Mentor Graphics Reports Fiscal Fourth Quarter Results, Announces Quarterly Dividend Increase
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Mentor Graphics Reports Fiscal Fourth Quarter Results, Announces Quarterly Dividend Increase

WILSONVILLE, Ore. — (BUSINESS WIRE) — February 26, 2015 — Mentor Graphics Corporation (NASDAQ: MENT) today announced financial results for the company’s fiscal fourth quarter ended January 31, 2015. The company reported revenues of $439.1 million, non-GAAP earnings per share of $1.09, and GAAP earnings per share of $0.96. For the full fiscal year, revenues were $1.244 billion, non-GAAP earnings per share were $1.77, and GAAP earnings per share were $1.26.

“Mentor Graphics set all-time records for the fourth quarter and full-year fiscal 2015,” said Walden C. Rhines, chairman and CEO of Mentor Graphics. “Fourth quarter results were driven primarily by Asian foundries and their customers adopting Design-to-Silicon solutions for 14nm and 10nm nodes and by the automotive sector’s continued demand for embedded software and electrical design products. Mentor’s board of directors is raising the quarterly dividend by 10% to $0.055 per share.”

During the quarter, the company announced new releases of its award-winning computational fluid dynamics product, FloEFD™, and of its Flowmaster® simulation software for modeling thermo-fluid systems. Both products provide advanced capabilities to support the automotive industry. The company also announced Mentor® Embedded virtual prototype kits for the company’s Vista™ and Sourcery™ CodeBench products. The kits enable embedded developers to integrate and optimize software on various platforms, especially for automotive in-vehicle infotainment and electronic control unit networks. Mentor also made available automotive Ethernet support in the Volcano™ VSA™ product for network design of electronic control units. This addresses timing analysis challenges where a mixture of network busses co-exist, for example in advanced driver assistance systems.

“In the fourth quarter we posted numerous all-time records including bookings, revenue, and both GAAP and non-GAAP earnings per share,” said Gregory K. Hinckley, president of Mentor Graphics. “Similarly, we had record revenue and non-GAAP earnings per share for the full year. Strength in the Design-to-Silicon products category reinforces our leadership position in traditional EDA markets and our transportation offerings continue to benefit from expanding opportunities for advanced electrical design. Continued attention to expenses drove record non-GAAP operating margins for the quarter and year.”

Outlook

For the first quarter of fiscal 2016, the company expects revenues of about $260 million, non-GAAP earnings per share of about $0.18 and GAAP earnings per share of approximately $0.08. For the full year fiscal 2016, the company expects revenues of about $1.282 billion, non-GAAP earnings per share of about $1.85, and GAAP earnings per share of approximately $1.45. The fiscal 2016 non-GAAP guidance, first quarter and full year, anticipates a normalized non-GAAP tax rate of 19% which is an increase from the fiscal 2015 rate of 17%.

Dividend

The company announced a 10% increase in the quarterly dividend to $0.055 per share on outstanding common stock. The dividend is payable on March 31, 2015 to shareholders of record at the close of business on March 10, 2015.

Fiscal Year Definition

Mentor Graphics Corporation’s fiscal year runs from February 1 to January 31. The fiscal year is dated by the calendar year in which the fiscal year ends. As a result, the first three fiscal quarters of any fiscal year will be dated with the next calendar year, rather than the current calendar year.

Discussion of Non-GAAP Financial Measures

Mentor Graphics’ management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted gross profit, operating income, operating margin, net income, and earnings per share which we refer to as non-GAAP gross profit, operating income, operating margin, net income, and earnings per share, respectively. These non-GAAP measures are derived from the revenues of our product, maintenance, and services business operations and the costs directly related to the generation of those revenues, such as cost of revenue, research and development, marketing and sales, and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. These non-GAAP measures exclude amortization of intangible assets, special charges, equity plan-related compensation expenses, interest expense associated with the amortization of original issuance debt discount on convertible debt, the equity in earnings or losses of unconsolidated entities (except Frontline PCB Solutions Limited Partnership (Frontline)), and the impact on basic and diluted earnings per share of changes in the calculated redemption value of noncontrolling interests, which management does not consider reflective of our core operating business.

