-term investments with major banks and financial institutions. Our investment policy limits our credit exposure to any one financial institution. We do not believe we are exposed to significant credit or market risk on our financial instruments.
Our concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base and their dispersion across different businesses and geographic areas. However, the allowance for doubtful accounts, which is based on management’s best estimates, could be adjusted in the near term depending on actual experience. An adjustment could be material to our consolidated financial statements.
Property, Plant, and Equipment, Net
We state property, plant, and equipment at cost. We capitalize expenditures for additions to property, plant, and equipment. We expense maintenance and repairs which do not improve or extend the life of the respective asset as incurred. We compute depreciation on a straight-line basis over lives of
forty
years for buildings and
twenty
years for land improvements. We compute depreciation of computer equipment and furniture principally on a straight-line basis over the estimated useful lives of the assets, generally
three
to
five
years. We amortize leasehold improvements on a straight-line basis over the lesser of the term of the lease or estimated useful lives of the improvements, generally
three
to
ten
years.
Goodwill, Intangible Assets, and Long-Lived Assets
Goodwill represents the excess of the aggregate purchase price over the fair value of the tangible and other intangible assets acquired in our business combinations. Intangible assets, net primarily includes purchased technology, in-process research and development, backlog, tradename, and customer relationships acquired in our business combinations. We review long-lived assets, including intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. We assess the recoverability of our long-lived assets by determining whether the carrying values of the asset groups are greater than the forecasted undiscounted net cash flows of the related asset group. If we determine the assets are impaired, we write down the assets to their estimated fair value. We determine fair value based on forecasted discounted net cash flows or appraised values, depending upon the nature of the assets. In the event we determine our long-lived assets have been impaired, we would make an adjustment that would result in a charge for the write-down in the period that the determination was made.
Goodwill is not amortized, but is tested for impairment at least annually and as necessary if changes in facts and circumstances indicate that the fair value of our reporting unit may be less than the carrying amount. We operate as a single reporting unit for purposes of goodwill evaluation. We completed our annual goodwill impairment test as of
January 31, 2013
,
2012
, and
2011
. For purposes of assessing the impairment of goodwill, we estimated the fair value of our reporting unit using its market capitalization as the best evidence of fair value and then compared the fair value to the carrying value of our reporting unit. Our reporting unit passed this step of the goodwill analysis. There were no indicators of impairment to goodwill during fiscal 2013, 2012, and 2011 and accordingly, no impairment charges were recognized during these fiscal periods.
We amortize purchased technology over
three
to
five
years to system and software cost of revenues and other intangible asset costs over
one
to
five
years to operating expenses. We amortize capitalized in-process research and development, upon completion of projects to cost of revenues over the estimated useful life of the technology. Alternatively, if we abandon a project, in-process research and development costs are expensed to operating expense when the determination is made.
Total purchased technology and other intangible asset amortization expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Purchased technology and other intangible asset amortization expenses
|
$
|
13,716
|
|
|
$
|
15,701
|
|
|
$
|
21,118
|
|
As of
January 31, 2013
, the carrying value of goodwill, intangible assets, and long-lived assets was as follows:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Goodwill
|
$
|
535,932
|
|
|
$
|
527,102
|
|
Net purchased technology and in-process research and development
(1)
|
$
|
8,019
|
|
|
$
|
14,023
|
|
Net other intangible assets
(2)
|
$
|
13,819
|
|
|
$
|
14,546
|
|
(1)
Includes accumulated amortization of
$121,011
as of
January 31, 2013
and
$113,139
as of
January 31, 2012
.
(2)
Includes accumulated amortization of
$65,049
as of
January 31, 2013
and
$59,043
as of
January 31, 2012
.
The following table summarizes goodwill activity:
|
|
|
|
|
Balance as of January 31, 2011
|
$
|
510,508
|
|
Acquisitions
|
16,107
|
|
Earnouts
|
642
|
|
Foreign exchange
|
(155
|
)
|
Balance as of January 31, 2012
|
$
|
527,102
|
|
Acquisitions
|
8,437
|
|
Earnouts
|
370
|
|
Foreign exchange
|
23
|
|
Balance as of January 31, 2013
|
$
|
535,932
|
|
We estimate the aggregate amortization expense related to purchased technology and other intangible assets will be as follows:
|
|
|
|
|
Fiscal years ending January 31,
|
|
2014
|
$
|
9,434
|
|
2015
|
7,233
|
|
2016
|
4,068
|
|
2017
|
859
|
|
2018
|
244
|
|
Thereafter
|
—
|
|
Aggregate amortization expense
|
$
|
21,838
|
|
Noncontrolling Interest with Redemption Feature
As of
January 31, 2013
, our balance sheet includes a noncontrolling interest resulting from a business combination in which we acquired majority ownership in a privately-held company. In conjunction with this business combination, we also entered into an agreement which provides us a call option to acquire the noncontrolling interest and the noncontrolling interest holders a put option to sell their interests to us, at a future date for prices based on formulas defined in the agreement. The noncontrolling interest adjusted for this redemption feature based on the put option price formula is presented on the consolidated balance sheet under the caption “Noncontrolling interest with redemption feature.” Because the redemption of the noncontrolling interest is outside of our control, we have presented this interest outside of stockholders’ equity.
The noncontrolling interest with redemption feature is recognized at the greater of:
i. The calculated redemption put value as of the balance sheet date, as if it were redeemable; or
ii. The initial noncontrolling interest value adjusted for the noncontrolling interest holders' share of:
a. cumulative impact of net income (loss); and
b. other changes in accumulated other comprehensive income.
Increases (or decreases to the extent they offset previous increases) in the calculated redemption feature put value are recorded directly to retained earnings as if the balance sheet date were also the redemption date. Changes in the redemption feature put value, to the extent they are significant, also result in an adjustment to net income attributable to shareholders in the calculation of basic and diluted net income per share.
The results of the majority-owned subsidiary are presented in our consolidated results with an adjustment reflected on the face of our statement of income and the face of our statement of comprehensive income for the noncontrolling investors' interest in the results of the subsidiary.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, we recognize deferred income taxes for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and tax balances of existing assets and liabilities. We calculate deferred tax assets and liabilities using enacted laws and tax rates that will be in effect when we expect the differences to reverse and be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards if it is more likely than not that the tax benefits will be realized. Deferred tax assets are not recorded, however, in the following circumstances:
|
|
•
|
A deferred tax asset is not recorded for net operating loss carryforwards created by excess tax benefits from the exercise of stock options. To the extent such net operating loss carryforwards are utilized, we will increase stockholders’ equity. The historical and current deferred tax assets related to excess tax benefits from stock option exercises are excluded in the presentation of our financial results.
|
|
|
•
|
Deferred tax assets are not recorded to the extent they are attributed to uncertain tax positions.
|
For deferred tax assets that cannot be recognized under the more-likely-than-not-standard, we have established a valuation allowance. In the event we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, we would reverse the valuation allowance associated with such deferred tax assets in the period such determination was made. Also, if we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would record a valuation allowance on such net deferred tax assets with a corresponding increase in expense in the period such determination was made.
Derivative Financial Instruments
We are exposed to fluctuations in foreign currency exchange rates and have established a foreign currency hedging program to hedge certain foreign currency forecasted transactions and exposures from existing assets and liabilities. Our derivative instruments consist of foreign currency exchange contracts. By using derivative instruments, we subject ourselves to credit risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, our credit risk will equal the fair value of the derivative instrument. Generally, when the fair value of our derivative contracts is a net asset, the counterparty owes us, thus creating a receivable risk. We minimize counterparty credit risk by entering into derivative transactions with major financial institutions and, as such, we do not expect material losses as a result of default by our counterparties. We execute foreign currency transactions in exchange-traded or over-the-counter markets for which quoted prices exist. We do not hold or issue derivative financial instruments for speculative or trading purposes.
To manage the foreign currency volatility, we aggregate exposures on a consolidated basis to take advantage of natural offsets. The primary exposures are the Japanese yen, where we are in a long position, and the euro and the British pound, where we are in a short position. Most large European revenue contracts are denominated and paid to us in U.S. dollars while our European expenses, including substantial research and development operations, are paid in local currencies causing a short position in the euro and the British pound. In addition, we experience greater inflows than outflows of Japanese yen as almost all Japanese-based customers contract and pay us in Japanese yen. While these exposures are aggregated on a consolidated basis to take advantage of natural offsets, substantial exposures remain.
To partially offset the net exposures in the euro, British pound, and the Japanese yen, we enter into foreign currency exchange contracts of less than one year which are designated as cash flow hedges. Any gain or loss on Japanese yen contracts is classified as product revenue when the hedged transaction occurs while any gain or loss on euro and British pound contracts is classified as operating expense when the hedged transaction occurs.
We use an income approach to determine the fair value of our foreign currency contracts and record them at fair value utilizing observable market inputs at the measurement date. We report the fair value of derivatives in other receivables, if the balance is an asset, or accrued liabilities, if the balance is a liability, in the consolidated balance sheet. The accounting for changes in the fair value of a derivative depends upon whether it has been designated in a hedging relationship and on the type of hedging relationship. To qualify for designation in a hedging relationship, specific criteria must be met and the appropriate documentation maintained. Hedging relationships, if designated, are established pursuant to our risk management policy and are initially and regularly evaluated to determine whether they are expected to be, and have been, highly effective hedges. We formally document all relationships between foreign currency exchange contracts and hedged items as well as our risk management objectives and strategies for undertaking various hedge transactions.
All hedges designated as cash flow hedges are linked to forecasted transactions and we assess, both at inception of the hedge and on an ongoing basis, the effectiveness of the foreign currency exchange contracts in offsetting changes in the cash flows of the hedged items. We report the effective portions of the net gains or losses on these foreign currency exchange contracts as a component of accumulated other comprehensive income in stockholders’ equity. Accumulated other comprehensive income associated with hedges of forecasted transactions is reclassified to the consolidated statement of income in the same period the forecasted transaction occurs or the hedge is no longer effective. We expect substantially all of the hedge balance in accumulated other comprehensive income to be reclassified to the consolidated statement of income within the next twelve months.
We enter into foreign currency exchange contracts to offset the earnings impact relating to the variability in exchange rates on certain short-term monetary assets and liabilities denominated in non-functional currencies. We do not designate these foreign currency contracts as hedges. The change in fair value of these derivative instruments not designated as hedging instruments is reported each period in other income (expense), net, in our consolidated statement of income.
Revenue Recognition
We report revenue in two categories based on how the revenue is generated: (i) system and software and (ii) service and support.
System and software revenues
– We derive system and software revenues from the sale of licenses of software products, emulation hardware systems, and finance fee revenues from our long-term installment receivables resulting from product sales. We primarily license our products using two different license types:
1.
Term licenses – We use this license type primarily for software sales. This license type provides the customer with the right to use a fixed list of software products for a specified time period, typically three years, with payments spread over the license term, and does not provide the customer with the right to use the products after the end of the term. Term license arrangements may allow the customer to share products between multiple locations and remix product usage from the fixed list of products at regular intervals during the license term. We generally recognize product revenue from term license arrangements upon product delivery and start of the license term. In a term license agreement where we provide the customer with rights to unspecified or unreleased future products, we recognize revenue ratably over the license term.
2.
Perpetual licenses – We use this license type for software and emulation hardware system sales. This license type provides the customer with the right to use the product in perpetuity and typically does not provide for extended payment terms. We generally recognize product revenue from perpetual license arrangements upon product delivery assuming all other criteria for revenue recognition have been met.
We include finance fee revenues from the accretion of the discount on long-term installment receivables in system and software revenues. Finance fee revenues were approximately
2.0%
of total revenues for fiscal
2013
,
2012
, and
2011
.
Service and support revenues
– We derive service and support revenues from software and hardware post-contract maintenance or support services and professional services, which include consulting, training, and other services. We recognize revenue ratably over the support services term. We record professional service revenue as the services are provided to the customer.
We determine whether product revenue recognition is appropriate based upon the evaluation of whether the following four criteria have been met:
1.
Persuasive evidence of an arrangement exists – Generally, we use either a customer signed contract or qualified customer purchase order as evidence of an arrangement for both term and perpetual licenses. For professional service engagements, we generally use a signed professional services agreement and a statement of work to evidence an arrangement. Sales through our distributors are evidenced by an agreement governing the relationship, together with binding purchase orders from the distributor on a transaction-by-transaction basis.
2.
Delivery has occurred – We generally deliver software and the corresponding access keys to customers electronically. Electronic delivery occurs when we provide the customer access to the software. We may also deliver the software on a compact disc. With respect to emulation hardware systems, we transfer title to the customer upon shipment. Our software license and emulation hardware system agreements generally do not contain conditions for acceptance.
3.
Fee is fixed or determinable – We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We have established a history of collecting under the original contract with installment terms without providing concessions on payments, products, or services. Additionally, for installment contracts, we determine that the fee is fixed or determinable if the arrangement has a payment schedule that is within the term of the licenses and the payments are collected in equal or nearly equal installments, when evaluated on a cumulative basis. If the fee is not deemed to be fixed or determinable, we recognize revenue as payments become due and payable.
Significant judgment is involved in assessing whether a fee is fixed or determinable. We must also make these judgments when assessing whether a contract amendment to a term arrangement (primarily in the context of a license extension or renewal) constitutes a concession. Our experience has been that we are able to determine whether a fee is fixed or determinable for term licenses. If we no longer were to have a history of collecting under the original contract without providing concessions on term licenses, revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable. Such a change could have a material impact on our results of operations.
4.
Collectibility is probable – To recognize revenue, we must judge collectibility of the arrangement fees on a customer-by-customer basis pursuant to our credit review process. We typically sell to customers with whom there is a history of successful collection. We evaluate the financial position and a customer’s ability to pay whenever an existing customer purchases new products, renews an existing arrangement, or requests an increase in credit terms. For certain industries for which our products are not considered core to the industry or the industry is generally considered troubled, we impose higher credit standards. If we determine that collectibility is not probable based upon our credit review process or the customer’s payment history, we recognize revenue as payments are received.
Multiple element arrangements involving software licenses – For multiple element arrangements involving software and other software-related deliverables, vendor-specific objective evidence of fair value (VSOE) must exist to allocate the total fee among all delivered and non-essential undelivered elements of the arrangement. If undelivered elements of the arrangement are essential to the functionality of the product, we defer revenue until the essential elements are delivered. If VSOE does not exist for one or more non-essential undelivered elements, we defer revenue until such evidence exists for the undelivered elements, or until all elements are delivered, whichever is earlier. If VSOE of all non-essential undelivered elements exist but VSOE does not exist for one or more delivered elements, we recognize revenue using the residual method. Under the residual method, we defer revenue related to the undelivered elements based upon VSOE and we recognize the remaining portion of the arrangement fee as revenue for the delivered elements, assuming all other criteria for revenue recognition are met. If we can no longer establish VSOE for non-essential undelivered elements of multiple element arrangements, we defer revenue until all elements are delivered or VSOE was established for the undelivered elements, whichever is earlier.
We base our VSOE for certain elements of an arrangement upon the pricing in comparable transactions when the element is sold separately. We primarily base our VSOE for term and perpetual support services upon customer renewal history where the services are sold separately. We also base VSOE for professional services and installation services for emulation hardware systems upon the price charged when the services are sold separately.
Multiple element arrangements involving hardware – For multiple element arrangements involving our emulation hardware systems, we allocate revenue to each element based on the relative selling price of each deliverable. In order to meet the separation criteria to allocate revenue to each element we must determine the standalone selling price of each element using a hierarchy of evidence. The authoritative guidance requires that, in the absence of VSOE or third-party evidence (TPE), a company must develop an estimated selling price (ESP). ESP is defined as the price at which the vendor would transact if the deliverable was sold by the vendor regularly on a standalone basis. A company should consider market conditions as well as entity-specific factors when estimating a selling price.
When VSOE or TPE does not exist, we base our ESP for certain elements in arrangements on either costs incurred to manufacture a product plus a reasonable profit margin or standalone sales to similar customers. In determining profit margins, we consider current market conditions, pricing strategies related to the class of customer, and the level of penetration we have
with the customer. In other cases, we may have limited sales on a standalone basis to the same or similar customers and/or guaranteed pricing on future purchases of the same item.
Software Development Costs
We capitalize software development costs beginning when a product’s technological feasibility has been established by either completion of a detail program design or completion of a working model of the product and ending when a product is available for general release to customers. The period between the achievement of technological feasibility and the general release of our products has historically been of short duration. As a result, such capitalizable software development costs were insignificant and have been charged to research and development expense in all periods in the accompanying consolidated statements of income. Other than purchased technology acquired as part of acquisitions of businesses discussed in Note 4. “Business Combinations,” we did not capitalize any acquired technology costs during fiscal
2013
,
2012
, or
2011
.
Advertising Costs
We expense all advertising costs as incurred. Advertising expense is included in marketing and selling expense in the accompanying consolidated statement of income and was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Advertising expense
|
$
|
2,326
|
|
|
$
|
3,015
|
|
|
$
|
3,528
|
|
Special Charges
We record restructuring charges within special charges in the consolidated statement of income in connection with our plans to better align our cost structure with projected operations in the future. Special charges primarily consist of costs incurred for employee terminations due to a reduction of personnel resources driven by modifications of business strategy or business emphasis. Special charges may also include expenses incurred related to acquisitions, excess facility costs, asset-related charges, post-acquisition rebalances, and restructuring costs, including severance and benefits.
Net Income Per Share
We compute basic net income per share using the weighted average number of common shares outstanding during the period. We compute diluted net income per share using the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of restricted stock units, common shares issuable upon exercise of employee stock options, purchase rights from employee stock purchase plans, and common shares issuable upon conversion of the convertible subordinated debentures, if dilutive. Net income used to compute basic and diluted net income per share has been reduced for the accumulated adjustment of the noncontrolling interest with redemption feature to its calculated redemption value at January 31, 2013. See additional discussion in Note 13. “Net Income Per Share.”
Accounting for Stock-Based Compensation
We measure stock-based compensation cost at the grant date, based on the fair value of the award, and recognize the expense on a straight-line basis over the employee’s requisite service period. For options and stock awards that vest fully on any termination of service, there is no requisite service period and consequently we recognize the expense fully in the period in which the award is granted. We present the excess tax benefit from the exercise of stock options when the benefit that was previously recorded as a financing activity in the consolidated statements of cash flows is utilized.
We have elected to compute the timing of excess tax benefits from the exercise of stock options on the “with-and-without” approach. Under this approach, we will not record an excess tax benefit until such time as a cash tax benefit is recognized. Further, we will include the impact of these excess tax benefits in the calculation of indirect tax attributes, such as the research and development credit and the domestic manufacturing deduction. We will compute the pool of excess tax benefits available to offset any future shortfalls in the tax benefits actually realized on exercises of stock options as a single pool for employees and non-employees.
See a further description of how we estimate the fair value of stock options and purchase rights under our employee stock purchase plans (ESPPs) in Note 11. “Employee Stock and Savings Plan.”
Other Comprehensive Income
We record comprehensive income in accordance with the applicable Financial Accounting Standards Board (FASB) guidance, which defines comprehensive income as the change in equity during a period from transactions and other events and circumstances from nonowner sources, including net income as well as foreign currency translation adjustments, adjustments to the minimum pension liability, unrecognized actuarial losses not included in periodic benefit costs for a defined benefit plan in Japan, and unrealized gain (loss) on derivative contracts.
Transfer of Financial Assets
We finance certain software license agreements with customers through the sale, assignment, and transfer of the future payments under those agreements to financing institutions on a non-recourse basis. We retain no interest in the transferred receivable. We record such transfers as sales of the related accounts receivable when we are considered to have surrendered control of such receivables. The gain or loss on the sale of receivables is included in general and administration in operating expenses in our consolidated statement of income. The gain or loss on the sale of receivables consists of two components: (i) the discount on sold receivables, which is the difference between the undiscounted balance of the receivables, and the net proceeds received from the financing institution and (ii) the unaccreted interest on the receivables sold. We impute interest on the receivables based on prevailing market rates and record this as a discount against the receivable.
We sold the following receivables to financing institutions on a non-recourse basis and recognized the following gain on the sale of those receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Trade receivables, short-term
|
$
|
9,617
|
|
|
$
|
13,645
|
|
|
$
|
27,011
|
|
Term receivables, long-term
|
11,094
|
|
|
16,662
|
|
|
26,554
|
|
Total receivables sold
|
20,711
|
|
|
30,307
|
|
|
53,565
|
|
Net proceeds
|
20,198
|
|
|
29,146
|
|
|
51,601
|
|
Discount on sold receivables
|
(513
|
)
|
|
(1,161
|
)
|
|
(1,964
|
)
|
Unaccreted interest on sold receivables
|
568
|
|
|
1,273
|
|
|
2,133
|
|
Gain on sale of receivables
|
$
|
55
|
|
|
$
|
112
|
|
|
$
|
169
|
|
3. Fair Value Measurement
The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of
January 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Contingent consideration
|
$
|
(6,016
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,016
|
)
|
The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of
January 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Contingent consideration
|
$
|
(6,120
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,120
|
)
|
The FASB's authoritative guidance for the hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our market assumptions. The fair value hierarchy consists of the following three levels:
|
|
•
|
Level 1—Quoted prices for identical instruments in active markets;
|
|
|
•
|
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable; and
|
|
|
•
|
Level 3—One or more significant inputs to the valuation model are unobservable.
|
In connection with certain acquisitions, payment of a portion of the purchase price is contingent typically upon the acquired business’ achievement of certain revenue goals. As of
January 31, 2013
, of the total recorded balance,
$1,197
was included in accrued and other liabilities and
$4,819
was included in other long-term liabilities on our consolidated balance sheet. As of
January 31, 2012
, of the total recorded balance,
$510
was included in accrued and other liabilities and
$5,610
was included in other long-term liabilities on our consolidated balance sheet.