Management excludes from our non-GAAP measures certain recurring items to facilitate its review of the comparability of our core operating performance on a period-to-period basis because such items are not related to our ongoing core operating performance as viewed by management. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Management uses this view of our operating performance for purposes of comparison with our business plan and individual operating budgets and allocation of resources. Additionally, when evaluating potential acquisitions, management excludes the items described above from its consideration of target performance and valuation. More specifically, management adjusts for the excluded items for the following reasons:

In certain instances our GAAP results of operations may not be profitable when our corresponding non-GAAP results are profitable or vice versa. The number of shares on which our non-GAAP earnings per share is calculated may therefore differ from the GAAP presentation due to the anti-dilutive effect of stock options, restricted stock units, and employee stock purchase plan shares in a loss situation.

Non-GAAP gross profit, operating income, operating margin, net income, and earnings per share are supplemental measures of our performance that are not presented in accordance with GAAP. Moreover, they should not be considered as an alternative to any performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. We present non-GAAP gross profit, operating income, operating margin, net income, and earnings per share because we consider them to be important supplemental measures of our operating performance and profitability trends, and because we believe they give investors useful information on period-to-period performance as evaluated by management. Non-GAAP net income also facilitates comparison with other companies in our industry, which use similar financial measures to supplement their GAAP results. Non-GAAP net income has limitations as an analytical tool, and therefore should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In the future, we expect to continue to incur expenses similar to the non-GAAP adjustments described above and exclusion of these items in our non-GAAP presentation should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Some of the limitations in relying on non-GAAP net income are:

About Mentor Graphics

Mentor Graphics Corporation is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world’s most successful electronic, semiconductor and systems companies. Established in 1981, the company reported revenues in the last fiscal year in excess of $1.24 billion. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. World Wide Web site: http://www.mentor.com/.

(Mentor Graphics, Mentor, and Flowmaster are registered trademarks and FloEFD, Vista, Sourcery,Volcano and VSA are trademarks of Mentor Graphics Corporation. All other company and/or product names are the trademarks and/or registered trademarks of their respective owners.)

Statements in this press release regarding the company’s guidance for future periods constitute “forward-looking” statements based on current expectations within the meaning of the Securities Exchange Act of 1934. Such forward- looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company or industry results to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: (i) weakness in the European Union, China, Japan or other international economies, and the potential adverse impact of such weakness on the semiconductor and electronics industries; (ii) the company’s ability to successfully offer products and services that compete in the highly competitive EDA industry, including the risk of obsolescence for our hardware products; (iii) product bundling or discounting of products and services by competitors, which could force the company to lower its prices or offer other more favorable terms to customers; (iv) effects of the volatility of foreign currency fluctuations on the company’s business and operating results; (v) litigation, including the company’s ongoing patent litigation with EVE and Synopsys, Inc.; (vi) changes in accounting or reporting rules or interpretations, including new rules affecting revenue recognition; (vii) the impact of tax audits by taxing authorities, or changes in applicable tax laws, regulations or enforcement practices; (viii) effects of unanticipated shifts in product mix on gross margin; and (ix) effects of customer mergers or divestitures, customer seasonal purchasing patterns and the timing of significant orders which may negatively or positively impact the company’s quarterly results of operations; all as may be discussed in more detail under the heading “Risk Factors” in the company’s most recent Form 10-K or Form 10-Q. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. In addition, statements regarding guidance do not reflect potential impacts of mergers or acquisitions that have not been announced or closed as of the time the statements are made. Mentor Graphics disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect future events or developments.

 

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except earnings per share data)
             
 

Three Months Ended January 31,

 