We have estimated the fair value of our contingent consideration as the present value of the expected payments over the term of the arrangements. The fair value measurement of our contingent consideration as of
January 31, 2013
encompasses the following significant unobservable inputs:
|
|
|
|
|
|
Unobservable Inputs
|
|
Range
|
Total estimated contingent consideration
|
|
$0
|
-
|
$7,904
|
Discount rate
|
|
14%
|
-
|
16%
|
Timing of cash flows (in years)
|
|
0
|
-
|
5
|
Changes in the fair value of our contingent consideration are primarily driven by changes in the estimated amount and timing of payments, resulting from changes in the forecasted revenues of the acquired businesses. Significant changes in any of the inputs in isolation could result in a fluctuation in the fair value measurement of contingent consideration. Changes in fair value are recognized in special charges in our consolidated statement of income in the period in which the change is identified.
The following table summarizes contingent consideration activity:
|
|
|
|
|
Balance as of January 31, 2011
|
$
|
5,342
|
|
New contingent consideration
|
1,090
|
|
Payments/adjustments
|
(540
|
)
|
Interest accretion
|
228
|
|
Balance as of January 31, 2012
|
$
|
6,120
|
|
New contingent consideration
|
1,208
|
|
Payments
|
(1,504
|
)
|
Adjustments
|
(42
|
)
|
Interest accretion
|
234
|
|
Balance as of January 31, 2013
|
$
|
6,016
|
|
The following table summarizes the fair value and carrying value of notes payable:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Fair value of notes payable
|
$
|
293,867
|
|
|
$
|
259,821
|
|
Carrying value of notes payable
|
$
|
218,546
|
|
|
$
|
214,573
|
|
We based the fair value of notes payable on the quoted market price or rates available to us for instruments with similar terms and maturities (Level 2). Of the total carrying value of notes payable, there was
none
classified as current on our consolidated balance sheet as of
January 31, 2013
compared to
$1,349
as of
January 31, 2012
.
The carrying amounts of cash equivalents, trade accounts receivable, net, term receivables, short-term borrowings, accounts payable, and accrued liabilities approximate fair value because of the short-term nature of these instruments or because amounts have been appropriately discounted.
4. Business Combinations
For each business we acquire, the excess of the fair value of the consideration transferred over the fair value of the net tangible assets acquired and net tangible liabilities assumed was allocated to various identifiable intangible assets and goodwill. Identifiable intangible assets typically consist of purchased technology and customer-related intangibles, which are amortized to expense over their useful lives. Goodwill, representing the excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets, is not amortized.
Acquisitions during the year ended
January 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Consideration
|
|
Net Tangible Assets Acquired
|
|
Identifiable
Intangible
Assets
Acquired
|
|
Goodwill
|
Total Acquisitions
|
$
|
12,108
|
|
|
$
|
372
|
|
|
$
|
3,420
|
|
|
$
|
8,316
|
|
Acquisitions for the year ended
January 31, 2013
consisted of one privately-held company, certain assets of another privately-held company, and a business unit of a public company, all of which were accounted for as business combinations. These acquisitions were not material individually or in the aggregate.
The identified intangible assets acquired for all fiscal
2013
acquisitions consisted of purchased technology of
$2,060
and other intangibles of
$1,360
. We are amortizing purchased technology to cost of revenues over
three
to
four
years and other intangibles to operating expense over
one
to
five
years. A portion of the goodwill created by these transactions is deductible for tax purposes. Key factors that make up the goodwill created by the transactions include expected synergies from the combination of operations and the knowledge and experience of the acquired workforce.
Acquisitions during the year ended
January 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Consideration
|
|
Net Liabilities
Assumed
|
|
Identifiable
Intangible
Assets
Acquired
|
|
Deferred Tax
Liability
|
|
Goodwill
|
Total Acquisitions
|
$
|
26,881
|
|
|
$
|
(601
|
)
|
|
$
|
13,110
|
|
|
$
|
(1,735
|
)
|
|
$
|
16,107
|
|
On
August 30, 2011
, we exchanged one of our product lines for a controlling interest in a privately-held company. The exchange was accounted for as a business combination. Prior to acquiring this controlling interest, we had a noncontrolling investment, which was accounted for under the equity method of accounting. We recorded
$8,900
for the fair value of the net assets of the acquired business. See Note 2. "Summary of Significant Accounting Policies," for a description of our accounting for the noncontrolling interest.
Other acquisitions for the year ended
January 31, 2012
consisted of one privately-held company and the assets of another privately-held company, all of which were accounted for as business combinations. These acquisitions were not material individually or in the aggregate.
The identified intangible assets acquired for all fiscal
2012
acquisitions consisted of purchased technology of
$5,980
and other intangibles of
$7,130
. We are amortizing purchased technology to cost of revenues over
three
to
four
years and other intangibles to operating expense over
three
to
five
years. A portion of the goodwill created by the transactions is deductible for tax purposes. Key factors that make up the goodwill created by the transactions include expected synergies from the combination of operations and the knowledge and experience of the acquired workforce and infrastructure.
Acquisitions during the year ended
January 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
Total
Consideration
|
|
Net Tangible
Assets
Acquired
|
|
Identifiable
Intangible
Assets
Acquired
|
|
Deferred Tax
Liability
|
|
Goodwill
|
Valor
|
$
|
86,903
|
|
|
$
|
47,423
|
|
|
$
|
18,600
|
|
|
$
|
(11,636
|
)
|
|
$
|
32,516
|
|
Other
|
26,217
|
|
|
2,003
|
|
|
6,300
|
|
|
—
|
|
|
17,914
|
|
Total
|
$
|
113,120
|
|
|
$
|
49,426
|
|
|
$
|
24,900
|
|
|
$
|
(11,636
|
)
|
|
$
|
50,430
|
|
On
March 18, 2010
, we acquired all of the outstanding common shares of Valor, a provider of productivity improvement software solutions for the printed circuit board manufacturing supply chain. The acquisition was an investment aimed at extending our scope into the market for printed circuit board systems manufacturing solutions. Under the terms of the merger agreement, Valor shareholders received
5,621
shares of our common stock and cash of
$32,715
. The common stock issued to the former common shareholders of Valor had a fair value of
$47,163
, based on our closing price on
March 18, 2010
of
$8.39
per share. Additionally, under the merger agreement, we converted Valor’s outstanding stock options into options to purchase shares of our common stock, resulting in additional consideration of
$7,025
. Included in net tangible assets acquired was the fair value of the Frontline investment of
$29,500
and cash acquired of
$27,110
.
The identified intangible assets acquired consisted of purchase technology of
$12,300
and other intangibles of
$6,300
. We are amortizing purchased technology to cost of revenues over
three
years and other intangibles to operating expenses over
one
to
four
years. The goodwill created by the transaction is not deductible for tax purposes. Key factors that make up the goodwill created by the transaction include expected synergies from the combination of operations and the knowledge and experience of the acquired workforce and infrastructure.
Other acquisitions for the year end
January 31, 2011
consisted of one privately-held company, and the assets of three other privately-held companies, which were accounted for as business combinations. These acquisitions were not material individually or in the aggregate.
5. Property, Plant, and Equipment, Net
A summary of property, plant, and equipment, net follows:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Computer equipment and furniture
|
$
|
308,229
|
|
|
$
|
284,191
|
|
Buildings and building equipment
|
97,989
|
|
|
85,704
|
|
Land and improvements
|
21,345
|
|
|
21,179
|
|
Leasehold improvements
|
35,753
|
|
|
36,998
|
|
Property, plant, and equipment, gross
|
463,316
|
|
|
428,072
|
|
Less: accumulated depreciation and amortization
|
(300,914
|
)
|
|
(280,053
|
)
|
Property, plant, and equipment, net
|
$
|
162,402
|
|
|
$
|
148,019
|
|
6. Term Receivables and Trade Accounts Receivable
We have long-term installment receivables that are attributable to multi-year, multi-element term license sales agreements. We include balances under term agreements that are due within one year in trade accounts receivable, net and balances that are due more than one year from the balance sheet date in term receivables, long-term. We discount the total product portion of the agreements to reflect the interest component of the transaction. We amortize the interest component of the transaction, using the effective interest method, to system and software revenues over the period in which payments are made and balances are outstanding. We determine the discount rate at the outset of the arrangement based upon the current credit rating of the customer. We reset the discount rate periodically considering changes in prevailing interest rates but do not adjust previously discounted balances.
Term receivable and trade accounts receivable balances were as follows:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Trade accounts receivable
|
$
|
178,351
|
|
|
$
|
133,494
|
|
Term receivables, short-term
|
$
|
233,894
|
|
|
$
|
221,430
|
|
Term receivables, long-term
|
$
|
250,497
|
|
|
$
|
220,355
|
|
Trade accounts receivable include billed amounts whereas term receivables, short-term is comprised of unbilled amounts. Term receivables, short term represent the portion of long-term installment agreements that are due within one year. Billings for term agreements typically occur
thirty
days prior to the contractual due date, in accordance with individual contract installment terms. Term receivables, long-term represent unbilled amounts which are scheduled to be collected beyond one year.
We perform a credit risk assessment of all customers using the Standard & Poor’s (S&P) credit rating as our primary credit-quality indicator. The S&P credit ratings are based on the most recent S&P score available. For customers that do not have an S&P credit rating, we base our credit risk assessment on an internal credit assessment which is based on selected short-term financial ratios. Our internal credit assessment is based upon results provided in the customers’ most recent financial statements.
The credit risk assessment for our long-term receivables was as follows:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
S&P credit rating:
|
|
|
|
AAA+ through BBB-
|
$
|
133,773
|
|
|
$
|
130,545
|
|
BB+ and lower
|
45,298
|
|
|
15,161
|
|
|
179,071
|
|
|
145,706
|
|
Internal credit assessment
|
71,426
|
|
|
74,649
|
|
Total long-term term receivables
|
$
|
250,497
|
|
|
$
|
220,355
|
|
We maintain allowances for doubtful accounts on trade accounts receivable and term receivables, long-term for estimated losses resulting from the inability of our customers to make required payments. We regularly evaluate the collectibility of our trade accounts receivable based on a combination of factors. When we become aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy or deterioration in the customer’s operating results, financial position, or credit rating, we record a specific reserve for bad debt to reduce the related receivable to the amount believed to be collectible. We also record unspecified reserves for bad debt for all other customers based on a variety of factors including length of time the receivables are past due, the financial health of the customers, the current business environment, and historical experience. Current economic conditions we have considered include forecasted spending in the semiconductor industry, consumer spending for electronics, integrated circuit research and development spending, and volatility in gross domestic product. If these factors change or circumstances related to specific customers change, we adjust the estimates of the recoverability of receivables resulting in either additional selling expense or a reduction in selling expense in the period such determination is made.
The following shows the change in allowance for doubtful accounts for the years ended
January 31, 2013
,
2012
, and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
Beginning balance
|
|
Charged to
expense
|
|
Other
changes
(1)
|
|
Ending balance
|
Year ended January 31, 2013
|
$
|
4,432
|
|
|
$
|
1,147
|
|
|
$
|
(248
|
)
|
|
$
|
5,331
|
|
Year ended January 31, 2012
|
$
|
3,941
|
|
|
$
|
688
|
|
|
$
|
(197
|
)
|
|
$
|
4,432
|
|
Year ended January 31, 2011
|
$
|
3,607
|
|
|
$
|
369
|
|
|
$
|
(35
|
)
|
|
$
|
3,941
|
|
|
|
(1)
|
Specific account write-offs and foreign exchange.
|
7. Short-Term Borrowings
Short-term borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Collections of previously sold accounts receivable
|
$
|
4,816
|
|
|
$
|
9,373
|
|
Other borrowings
|
1,148
|
|
|
5,244
|
|
Short-term borrowings
|
$
|
5,964
|
|
|
$
|
14,617
|
|
In
April 2011
, we entered into a syndicated, senior, unsecured,
four
-year revolving credit facility that terminates
April 27, 2015
. The revolving credit facility has a maximum borrowing capacity of
$125,000
. As stated in the revolving credit facility, we have the option to pay interest based on:
|
|
(i)
|
London Interbank Offered Rate (LIBOR) with varying maturities commensurate with the borrowing period we select, plus a spread of between
2.25%
and
3.25%
based on a pricing grid tied to a financial covenant, or
|
|
|
(ii)
|
A base rate plus a spread of between
1.25%
and
2.25%
, based on a pricing grid tied to a financial covenant.
|
The base rate is defined as the highest of:
|
|
(i)
|
The federal funds rate, as defined, plus
0.5%
,
|
|
|
(ii)
|
The prime rate of the lead bank, or
|
|
|
(iii)
|
One-month LIBOR plus
1.0%
.
|
As a result of these interest rate options, our interest expense associated with borrowings under this revolving credit facility will vary with market interest rates. In addition, commitment fees are payable on the unused portion of the revolving credit facility at rates between
0.40%
and
0.50%
based on a pricing grid tied to a financial covenant.
We paid commitment fees as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Commitment fees
|
$
|
508
|
|
|
$
|
384
|
|
|
$
|
241
|
|
The revolving credit facility contains certain financial and other covenants, including the following:
|
|
•
|
Our adjusted quick ratio (ratio of the sum of cash and cash equivalents, short-term investments, and net current receivables to total current liabilities) shall not be less than
1.00
;
|
|
|
•
|
Our tangible net worth (stockholders’ equity less goodwill and other intangible assets) must exceed the calculated required tangible net worth as defined in the credit agreement;
|
|
|
•
|
Our leverage ratio (ratio of total liabilities less subordinated debt to the sum of subordinated debt and tangible net worth) shall be less than
2.00
;
|
|
|
•
|
Our senior leverage ratio (ratio of total debt less subordinated debt to the sum of subordinated debt and tangible net worth) shall not be greater than
0.90
; and
|
|
|
•
|
Our minimum cash and accounts receivable ratio (ratio of the sum of cash and cash equivalents, short-term investments, and
42.0%
of net current accounts receivable, to outstanding credit agreement borrowings) shall not be less than
1.25
.
|
The revolving credit facility limits the aggregate amount we can pay for dividends and repurchases of our stock over the
four
year term of the facility to
$50,000
plus
70%
of our cumulative net income.
We were in compliance with all financial covenants as of
January 31, 2013
. If we fail to comply with the financial covenants and do not obtain a waiver from our lenders, we would be in default under the revolving credit facility and our lenders could terminate the facility and demand immediate repayment of all outstanding loans under the revolving credit facility.
We had no borrowings against the revolving credit facility during fiscal
2013
or fiscal
2012
.
Short-term borrowings include amounts collected from customers on accounts receivable previously sold on a non-recourse basis to financial institutions. These amounts are remitted to the financial institutions in the following quarter.
We generally have other short-term borrowings, including capital leases and other borrowings. Interest rates are generally based on the applicable country’s prime lending rate, depending on the currency borrowed.
8. Notes Payable
Notes payable consisted of the following:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
4.00% Debentures due 2031
|
$
|
218,546
|
|
|
$
|
213,224
|
|
Other
|
—
|
|
|
1,349
|
|
Notes payable
|
$
|
218,546
|
|
|
$
|
214,573
|
|
We have no long-term obligations maturing within the next five years. Our 4.00% Convertible Subordinated Debentures (4.00% Debentures) are due in 2031.
4.00% Debentures due 2031
: In
April 2011
, we issued
$253,000
of
4.00%
Debentures in a private placement pursuant to the Securities and Exchange Commission Rule 144A under the Securities Act of 1933. Interest on the 4.00% Debentures is payable semi-annually in April and October.
The 4.00% Debentures are convertible, under certain circumstances, into our common stock at a conversion price of
$20.538
per share for a total of
12,319
shares as of
January 31, 2013
. These circumstances include:
|
|
•
|
The market price of our common stock exceeding
120%
of the conversion price;
|
|
|
•
|
A call for redemption of the 4.00% Debentures;
|
|
|
•
|
Specified distributions to holders of our common stock;
|
|
|
•
|
If a fundamental change, such as a change of control, occurs;
|
|
|
•
|
During the two months prior to, but not on, the maturity date; or
|
|
|
•
|
The market price of the 4.00% Debentures declining to less than
98%
of the value of the common stock into which the 4.00% Debentures are convertible.
|
Upon conversion of any 4.00% Debentures, a holder will receive:
|
|
(i)
|
Cash up to the principal amount of the 4.00% Debentures that are converted; and
|
|
|
(ii)
|
Cash or shares of common stock, at our election, for the excess, if any, of the value of the converted shares over the principal amount.
|
If a holder elects to convert their 4.00% Debentures in connection with a fundamental change in the company that occurs prior to
April 5, 2016
, the holder will also be entitled to receive a make whole premium upon conversion in some circumstances.
We may redeem some or all of the 4.00% Debentures for cash on or after
April 5, 2016
at the following redemption prices expressed as a percentage of principal, plus any accrued and unpaid interest:
|
|
|
|
Period
|
Redemption Price
|
Beginning on April 5, 2016 and ending on March 31, 2017
|
101.143
|
%
|
Beginning on April 1, 2017 and ending on March 31, 2018
|
100.571
|
%
|
On April 1, 2018 and thereafter
|
100.000
|
%
|
The holders, at their option, may redeem the 4.00% Debentures in whole or in part for cash on
April 1, 2018
,
April 1, 2021
, and
April 1, 2026
, and in the event of a fundamental change in the company. In each case, our repurchase price will be
100%
of the principal amount of the 4.00% Debentures plus any accrued and unpaid interest.
The 4.00% Debentures contain a conversion feature that the debt may be settled in cash upon conversion. Therefore we separately account for the implied liability and equity components of the 4.00% Debentures. The principal amount, unamortized debt discount, net carrying amount of the liability component, and carrying amount of the equity component of the 4.00% Debentures are as follows:
|
|
|
|
|
|
|
|
|
As of
|
January 31, 2013
|
|
January 31, 2012
|
Principal amount
|
$
|
253,000
|
|
|
$
|
253,000
|
|
Unamortized debt discount
|
(34,454
|
)
|
|
(39,776
|
)
|
Net carrying amount of the liability component
|
$
|
218,546
|
|
|
$
|
213,224
|
|
Equity component
|
$
|
43,930
|
|
|
$
|
43,930
|
|
The unamortized debt discount is amortizing to interest expense using the effective interest method through
March 2018
.
We recognized the following amounts in interest expense in the consolidated statement of operations related to the 4.00% debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Interest expense at the contractual interest rate
|
$
|
10,120
|
|
|
$
|
8,349
|
|
|
$
|
—
|
|
Amortization of debt discount
|
$
|
5,322
|
|
|
$
|
4,154
|
|
|
$
|
—
|
|
The effective interest rate on the 4.00% Debentures was
7.25%
for fiscal
2013
.
6.25% Debentures due
2026
: During
fiscal 2012
, we redeemed the remaining
$196,509
principal amount of the 6.25% Convertible Subordinated Debentures (6.25% Debentures) due
2026
utilizing proceeds received from the issuance of the 4.00% Debentures and cash on hand. In connection with this redemption, we incurred a before tax net loss on the early extinguishment of debt of
$11,192
, which included a
$6,190
write-off of net unamortized debt discount, a
$3,518
premium on
redemption of the 6.25% Debentures, and a write-off of
$1,484
for the unamortized debt issuance costs. This loss is included in interest expense on the consolidated statement of income. No balance remained outstanding following this redemption.
We recognized the following amounts in interest expense in the consolidated statements of operations related to the 6.25% Debentures, issued
2006
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Interest expense at the contractual interest rate
|
$
|
—
|
|
|
$
|
2,900
|
|
|
$
|
10,322
|
|
Amortization of debt discount
|
$
|
—
|
|
|
$
|
793
|
|
|
$
|
3,010
|
|
Term Loan due
2013
:
In
April 2010
, we entered into a
three
-year term loan (Term Loan) for
$20,000
to repay borrowings on our revolving credit facility used to purchase office buildings in Fremont, California. During
fiscal 2012
, we repaid the remaining obligation of
$18,500
under the Term Loan utilizing proceeds received from the issuance of the 4.00% Debentures. In connection with this repayment, we incurred a before tax net loss on early retirement of debt of
$312
, representing the write-off of the unamortized debt issuance costs. This loss is included in interest expense on the consolidated statement of operations. No balance remained outstanding following this repayment.
Other Notes Payable:
In
November 2009
, we issued a subordinated note payable as part of a business combination. The note bears interest at a rate of
3.875%
and was paid in full along with all accrued interest in
November 2012
.