Twelve Months Ended January 31,

  2015     2014     2015     2014  
Revenues:
System and software $ 323,327 $ 293,468 $ 799,151 $ 737,790
Service and support   115,739     107,532     444,982     418,583  
Total revenues   439,066     401,000     1,244,133     1,156,373  
Cost of revenues: (1)
System and software 14,834 25,206 69,811 65,288
Service and support 33,719 29,841 127,403 118,221
Amortization of purchased technology   1,847     950     7,099     3,598  
Total cost of revenues   50,400     55,997     204,313     187,107  
Gross profit   388,666     345,003     1,039,820     969,266  
Operating expenses:
Research and development (2) 112,863 101,994 381,125 348,817
Marketing and selling (3) 108,874 98,135 365,688 342,799
General and administration (4) 22,187 23,091 79,193 75,543
Equity in earnings of Frontline (5) (1,028 ) (1,353 ) (5,653 ) (4,092 )
Amortization of intangible assets (6) 2,157 1,580 8,166 6,230
Special charges (7)   4,081     4,359     23,490     16,929  
Total operating expenses   249,134     227,806     852,009     786,226  
Operating income 139,532 117,197 187,811 183,040
Other income (expense), net (8) (34 ) 359 (777 ) (520 )
Interest expense (9)   (4,950 )   (4,803 )   (19,276 )   (19,452 )
Income before income tax 134,548 112,753 167,758 163,068
Income tax expense (10)   20,674     7,646     22,581     9,510  
Net income 113,874 105,107 145,177 153,558
Less: Loss attributable to noncontrolling interest (11)   (614 )   (429 )   (1,962 )   (1,700 )
Net income attributable to Mentor Graphics
shareholders $ 114,488   $ 105,536   $ 147,139   $ 155,258  
Net income per share attributable to Mentor Graphics
shareholders:
Basica $ 0.98   $ 0.91   $ 1.28   $ 1.33  
Diluteda $ 0.96   $ 0.89   $ 1.26   $ 1.29  
Weighted average number of shares outstanding:
Basic   115,338     114,978     114,635     113,671  
Diluted   117,466     117,484     117,078     116,702  
 
aWe have increased (decreased) the numerator of our basic and diluted earnings per share calculation for the adjustment of the noncontrolling interest with redemption feature to its calculated redemption value, recorded directly to retained earnings, as follows:
 
 
$ (1,174 ) $ (573 ) $ 121   $ (4,486 )
 
 
 
 

Refer to description of footnotes below.

 
 

MENTOR GRAPHICS CORPORATION

FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands)
 
 
Listed below are the items included in net income that management excludes in computing the non-GAAP financial measures referred to in the text of this press release. Items are further described under "Discussion of Non-GAAP Financial Measures."
 
 
 
Three Months Ended January 31,   Twelve Months Ended January 31,
  2015     2014     2015     2014  
(1) Cost of revenues:
Equity plan-related compensation $ 617 $ 554 $ 2,304 $ 1,992
Amortization of purchased technology   1,847     950     7,099     3,598  
$ 2,464   $ 1,504   $ 9,403   $ 5,590  
 
(2) Research and development:
Equity plan-related compensation $ 3,824   $ 3,164   $ 14,027   $ 11,182  
 
(3) Marketing and selling:
Equity plan-related compensation $ 2,411   $ 2,126   $ 9,103   $ 7,777  
 
(4) General and administration:
Equity plan-related compensation $ 2,564   $ 2,237   $ 10,373   $ 8,399  
 
(5) Equity in earnings of Frontline:
Amortization of purchased technology and other identified intangible assets
$ -   $ 231   $ 116   $ 1,430  
 
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 2,157   $ 1,580   $ 8,166   $ 6,230  
 
(7) Special charges:
Rebalance, restructuring, certain litigation, and other costs $ 4,081   $ 4,359   $ 23,490   $ 16,929  
 
(8) Other income (expense), net:
Net income (loss) of unconsolidated entities $ 38   $ 7   $ 184   $ (119 )
 
(9) Interest expense:
Amortization of original issuance debt discount $ 1,576   $ 1,467   $ 6,139   $ 5,715  
 
(10) Income tax expense:
Non-GAAP income tax effects $ (5,449 ) $ (14,357 ) $ (19,708 ) $ (28,944 )
 
(11) Loss attributable to noncontrolling interest:
Amortization of intangible assets, equity-plan related compensation, and income tax effects $ (198 ) $ (203 ) $ (820 ) $ (971 )
 

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

(In thousands, except earnings per share data)
           
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP net income attributable to Mentor Graphics shareholders $ 114,488 $ 105,536 $ 147,139 $ 155,258
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 617 554 2,304 1,992
Research and development 3,824 3,164 14,027 11,182
Marketing and selling 2,411 2,126 9,103 7,777
General and administration 2,564 2,237 10,373 8,399
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 1,847 950 7,099 3,598
Frontline purchased technology and intangible assets (3) - 231 116 1,430
Amortization of intangible assets (4) 2,157 1,580 8,166 6,230
Special charges (5) 4,081 4,359 23,490 16,929
Other income (expense), net (6) 38 7 184 (119 )
Interest expense (7) 1,576 1,467 6,139 5,715
Non-GAAP income tax effects (8) (5,449 ) (14,357 ) (19,708 ) (28,944 )
Noncontrolling interest (9)   (198 )   (203 )   (820 )   (971 )
Total of non-GAAP adjustments   13,468     2,115     60,473     33,218  
Non-GAAP net income attributable to Mentor Graphics shareholders $ 127,956   $ 107,651   $ 207,612   $ 188,476  
 