9. Income Taxes
Domestic and foreign pre-tax income (loss) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Domestic
|
$
|
9,670
|
|
|
$
|
(62,943
|
)
|
|
$
|
(56,810
|
)
|
Foreign
|
131,665
|
|
|
145,267
|
|
|
88,822
|
|
Total pre-tax income
|
$
|
141,335
|
|
|
$
|
82,324
|
|
|
$
|
32,012
|
|
The provision (benefit) for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(210
|
)
|
|
$
|
475
|
|
|
$
|
(826
|
)
|
State
|
(65
|
)
|
|
137
|
|
|
250
|
|
Foreign
|
4,964
|
|
|
(2,731
|
)
|
|
9,028
|
|
Total current
|
4,689
|
|
|
(2,119
|
)
|
|
8,452
|
|
Deferred:
|
|
|
|
|
|
Federal and state
|
350
|
|
|
695
|
|
|
468
|
|
Foreign
|
(2,338
|
)
|
|
361
|
|
|
(5,492
|
)
|
Total deferred
|
(1,988
|
)
|
|
1,056
|
|
|
(5,024
|
)
|
Total provision (benefit) for income taxes
|
$
|
2,701
|
|
|
$
|
(1,063
|
)
|
|
$
|
3,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Federal tax, at statutory rate
|
$
|
49,467
|
|
|
$
|
28,813
|
|
|
$
|
11,204
|
|
State tax, net of federal benefit
|
(65
|
)
|
|
137
|
|
|
251
|
|
Impact of international operations including withholding taxes and other reserves
|
(50,275
|
)
|
|
(53,499
|
)
|
|
(30,308
|
)
|
Repatriation of foreign subsidiary earnings
|
12,661
|
|
|
1,364
|
|
|
2,364
|
|
Foreign tax credits
|
(8,203
|
)
|
|
(411
|
)
|
|
(241
|
)
|
Costs incurred for stock of acquired business
|
67
|
|
|
98
|
|
|
(3
|
)
|
Tax credits (excluding foreign tax credits)
|
(11,782
|
)
|
|
(9,677
|
)
|
|
(9,697
|
)
|
Amortization of deferred charge
|
—
|
|
|
323
|
|
|
657
|
|
Losses and tax credits for which no benefit has been realized
|
5,978
|
|
|
28,275
|
|
|
24,574
|
|
Stock based compensation expense
|
1,895
|
|
|
2,947
|
|
|
2,663
|
|
Non-deductible meals and entertainment
|
1,021
|
|
|
1,096
|
|
|
1,117
|
|
Other, net
|
1,937
|
|
|
(529
|
)
|
|
847
|
|
Provision (benefit) for income taxes
|
$
|
2,701
|
|
|
$
|
(1,063
|
)
|
|
$
|
3,428
|
|
The significant components of the deferred income tax provision (benefit) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Net changes in gross deferred tax assets and liabilities
|
$
|
(8,331
|
)
|
|
$
|
(10,491
|
)
|
|
$
|
(20,381
|
)
|
Deferred tax assets reducing/(increasing) goodwill
|
2
|
|
|
(1,747
|
)
|
|
(5,618
|
)
|
Deferred tax assets reducing/(increasing) equity
|
(283
|
)
|
|
36
|
|
|
(1,178
|
)
|
Deferred tax assets increasing deferred charge and other liabilities
|
(87
|
)
|
|
(1,690
|
)
|
|
(305
|
)
|
Increase in beginning-of-year balance of the valuation allowance for deferred tax assets
|
6,711
|
|
|
14,948
|
|
|
22,458
|
|
Total deferred income tax provision (benefit)
|
$
|
(1,988
|
)
|
|
$
|
1,056
|
|
|
$
|
(5,024
|
)
|
The tax effects of temporary differences and carryforwards, which gave rise to significant portions of deferred tax assets and liabilities, were as follows:
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Deferred tax assets:
|
|
|
|
Depreciation of property, plant, and equipment
|
$
|
274
|
|
|
$
|
232
|
|
Reserves and allowances
|
10,398
|
|
|
9,509
|
|
Accrued expenses not currently deductible
|
20,463
|
|
|
22,267
|
|
Stock-based compensation expense
|
12,394
|
|
|
14,902
|
|
Net operating loss carryforwards
|
55,612
|
|
|
68,746
|
|
Tax credit carryforwards
|
75,639
|
|
|
57,198
|
|
Purchased technology and other intangible assets
|
6,456
|
|
|
15,070
|
|
Deferred revenue
|
3,097
|
|
|
1,563
|
|
Other, net
|
7,853
|
|
|
8,086
|
|
Total gross deferred tax assets
|
192,186
|
|
|
197,573
|
|
Less valuation allowance
|
(154,695
|
)
|
|
(147,984
|
)
|
Deferred tax assets
|
37,491
|
|
|
49,589
|
|
Deferred tax liabilities:
|
|
|
|
Intangible assets
|
(9,948
|
)
|
|
(21,578
|
)
|
Convertible debt
|
(13,519
|
)
|
|
(15,607
|
)
|
Deferred tax liabilities
|
(23,467
|
)
|
|
(37,185
|
)
|
Net deferred tax assets
|
$
|
14,024
|
|
|
$
|
12,404
|
|
The above schedule includes short-term and long-term deferred tax assets and liabilities. Net long-term deferred tax liabilities are presented in our balance sheet in other long-term liabilities.
As of
January 31, 2013
, we had the following foreign and U.S. Federal and state carryforwards for income tax purposes:
|
|
|
|
|
|
|
Credit or carryforward
|
As of January 31,
2013
|
|
Expiration
|
Federal credits and carryforwards:
|
|
|
|
Research and experimentation credit carryforward
|
$
|
60,769
|
|
|
Fiscal 2019 - 2033
|
Net operating loss carryforward
|
$
|
206,368
|
|
|
Fiscal 2019 - 2032
|
Foreign tax credits
|
$
|
12,801
|
|
|
Fiscal 2015 - 2023
|
Alternative minimum tax credits
|
$
|
2,683
|
|
|
No expiration
|
Childcare credits
|
$
|
1,513
|
|
|
Fiscal 2023 - 2033
|
State income tax credits and carryforwards:
|
|
|
|
Net operating loss carryforward
|
$
|
186,129
|
|
|
Fiscal 2014 - 2032
|
Research and experimentation
|
$
|
13,503
|
|
|
Fiscal 2014 - 2028
|
Miscellaneous
|
$
|
1,293
|
|
|
Various
|
Foreign net operating loss carryforwards
|
$
|
33,618
|
|
|
Generally indefinite
|
Net operating loss carryforwards created by excess tax benefits from the exercise of stock options are not recorded as deferred tax assets. To the extent such net operating loss carryforwards are utilized, we will increase stockholders’ equity. For presentation purposes, we have elected to exclude the historic deferred tax assets related to excess tax benefits from stock option exercises. Our deferred tax assets related to net operating losses and tax credit carryforwards created by excess tax benefits from stock options have been reduced by
$32,794
as of
January 31, 2013
and
$28,210
as of
January 31, 2012
.
The
increase
in the valuation allowance largely resulted from an increase in tax credit carryforwards offset by the utilization of some net operating loss carryforwards in the U.S., the timing of the deduction on the accrued expenses, and the movement of the reserves in our tax position. We have determined the amount of the valuation allowance based on our estimates of taxable income by jurisdiction in which we operate over the periods in which the related deferred tax assets will be recoverable. We determined it is not more-likely-than-not that our U.S. entities will generate sufficient taxable income and foreign source income to fully utilize foreign tax credit carryforwards, research and experimentation credit carryforwards, and net operating loss carryforwards before expiration. Accordingly, we recorded a valuation allowance against those deferred tax assets for which realization does not meet the more-likely-than-not standard. Similarly, there is a valuation allowance on the state deferred tax assets due to the same uncertainties regarding future taxable U.S. income. We determine valuation allowances related to certain foreign deferred tax assets based on historical losses as well as future expectations in certain jurisdictions.
We have not provided for income tax on the undistributed earnings of our foreign subsidiaries to the extent they are considered permanently re-invested outside the U.S. As of
January 31, 2013
, the cumulative amount of earnings upon which U.S. income taxes have not been provided for is approximately
$431,201
. Upon repatriation, some of these earnings may be sheltered by U.S. loss carryforwards or foreign tax credits, which may reduce the federal tax liability associated with any future foreign dividend. Determination of the amount of unrecognized deferred U.S. income tax liability on permanently re-invested earnings is not practicable. Where the earnings of our foreign subsidiaries are not treated as permanently reinvested, we have considered the impact in our tax provision.
We are subject to income taxes in the U.S. and in numerous foreign jurisdictions. In the ordinary course of business there are many transactions and calculations where the ultimate tax determination is uncertain. The statute of limitations for adjustments to our historic tax obligations will vary from jurisdiction to jurisdiction. In some cases it may be extended or be unlimited. Furthermore, net operating loss and tax credit carryforwards may be subject to adjustment after the expiration of the statute of limitations of the year such net operating losses and tax credits originated. Our larger jurisdictions generally provide for a statute of limitation from three to five years. The tax years for U.S. federal income tax purposes, which remain open for examination are fiscal years
2010
and forward, although net operating loss and credit carryforwards from all years are subject to examination and adjustments for three years following the year in which utilized. We are currently under examination in various jurisdictions. The examinations are in different stages and timing of their resolution is difficult to predict. The statute of limitations remains open for years on or after fiscal
2008
in Japan and fiscal
2009
in Ireland.
We have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by taxing authorities even though we believe the positions we have taken are appropriate. We believe our tax reserves are adequate to cover potential liabilities. We review the tax reserves as circumstances warrant and adjust the reserves
as events occur that affect our potential liability for additional taxes. It is often difficult to predict the final outcome or timing of resolution of any particular tax matter. Various events, some of which cannot be predicted, such as clarification of tax law by administrative or judicial means, may occur and would require us to increase or decrease our reserves and effective tax rate. We expect to record additional reserves in future periods with respect to our tax filing positions. It is reasonably possible that existing unrecognized tax benefits may decrease from
$0
to
$11,000
due to settlements or expiration of the statute of limitations within the next twelve months. To the extent that uncertain tax positions resolve in our favor, it could have a positive impact on our effective tax rate. A portion of reserves, which could settle or expire within the next twelve months, may result in recording deferred tax assets subject to a valuation allowance for which no benefit would be recognized. Income tax-related interest and penalties were a benefit of
$297
for the year ended
January 31, 2013
; a benefit of
$677
for the year ended
January 31, 2012
and an expense of
$211
for the year ended
January 31, 2011
.
The below schedule shows the gross changes in unrecognized tax benefits associated with uncertain tax positions for the years ending
January 31, 2013
and
2012
:
|
|
|
|
|
Unrecognized tax benefits as of January 31, 2011
|
$
|
50,696
|
|
Gross increases—tax positions in prior period
|
647
|
|
Gross decreases—tax positions in prior period
|
(189
|
)
|
Gross increases—tax positions in current period
|
3,484
|
|
Lapse of statute of limitations
|
(12,084
|
)
|
Cumulative translation adjustment
|
(649
|
)
|
Unrecognized tax benefits as of January 31, 2012
|
$
|
41,905
|
|
Gross increases—tax positions in prior period
|
457
|
|
Gross decreases—tax positions in prior period
|
(7
|
)
|
Gross increases—tax positions in current period
|
4,316
|
|
Lapse of statute of limitations
|
(7,553
|
)
|
Cumulative translation adjustment
|
(336
|
)
|
Unrecognized tax benefits as of January 31, 2013
|
$
|
38,782
|
|
The ending balances of unrecognized tax benefits represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were not sustained, such as the federal deduction that could be realized if an unrecognized state deduction was not sustained. The ending gross balances exclude accrued interest and penalties related to such positions of
$9,538
as of
January 31, 2013
and
$9,916
as of
January 31, 2012
. We expect that
$25,488
of our unrecognized tax benefits, if recognized, would favorably affect our effective tax rate.
10. Commitments and Contingencies
Leases
We lease a majority of our field sales offices and research and development facilities under non-cancelable operating leases. In addition, we lease certain equipment used in our research and development and marketing and selling activities.
Rent expense under operating leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Rent expense
|
$
|
26,597
|
|
|
$
|
27,535
|
|
|
$
|
29,446
|
|
We entered into agreements to sublease portions of our facility sites. Rental income under these agreements was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Rental income
|
$
|
313
|
|
|
$
|
427
|
|
|
$
|
1,691
|
|
Future minimum lease payments and sublease income under all non-cancelable operating leases are approximately as follows:
|
|
|
|
|
|
|
|
|
Fiscal years ending January 31,
|
Lease
Payments
|
|
Sublease
Income
|
2014
|
$
|
25,230
|
|
|
$
|
142
|
|
2015
|
18,215
|
|
|
—
|
|
2016
|
14,436
|
|
|
—
|
|
2017
|
8,604
|
|
|
—
|
|
2018
|
4,129
|
|
|
—
|
|
Thereafter
|
5,378
|
|
|
—
|
|
Total
|
$
|
75,992
|
|
|
$
|
142
|
|
Income Taxes
As of
January 31, 2013
, we had a liability of
$28,198
for income taxes associated with uncertain income tax positions. Of this
liability,
$5,535
was classified as a short-term liability in income tax payable in our consolidated balance sheet as we generally anticipate the settlement of such liabilities will require payment of cash within the next twelve months. The remaining
$22,663
of income tax associated with uncertain tax positions was classified as a long-term income tax liability. Certain liabilities may result in the reduction of deferred tax assets rather than settlement in cash. We are not able to reasonably estimate the timing of any cash payments required to settle the long-term liabilities and do not believe that the ultimate settlement of these liabilities will materially affect our liquidity.
Indemnifications
Our license and services agreements generally include a limited indemnification provision for claims from third parties relating to our intellectual property. The indemnification is generally limited to the amount paid by the customer or a set cap. As of
January 31, 2013
, we were not aware of any material liabilities arising from these indemnifications.
Legal Proceedings
From time to time we are involved in various disputes and litigation matters that arise in the ordinary course of business. These include disputes and lawsuits relating to intellectual property rights, contracts, distributorships, and employee relations matters. Periodically, we review the status of various disputes and litigation matters and assess our potential exposure. When we consider the potential loss from any dispute or legal matter probable and the amount or the range of loss can be estimated, we will accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, we base accruals on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation matters and may revise estimates. We believe that the outcome of current litigation, individually and in the aggregate, will not have a material effect on our results of operations.
In some instances, we are unable to reasonably estimate any potential loss or range of loss. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have. There are many reasons that we cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding; damages sought that are unspecific, unsupportable, unexplained or uncertain; discovery not having been started or incomplete; the complexity of the facts that are in dispute; the difficulty of assessing novel claims; the parties not having engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and/or the often slow pace of litigation.
11. Employee Stock and Savings Plans
Stock Options Plans and Stock Plans
The 2010 Omnibus Incentive Plan (Incentive Plan) is administered by the Compensation Committee of our Board of Directors and permits accelerated vesting of outstanding options, restricted stock units, restricted stock awards, and other equity incentives upon the occurrence of certain changes in control of our company.
Stock options and restricted stock units under the Incentive Plan are generally expected to vest over
four
years. Stock options have an expiration date of
ten
years from the date of grant and an exercise price no less than the fair market value of the shares on the date of grant.
As of
January 31, 2013
, a total of
5,392
shares of common stock were available for future grant under the Incentive Plan.
We assumed the stock plans of Valor on March 18, 2010. Under the terms of our merger agreement with Valor, options outstanding under these plans were converted to options to purchase shares of our common stock. Options issued under these plans vest over
four
years from the original grant date and have an expiration date of
ten
years from the original grant date. The exercise price of each converted option is equal to the product of the original exercise price and the original number of options granted divided by the number of converted options received. These stock plans have been suspended and no future awards will be granted under these plans. Options for a total of
2,160
shares of our common stock have been authorized and issued under the Valor plans.
On December 14, 2009, our shareholders approved the exchange of certain options for restricted stock units. Eligible for the exchange were options held by non-executive employees with an exercise price equal to or greater than
$11.00
which were granted prior to January 7, 2009 and expire after August 15, 2010. The offer expired February 5, 2010. Effective February 8, 2010 a total of
6,945
options were exchanged for
557
restricted stock units. Total incremental cost of
$491
resulted from this exchange. The incremental cost was amortized over
2 years
.
Stock options outstanding, the weighted average exercise price, and transactions involving the stock option plans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Terms
(Years)
|
|
Aggregate
Intrinsic
Value
|
Balance as of January 31, 2012
|
9,187
|
|
|
$
|
10.00
|
|
|
|
|
|
Granted
|
539
|
|
|
16.97
|
|
|
|
|
|
Exercised
|
(2,835
|
)
|
|
8.56
|
|
|
|
|
|
Forfeited
|
(34
|
)
|
|
6.61
|
|
|
|
|
|
Expired
|
(140
|
)
|
|
14.71
|
|
|
|
|
|
Balance as of January 31, 2013
|
6,717
|
|
|
11.08
|
|
|
5.24
|
|
$
|
40,677
|
|
Options exercisable as of January 31, 2013
|
5,504
|
|
|
10.61
|
|
|
4.48
|
|
35,925
|
|
Options vested as of January 31, 2013 and options expected to vest after January 31, 2013
|
6,717
|
|
|
$
|
11.08
|
|
|
5.24
|
|
$
|
40,677
|
|
The total intrinsic value of options exercised and cash received from options exercised was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Intrinsic value
|
$
|
21,647
|
|
|
$
|
15,802
|
|
|
$
|
7,812
|
|
Cash received
|
$
|
24,262
|
|
|
$
|
15,194
|
|
|
$
|
8,639
|
|
The following table summarizes restricted stock activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
|
|
Weighted
Average Grant
Date Fair Value
|
|
Weighted
Average
Remaining
Contractual Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
Nonvested as of January 31, 2012
|
3,596
|
|
|
$
|
10.71
|
|
|
|
|
|
Granted
|
1,681
|
|
|
16.74
|
|
|
|
|
|
Vested
|
(1,162
|
)
|
|
10.13
|
|
|
|
|
|
Cancelled
|
(119
|
)
|
|
11.76
|
|
|
|
|
|
Nonvested as of January 31, 2013
|
3,996
|
|
|
$
|
13.39
|
|
|
1.67
|
|
$
|
68,453
|
|
The following table summarizes the fair value of restricted stock vested:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Total fair value of restricted stock vested
|
$
|
11,698
|
|
|
$
|
5,446
|
|
|
$
|
560
|
|
Employee Stock Purchase Plans
We have an ESPP for U.S. employees and an ESPP for certain foreign subsidiary employees. The ESPPs provide for six month offerings commencing on January 1 and July 1 of each year with purchases on June 30 and December 31 of each year. Each eligible employee may purchase up to
six thousand
shares of stock on each purchase date at prices no less than
85%
of the lesser of the fair market value of the shares on the offering date or on the purchase date. As of
January 31, 2013
,
4,101
shares remain available for future purchase under the ESPPs.
The following table summarizes shares issued under the ESPPs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Shares issued under the ESPPs
|
1,884
|
|
|
2,099
|
|
|
3,461
|
|
Cash received for the purchase of shares under the ESPPs
|
$
|
22,645
|
|
|
$
|
22,155
|
|
|
$
|
19,019
|
|
Weighted average purchase price per share
|
$
|
12.02
|
|
|
$
|
10.55
|
|
|
$
|
5.50
|
|
Stock-Based Compensation Expense
We estimate the fair value of stock options and purchase rights under our ESPPs using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model incorporates several highly subjective assumptions including expected volatility, expected term, and interest rates.
In determining expected volatility for options, we include the elements listed below at the weighted percentages presented:
|
|
•
|
Historical volatility of our shares of common stock at
35%
;
|
|
|
•
|
Historical volatility of shares of comparable companies at
20%
;
|
|
|
•
|
Implied volatility of our traded options at
30%
; and
|
|
|
•
|
Implied volatility of traded options of comparable companies at
15%
.
|
The greatest weighting is provided to the historic volatility of our common stock based on the amount of consistent historic information available. A lesser weighting is applied to the implied volatility of our traded options due to a low volume of trades and shorter terms. We also include the historic and implied volatility of comparable companies in our industry in an effort to capture a broader view of the marketplace.
The relative weighting percentages are periodically reviewed for reasonableness and are subject to change depending on market conditions and our particular facts and circumstances.
The expected volatility for purchase rights under our ESPPs is based on the historical volatility of our shares of common stock. The expected term for purchase rights under our ESPPs is the 6 month offering period.
We base the expected term of our stock options on historical experience.
The risk-free interest rate for periods within the contractual life of the stock options and purchase rights under our ESPPs is based on the U.S. Treasury yield curve in effect at the time of the grant.
The fair value of restricted stock units is the market value as of the grant date.