GAAP and non-GAAP weighted average shares (diluted)   117,466     117,484     117,078     116,702  
 
Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted) $ 0.96 $ 0.89 $ 1.26 $ 1.29
Noncontrolling interest adjustment (10) 0.01 0.01 - 0.04
Non-GAAP adjustments detailed above   0.12     0.02     0.51     0.29  
Non-GAAP (diluted) $ 1.09   $ 0.92   $ 1.77   $ 1.62  
 
                       
(1 ) Equity plan-related compensation expense is the fair value of all share-based payments to employees for stock options and restricted stock units, and purchases made as a result of the employee stock purchase plans.
(2 ) Amount represents amortization of purchased technology resulting from acquisitions. Purchased technology is amortized over two to five years.
(3 ) Amount represents amortization of purchased technology and other identified intangible assets identified as part of the fair value of the Frontline P.C.B. Solutions Limited Partnership (Frontline) joint venture investment. Mentor Graphics has a 50% interest in Frontline. The purchased technology was amortized over three years from the March 2010 acquisition date, other identified intangible assets were amortized over three to four years, and are reflected in the income statement in the equity in earnings of Frontline. This expense is the same type as being adjusted for in note (2) above and (4) below.
(4 ) Other identified intangible assets are amortized to operating expense generally over two to five years. Other identified intangible assets include trade names, customer relationships, and backlog which are the result of acquisition transactions.
(5 ) Three months ended January 31, 2015: Special charges consist of (i) $3,215 for EVE litigation costs, (ii) $458 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $408 in other adjustments.
Three months ended January 31, 2014: Special charges consist of (i) $3,380 for EVE litigation costs, (ii) $549 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $430 in other adjustments.
Twelve months ended January 31, 2015: Special charges consist of (i) $18,408 for EVE litigation costs, (ii) $3,535 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $1,547 in other adjustments.
Twelve months ended January 31, 2014: Special charges consist of (i) $11,597 for EVE litigation costs, (ii) $4,392 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $940 in other adjustments.
(6 ) Amount represents income (loss) on investment accounted for under the equity method of accounting.
(7 ) Amount represents the amortization of original issuance debt discount.
(8 ) Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 17% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income.
(9 ) Adjustment for the impact of amortization of intangible assets, equity plan-related compensation, and income tax expense on noncontrolling interest.
(10 ) Non-GAAP EPS excludes from the numerator of our earnings per share calculation the adjustment of the noncontrolling interest to the calculated redemption value, recorded directly to retained earnings.
 

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

(In thousands, except percentages)
           
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP gross profit $ 388,666 $ 345,003 $ 1,039,820 $ 969,266
Reconciling items to non-GAAP gross profit:
Equity plan-related compensation 617 554 2,304 1,992
Amortization of purchased technology   1,847     950     7,099     3,598  
Non-GAAP gross profit $ 391,130   $ 346,507   $ 1,049,223   $ 974,856  
 
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP gross profit as a percent of total revenues 88.5 % 86.0 % 83.6 % 83.8 %
Non-GAAP adjustments detailed above   0.6 %   0.4 %   0.7 %   0.5 %
Non-GAAP gross profit as a percent of total revenues   89.1 %   86.4 %   84.3 %   84.3 %
 
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP operating expenses $ 249,134 $ 227,806 $ 852,009 $ 786,226
Reconciling items to non-GAAP operating expenses:
Equity plan-related compensation (8,799 ) (7,527 ) (33,503 ) (27,358 )
Amortization of Frontline purchased technology and other
identified intangible assets - (231 ) (116 ) (1,430 )
Amortization of other identified intangible assets (2,157 ) (1,580 ) (8,166 ) (6,230 )
Special charges   (4,081 )   (4,359 )   (23,490 )   (16,929 )
Non-GAAP operating expenses $ 234,097   $ 214,109   $ 786,734   $ 734,279  
 