The weighted average grant date fair values are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Options granted
|
$
|
7.18
|
|
|
$
|
5.43
|
|
|
$
|
5.02
|
|
Restricted stock units granted
|
$
|
16.74
|
|
|
$
|
10.91
|
|
|
$
|
9.61
|
|
ESPP purchase rights
|
$
|
3.82
|
|
|
$
|
3.19
|
|
|
$
|
2.17
|
|
The fair value calculations used the following assumptions:
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Stock Option Plans
|
|
|
|
|
|
Risk-free interest rate
|
0.9% - 1.3%
|
|
|
1.2
|
%
|
|
1.4% - 2.6%
|
|
Dividend yield
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected life (in years)
|
5.8 - 6.3
|
|
|
6.3
|
|
|
5.5 - 6.5
|
|
Volatility (range)
|
43% - 53%
|
|
|
53
|
%
|
|
50% - 55%
|
|
Volatility (weighted average)
|
43
|
%
|
|
53
|
%
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Employee Stock Purchase Plans
|
|
|
|
|
|
Risk-free interest rate
|
0.05% - 0.15%
|
|
|
0.05% - 0.18%
|
|
|
0.2
|
%
|
Dividend yield
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected life (in years)
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
Volatility (range)
|
33% - 43%
|
|
|
32% - 38%
|
|
|
38% - 64%
|
|
Volatility (weighted average)
|
39
|
%
|
|
35
|
%
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Acquired Company Options Exchange
|
|
|
|
|
|
Risk-free interest rate
|
—
|
|
|
—
|
|
|
0.1% - 3.3%
|
|
Dividend yield
|
—
|
|
|
—
|
|
|
0
|
%
|
Expected life (in years)
|
—
|
|
|
—
|
|
|
0.1 - 7.7
|
|
Volatility (range)
|
—
|
|
|
—
|
|
|
35% - 72%
|
|
Volatility (weighted average)
|
—
|
|
|
—
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Employee Options Exchange
|
|
|
|
|
|
Risk-free interest rate
|
—
|
|
|
—
|
|
|
0.2% - 2.7%
|
|
Dividend yield
|
—
|
|
|
—
|
|
|
0
|
%
|
Expected life (in years)
|
—
|
|
|
—
|
|
|
0.5 - 5.9
|
|
Volatility (range)
|
—
|
|
|
—
|
|
|
43% - 77%
|
|
Volatility (weighted average)
|
—
|
|
|
—
|
|
|
43
|
%
|
The following table summarizes stock-based compensation expense included in the results of operations and the tax benefit associated with the exercise of stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Cost of revenues:
|
|
|
|
|
|
Service and support
|
$
|
1,529
|
|
|
$
|
1,065
|
|
|
$
|
888
|
|
Operating expense:
|
|
|
|
|
|
Research and development
|
9,206
|
|
|
8,203
|
|
|
7,785
|
|
Marketing and selling
|
6,654
|
|
|
5,874
|
|
|
6,112
|
|
General and administration
|
6,308
|
|
|
6,516
|
|
|
5,726
|
|
Equity plan-related compensation expense
|
$
|
23,697
|
|
|
$
|
21,658
|
|
|
$
|
20,511
|
|
Tax effect of the exercise of stock options
|
$
|
266
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As of
January 31, 2013
, we had
$6,061
in unrecognized compensation cost related to nonvested options which is expected to be recognized over a weighted average period of
1.4
years and
$44,668
in unrecognized compensation cost related to nonvested restricted stock units which is expected to be recognized over a weighted average period of
1.6
years.
Employee Savings Plan
We have an employee savings plan (the Savings Plan) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating U.S. employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. We currently match
50%
of eligible employee’s contributions, up to a maximum of
6%
of the employee’s earnings. Employer matching contributions vest over
five years
,
20%
for each year of service completed. Our matching contributions to the Savings Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Employer matching contribution
|
$
|
7,181
|
|
|
$
|
7,141
|
|
|
$
|
6,413
|
|
12. Incentive Stock Rights
Our Board of Directors has the authority to issue incentive stock in one or more series and to determine the relative rights and preferences of the incentive stock. On
June 24, 2010
, we adopted an Incentive Stock Purchase Rights Plan and declared a dividend distribution of
one
Right for each outstanding share of common stock, payable to holders of record on
July 6, 2010
. On
December 23, 2011
our Board of Directors amended the Stock Purchase Rights Plan to, among other things, extend the expiration date of the Rights and increase the exercise price of each Right. As long as the Rights are attached to our common stock, we will issue
one
Right with each new share of common stock so that all such shares will have attached Rights. Under certain conditions, each Right may be exercised to purchase
1/10,000
of a share of Series B Junior Participating Incentive Stock at a purchase price of
sixty-five dollars
, subject to adjustment. The Rights are not presently exercisable and will only become exercisable if a person or group acquires or commences a tender offer to acquire
15%
or more of our common stock.
If a person or group acquires
15%
or more of the common stock, each Right will be adjusted to entitle its holder to receive, upon exercise, common stock (or, in certain circumstances, other assets of ours) having a value equal to
two
times the exercise price of the Right or each Right will be adjusted to entitle its holder to receive, upon exercise, common stock of the acquiring company having a value equal to
two
times the exercise price of the Right, depending on the circumstances. The Rights expire on
June 30, 2013
and may be redeemed by us for
$0.001
per Right. The Rights do not have voting or dividend rights and have no dilutive effect on our earnings.
13. Net Income Per Share
The following provides the computation of basic and diluted net
income
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Net income attributable to Mentor Graphics shareholders
|
$
|
138,736
|
|
|
$
|
83,872
|
|
|
$
|
28,584
|
|
Noncontrolling interest adjustment to redemption value
|
(5,272
|
)
|
|
—
|
|
|
—
|
|
Adjusted net income attributable to Mentor Graphics shareholders
|
$
|
133,464
|
|
|
$
|
83,872
|
|
|
$
|
28,584
|
|
Weighted average common shares used to calculate basic net income per share
|
110,998
|
|
|
110,138
|
|
|
107,743
|
|
Employee stock options, restricted stock units and employee stock purchase plan
|
3,019
|
|
|
2,777
|
|
|
2,118
|
|
Weighted average common and potential common shares used to calculate diluted net income per share
|
114,017
|
|
|
112,915
|
|
|
109,861
|
|
Net income per share attributable to Mentor Graphics shareholders:
|
|
|
|
|
|
Basic
|
$
|
1.20
|
|
|
$
|
0.76
|
|
|
$
|
0.27
|
|
Diluted
|
$
|
1.17
|
|
|
$
|
0.74
|
|
|
$
|
0.26
|
|
We excluded from the computation of diluted net
income
per share stock options and ESPP purchase rights to purchase
1,975
shares of common stock for the year ended
January 31, 2013
,
4,056
for fiscal
2012
, and
6,921
for fiscal
2011
. The stock options and ESPP purchase rights were determined to be anti-dilutive as a result of applying the treasury stock method.
We have reduced the numerator of our basic and diluted earnings per share calculation by
$5,272
for the year 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. For the year ended January 31, 2012, we excluded a similar adjustment of
$1,682
from the calculation of basic and diluted earnings per share, as the amount was not significant.
The effect of the conversion of the 4.00% Debentures and the 6.25% Debentures (retired during fiscal 2012) was anti-dilutive and therefore excluded from the computation of diluted net income per share. We assume that the 4.00% Debentures and the 6.25% Debentures will be settled in common stock for purposes of calculating the dilutive effect on net income per share. If the 4.00% Debentures and the 6.25% Debentures had been dilutive we would have included additional income and additional incremental common shares as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
4.00% Debentures
|
|
|
|
|
|
Additional income
|
$
|
2,075
|
|
|
$
|
2,075
|
|
|
$
|
—
|
|
Additional incremental common shares
(1)
|
—
|
|
|
—
|
|
|
—
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
6.25% Debentures
|
|
|
|
|
|
Additional income
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,062
|
|
Additional incremental common shares
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(1)
|
Dilutive net income per share would have included no incremental shares for the years ended
January 31, 2013
,
2012
, or
2011
as the stock price was below the conversion rate.
|
The conversion features of the 4.00% Debentures and the 6.25% Debentures, which allow for settlement in cash, common stock, or a combination of cash and common stock, are further described in
Note 8
. “
Notes Payable
.”
14. Accumulated Other Comprehensive Income
The following tables summarize the components of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31, 2013
|
|
Beginning of Year Balance
|
|
Changes During Year
|
|
End of Year Balance
|
Foreign currency translation adjustment (Note 2)
|
|
$
|
28,200
|
|
|
$
|
(3,054
|
)
|
|
$
|
25,146
|
|
Unrealized loss on derivatives, after current year tax expense of $1
|
|
(205
|
)
|
|
193
|
|
|
(12
|
)
|
Pension liability, after current year tax benefit of $284
|
|
685
|
|
|
(420
|
)
|
|
265
|
|
Total accumulated other comprehensive income
|
|
$
|
28,680
|
|
|
$
|
(3,281
|
)
|
|
$
|
25,399
|
|
|
|
|
|
|
|
|
Year ended January 31, 2012
|
|
|
|
|
|
|
Foreign currency translation adjustment (Note 2)
|
|
$
|
31,222
|
|
|
$
|
(3,022
|
)
|
|
$
|
28,200
|
|
Unrealized loss on derivatives, after current year tax benefit of $73
|
|
(2
|
)
|
|
(203
|
)
|
|
(205
|
)
|
Pension liability, after current year tax expense of $110
|
|
473
|
|
|
212
|
|
|
685
|
|
Total accumulated other comprehensive income
|
|
$
|
31,693
|
|
|
$
|
(3,013
|
)
|
|
$
|
28,680
|
|
|
|
|
|
|
|
|
Year ended January 31, 2011
|
|
|
|
|
|
|
Foreign currency translation adjustment (Note 2)
|
|
$
|
29,627
|
|
|
$
|
1,595
|
|
|
$
|
31,222
|
|
Unrealized gain on derivatives, after current year tax expense of $279
|
|
(1,587
|
)
|
|
1,585
|
|
|
(2
|
)
|
Pension liability, after current year tax expense of $1,667
|
|
(1,876
|
)
|
|
2,349
|
|
|
473
|
|
Total accumulated other comprehensive income
|
|
$
|
26,164
|
|
|
$
|
5,529
|
|
|
$
|
31,693
|
|
|
|
|
|
|
|
|
15. Special Charges
The following is a summary of the components of the special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Employee severance and related costs
|
$
|
4,016
|
|
|
$
|
8,437
|
|
|
$
|
6,114
|
|
Other
|
2,298
|
|
|
4,737
|
|
|
4,143
|
|
Total special charges
|
$
|
6,314
|
|
|
$
|
13,174
|
|
|
$
|
10,257
|
|
Special charges primarily consist of costs incurred for employee terminations due to a reduction of personnel resources driven by modifications of business strategy or business emphasis. Employee severance and related costs include severance benefits, notice pay, and outplacement services. These rebalance charges generally represent the aggregate of numerous unrelated rebalance plans which impact several employee groups, none of which is individually material to our financial position or results of operations. We determine termination benefit amounts based on employee status, years of service, and local statutory requirements. We communicate termination benefits to the affected employees prior to the end of the quarter in which we record the charge. Special charges may also include expenses incurred related to acquisitions, excess facility costs, and asset related charges.
Approximately
60%
of the employee severance and related costs for fiscal
2013
were paid during fiscal
2013
. We expect to pay the remainder during fiscal
2014
. Approximately
61%
of the employee severance and related costs for fiscal
2012
were paid during fiscal
2012
. Costs remaining as of
January 31, 2012
were paid in fiscal
2013
. Approximately
66%
of the employee severance and related costs for fiscal
2011
were paid during fiscal
2011
. Costs remaining as of
January 31, 2011
were paid in fiscal
2012
. There have been no significant modifications to the amount of these charges.