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP operating income $ 139,532 $ 117,197 $ 187,811 $ 183,040
Reconciling items to non-GAAP operating income:
Equity plan-related compensation 9,416 8,081 35,807 29,350
Amortization of purchased technology 1,847 950 7,099 3,598
Amortization of Frontline purchased technology and other
identified intangible assets - 231 116 1,430
Amortization of other identified intangible assets 2,157 1,580 8,166 6,230
Special charges   4,081     4,359     23,490     16,929  
Non-GAAP operating income $ 157,033   $ 132,398   $ 262,489   $ 240,577  
 
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP operating income as a percent of total revenues 31.8 % 29.2 % 15.1 % 15.8 %
Non-GAAP adjustments detailed above   4.0 %   3.8 %   6.0 %   5.0 %
Non-GAAP operating income as a percent of total revenues   35.8 %   33.0 %   21.1 %   20.8 %
 
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP other income (expense), net and interest expense $ (4,984 ) $ (4,444 ) $ (20,053 ) $ (19,972 )
Reconciling items to non-GAAP other income (expense), net
and interest expense:
Equity in earnings of unconsolidated entities 38 7 184 (119 )
Amortization of original issuance debt discount   1,576     1,467     6,139     5,715  
Non-GAAP other income (expense), net and interest expense $ (3,370 ) $ (2,970 ) $ (13,730 ) $ (14,376 )
 

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
       
 
January 31, January 31,
  2015     2014
 
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 230,281 $ 297,312
Trade accounts receivable, net 208,996 179,830
Term receivables, short-term 337,626 274,653
Prepaid expenses and other 65,853 64,658
Deferred income taxes   23,490     13,656
 
Total current assets 866,246 830,109
Property, plant, and equipment, net 170,737 160,165
Term receivables, long-term 301,862 270,365
Goodwill and intangible assets, net 645,506 571,843
Other assets   64,671     71,627
 
Total assets $ 2,049,022   $ 1,904,109
 
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 7,228 $ 9,590
Accounts payable 12,687 21,548
Income taxes payable 5,994 3,365
Accrued payroll and related liabilities 108,553 102,848
Accrued and other liabilities 47,728 42,457
Deferred revenue   259,340     231,179
 
Total current liabilities 441,530 410,987
Long-term notes payable 230,400 224,261
Deferred revenue, long-term 21,251 17,398
Other long-term liabilities   69,615     50,690
Total liabilities   762,796     703,336
 
Noncontrolling interest with redemption feature 13,372 15,479
 
Stockholders' equity:
Common stock 832,612 838,939
Retained earnings 451,901 327,552
Accumulated other comprehensive income (loss) (11,887 ) 18,803
Noncontrolling interest   228     -
Total stockholders' equity   1,272,854     1,185,294
 
Total liabilities and stockholders' equity $ 2,049,022   $ 1,904,109
 

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL INFORMATION

(In thousands, except days sales outstanding)
           
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
Operating activities
Net income $ 113,874 $ 105,107 $ 145,177 $ 153,558
Depreciation and amortization 14,782 13,047 58,046 52,454
Other adjustments to reconcile:
Operating cash 17,991 12,365 46,540 35,471
Changes in working capital   (65,517 )   (44,842 )   (111,555 )   (91,780 )
 
Net cash provided by operating activities 81,130 85,677 138,208 149,703
 
Investing activities
Net cash used in investing activities (32,490 ) (23,893 ) (128,838 ) (56,375 )
 
Financing activities
Net cash provided by (used in) financing activities 11,133 13,127 (69,054 ) (21,008 )
 
Effect of exchange rate changes on cash and cash equivalents   (2,100 )   (1,496 )   (3,357 )   (2,781 )
 
Net change in cash and cash equivalents 57,673 73,415 (63,041 ) 69,539
Cash and cash equivalents at beginning of perioda   172,608     219,907     293,322     223,783  
 
Cash and cash equivalents at end of perioda $ 230,281   $ 293,322   $ 230,281   $ 293,322  
 
 
 
Other data:
Capital expenditures $ 26,494   $ 9,395   $ 48,366   $ 30,761  
Days sales outstanding   112     102  
 
 
 
aThe condensed consolidated balance sheet at January 31, 2014 includes $3,990 of short-term investments in the "Cash, cash equivalents, and short-term investments" line item. $3,990 should be deducted from that line item to reconcile to the amount of "Cash and cash equivalents at beginning of period" presented in the statement for the twelve months ended January 31, 2015 and the amount of "Cash and cash equivalents at end of period" presented in the statements for the three and twelve months ended January 31, 2014.
 