Other special charges for fiscal
2012
primarily consisted of costs of
$4,066
for advisory fees associated with our proxy contest. Other special charges for fiscal
2011
primarily consisted of costs of
$2,083
related to advisory fees and leased facility restoration costs of
$1,432
.
Accrued special charges are included in accrued and other liabilities and other long-term liabilities in the consolidated balance sheets. The following table shows changes in accrued special charges during the year ended
January 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued special
charges as of
|
|
Charges during
the year ended
|
|
Payments during
the year ended
|
|
Accrued special
charges as of
|
|
|
January 31, 2012
|
|
January 31, 2013
|
|
January 31, 2013
|
|
January 31, 2013
|
(1)
|
Employee severance and related costs
|
$
|
3,668
|
|
|
$
|
4,016
|
|
|
$
|
(5,656
|
)
|
|
$
|
2,028
|
|
|
Other costs
|
2,811
|
|
|
2,298
|
|
|
(2,220
|
)
|
|
2,889
|
|
|
Accrued special charges
|
$
|
6,479
|
|
|
$
|
6,314
|
|
|
$
|
(7,876
|
)
|
|
$
|
4,917
|
|
|
|
|
(1)
|
Of the
$4,917
total accrued special charges as of
January 31, 2013
,
$2,213
represented the long-term portion, which primarily included accrued lease termination fees and other facility costs, net of sublease income and other long-term costs. The remaining balance of
$2,704
represented the short-term portion of accrued special charges.
|
The following table shows changes in accrued special charges during the year ended
January 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued special
charges as of
|
|
Charges during
the year ended
|
|
Payments during
the year ended
|
|
Accrued special
charges as of
|
|
|
January 31, 2011
|
|
January 31, 2012
|
|
January 31, 2012
|
|
January 31, 2012
|
(1)
|
Employee severance and related costs
|
$
|
2,664
|
|
|
$
|
8,437
|
|
|
$
|
(7,433
|
)
|
|
$
|
3,668
|
|
|
Other costs
|
4,266
|
|
|
4,737
|
|
|
(6,192
|
)
|
|
2,811
|
|
|
Accrued special charges
|
$
|
6,930
|
|
|
$
|
13,174
|
|
|
$
|
(13,625
|
)
|
|
$
|
6,479
|
|
|
|
|
(1)
|
Of the
$6,479
total accrued special charges as of
January 31, 2012
,
$2,173
represented the long-term portion, which primarily included accrued lease termination fees and other facility costs, net of sublease income. The remaining balance of
$4,306
represented the short-term portion of accrued special charges.
|
The following table shows changes in accrued special charges during the year ended
January 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued special
charges as of
|
|
Charges during
the year ended
|
|
Payments during
the year ended
|
|
Accrued special
charges as of
|
|
|
January 31, 2010
|
|
January 31, 2011
|
|
January 31, 2011
|
|
January 31, 2011
|
(1)
|
Employee severance and related costs
|
$
|
2,616
|
|
|
$
|
6,114
|
|
|
$
|
(6,066
|
)
|
|
$
|
2,664
|
|
|
Other costs
|
6,408
|
|
|
4,143
|
|
|
(6,285
|
)
|
|
4,266
|
|
|
Accrued special charges
|
$
|
9,024
|
|
|
$
|
10,257
|
|
|
$
|
(12,351
|
)
|
|
$
|
6,930
|
|
|
|
|
(1)
|
Of the
$6,930
total accrued special charges as of
January 31, 2011
,
$1,201
represented the long-term portion, which primarily included accrued lease termination fees and other facility costs, net of sublease income. The remaining balance of
$5,729
represented the short-term portion of accrued special charges.
|
16. Other Income (Expense), Net
Other income (expense), net was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Interest income
|
$
|
1,944
|
|
|
$
|
2,195
|
|
|
$
|
1,390
|
|
Foreign currency exchange loss
|
(2,394
|
)
|
|
(718
|
)
|
|
(1,148
|
)
|
Gain on conversion of equity method investment to controlling interest
|
—
|
|
|
1,519
|
|
|
—
|
|
Other, net
|
(982
|
)
|
|
(1,420
|
)
|
|
(2,358
|
)
|
Other income (expense), net
|
$
|
(1,432
|
)
|
|
$
|
1,576
|
|
|
$
|
(2,116
|
)
|
17. Related Party Transactions
Certain members of our Board of Directors also serve on the board of directors for some of our customers. Management believes the transactions between these customers and us were carried out on an arm’s-length basis. As of
January 31, 2013
and
2012
, accounts receivable from these customers were not significant. The following table shows revenue recognized from these customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Revenue from customers
|
$
|
56,878
|
|
|
$
|
35,944
|
|
|
$
|
37,726
|
|
Percentage of total revenue
|
5.2
|
%
|
|
3.5
|
%
|
|
4.1
|
%
|
18. Supplemental Cash Flow Information
The following provides information concerning supplemental disclosures of cash flow activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Cash paid for:
|
|
|
|
|
|
Interest
|
$
|
11,981
|
|
|
$
|
14,686
|
|
|
$
|
13,701
|
|
Income taxes
|
$
|
10,777
|
|
|
$
|
8,707
|
|
|
$
|
10,627
|
|
As part of the Valor acquisition in fiscal 2011, we acquired an investment in Frontline. We received returns on investment of
$6,250
during fiscal
2013
,
$7,015
during fiscal 2012 and
$4,700
during fiscal 2011 which is included in net cash provided by operating activities in our consolidated statement of cash flows.
19. Segment Reporting
Our Chief Operating Decision Makers (CODMs), which consist of the Chief Executive Officer and the President, review our consolidated results within one operating segment. In making operating decisions, our CODMs primarily consider consolidated financial information accompanied by disaggregated revenue information by geographic region.
We eliminate all intercompany revenues in computing revenues by geographic regions. Revenues and property, plant and equipment, net, related to operations in the geographic areas were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
2013
|
|
2012
|
|
2011
|
Revenues:
|
|
|
|
|
|
United States
|
$
|
467,595
|
|
|
$
|
397,801
|
|
|
$
|
386,265
|
|
Other North America
|
13,544
|
|
|
18,361
|
|
|
14,787
|
|
Total North America
|
481,139
|
|
|
416,162
|
|
|
401,052
|
|
Europe
|
261,371
|
|
|
247,079
|
|
|
223,156
|
|
Japan
|
127,789
|
|
|
116,469
|
|
|
124,298
|
|
Pacific Rim
|
218,428
|
|
|
234,928
|
|
|
166,247
|
|
Total revenues
|
$
|
1,088,727
|
|
|
$
|
1,014,638
|
|
|
$
|
914,753
|
|
For the years ended
January 31, 2013
,
2012
and
2011
,
no
single customer accounted for
10%
or more of our total revenues.
|
|
|
|
|
|
|
|
|
As of January 31,
|
2013
|
|
2012
|
Property, plant, and equipment, net:
|
|
|
|
United States
|
$
|
121,179
|
|
|
$
|
106,852
|
|
Other North America
|
269
|
|
|
394
|
|
Total North America
|
121,448
|
|
|
107,246
|
|
Europe
|
33,029
|
|
|
32,866
|
|
Japan
|
979
|
|
|
1,336
|
|
Pacific Rim
|
6,946
|
|
|
6,571
|
|
Total property, plant and equipment, net
|
$
|
162,402
|
|
|
$
|
148,019
|
|
20. Quarterly Financial Information – Unaudited
A summary of quarterly financial information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
April 30
|
|
July 31
|
|
October 31
|
|
January 31
|
Fiscal 2013
|
|
|
|
|
|
|
|
Total revenues
|
$
|
247,918
|
|
|
$
|
240,811
|
|
|
$
|
268,760
|
|
|
$
|
331,238
|
|
Gross profit
|
$
|
202,535
|
|
|
$
|
194,235
|
|
|
$
|
218,497
|
|
|
$
|
283,770
|
|
Operating income
|
$
|
32,822
|
|
|
$
|
19,907
|
|
|
$
|
37,809
|
|
|
$
|
71,095
|
|
Net income attributable to Mentor Graphics shareholders
|
$
|
28,182
|
|
|
$
|
18,167
|
|
|
$
|
30,641
|
|
|
$
|
61,746
|
|
Net income per share, basic (1)
|
$
|
0.26
|
|
|
$
|
0.17
|
|
|
$
|
0.27
|
|
|
$
|
0.50
|
|
Net income per share, diluted (1)
|
$
|
0.25
|
|
|
$
|
0.16
|
|
|
$
|
0.27
|
|
|
$
|
0.49
|
|
Quarter ended
|
April 30
|
|
July 31
|
|
October 31
|
|
January 31
|
Fiscal 2012
|
|
|
|
|
|
|
|
Total revenues
|
$
|
230,035
|
|
|
$
|
213,740
|
|
|
$
|
250,508
|
|
|
$
|
320,355
|
|
Gross profit
|
$
|
185,390
|
|
|
$
|
169,848
|
|
|
$
|
210,262
|
|
|
$
|
275,680
|
|
Operating income
|
$
|
16,173
|
|
|
$
|
4,844
|
|
|
$
|
25,405
|
|
|
$
|
65,770
|
|
Net income (loss) attributable to Mentor Graphics shareholders
|
$
|
(2,353
|
)
|
|
$
|
4,334
|
|
|
$
|
24,071
|
|
|
$
|
57,820
|
|
Net income (loss) per share, basic
|
$
|
(0.02
|
)
|
|
$
|
0.04
|
|
|
$
|
0.22
|
|
|
$
|
0.53
|
|
Net income (loss) per share, diluted
|
$
|
(0.02
|
)
|
|
$
|
0.04
|
|
|
$
|
0.22
|
|
|
$
|
0.52
|
|
(1) We have reduced the numerator of our basic and diluted earnings per share calculation by $5,272 for the quarter 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.
21. Subsequent Events
On
March 7, 2013
, the Board of Directors announced the adoption of a dividend policy under which we intend to pay an annual cash dividend of
$0.18
per share of common stock. The first dividend of
$0.045
per share of outstanding common stock will be paid to shareholders of record as of the close of business on
March 22, 2013
, with a payment date of
April 10, 2013
. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the quarterly determination of our Board of Directors.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Mentor Graphics Corporation:
We have audited the accompanying consolidated balance sheets of Mentor Graphics Corporation and subsidiaries as of
January 31, 2013
and
2012
, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
January 31, 2013
. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mentor Graphics Corporation and subsidiaries as of
January 31, 2013
and
2012
, and the results of their operations and their cash flows for each of the years in the three-year period ended
January 31, 2013
, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Mentor Graphics Corporation’s internal control over financial reporting as of
January 31, 2013
, based on criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 15, 2013
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
(signed) KPMG LLP
Portland, Oregon
March 15, 2013