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP

EARNINGS PER SHARE

         
The following table reconciles management's estimates of the specific items excluded from GAAP in the calculation of estimated non-GAAP net income per share for Q1'16 and fiscal year 2016.
 
 
 
Estimated Estimated
Q1'16 FY'16
Diluted GAAP net income per share $ 0.08 $ 1.45
Non-GAAP adjustments:
Amortization of purchased technology (1) 0.02 0.06
Amortization of other identified intangible assets (2) 0.02 0.06
Equity plan-related compensation (3) 0.08 0.34
Other income (expense), net and interest expense (4) 0.01 0.06
Non-GAAP income tax effects (5) (0.03 ) (0.11 )
Noncontrolling interest (6) (0.00 ) (0.01 )
   
Diluted non-GAAP net income per share $ 0.18   $ 1.85  
                 
 
(1 ) Excludes amortization of purchased technology resulting from acquisitions. Purchased technology is amortized over two to five years.
(2 ) Excludes amortization of other identified intangible assets including trade names, customer relationships, and backlog resulting from acquisition transactions. Other identified intangible assets are amortized generally over two to five years.
(3 ) Excludes equity plan-related compensation expense for the fair value of all share-based payments to employees for stock options and restricted stock units, and purchases made as a result of the employee stock purchase plans.
(4 ) Excludes income (loss) from an investment accounted for under the equity method of accounting, and amortization of original issuance debt discount.
(5 ) Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 19% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income.
(6 ) Adjustment for the impact of amortization of intangible assets, equity plan-related compensation, and income tax expense on noncontrolling interest.
 

 

MENTOR GRAPHICS CORPORATION

UNAUDITED SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION

(Rounded to nearest 5%)
   
2015 2014 2013
Product Category Bookings (a) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
IC DESIGN TO SILICON 20% 25% 45% 55% 45% 60% 35% 40% 30% 40% 35% 25% 30% 35% 30%
SCALABLE VERIFICATION 25% 25% 20% 20% 20% 15% 45% 25% 30% 30% 15% 30% 20% 25% 25%
INTEGRATED SYSTEMS DESIGN 30% 25% 15% 10% 15% 10% 10% 20% 30% 20% 25% 25% 25% 25% 25%
NEW & EMERGING MARKETS 10% 15% 10% 5% 10% 5% 5% 5% 5% 5% 5% 10% 15% 5% 10%
SERVICES / OTHER 15% 10% 10% 10% 10% 10% 5% 10% 5% 5% 20% 10% 10% 10% 10%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
2015 2014 2013
Product Category Revenue (b) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
IC DESIGN TO SILICON 25% 30% 35% 55% 40% 35% 50% 35% 35% 40% 40% 35% 25% 35% 35%
SCALABLE VERIFICATION 35% 25% 20% 20% 25% 20% 20% 25% 30% 25% 25% 25% 30% 30% 25%
INTEGRATED SYSTEMS DESIGN 25% 25% 25% 15% 20% 30% 20% 25% 25% 20% 20% 25% 25% 20% 25%
NEW & EMERGING MARKETS 5% 10% 10% 5% 5% 5% 5% 5% 5% 5% 5% 5% 10% 5% 5%
SERVICES / OTHER 10% 10% 10% 5% 10% 10% 5% 10% 5% 10% 10% 10% 10% 10% 10%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
2015 2014 2013
Bookings by Geography Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
North America 50% 40% 50% 40% 45% 35% 55% 60% 40% 50% 35% 40% 50% 35% 40%
Europe 15% 25% 15% 15% 15% 10% 15% 15% 30% 20% 20% 35% 20% 30% 25%
Japan 15% 5% 10% 5% 5% 10% 5% 5% 10% 5% 10% 5% 5% 10% 10%
Pac Rim 20% 30% 25% 40% 35% 45% 25% 20% 20% 25% 35% 20% 25% 25% 25%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
2015 2014 2013
Revenue by Geography Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
North America 50% 45% 50% 40% 45% 45% 40% 50% 45% 45% 50% 45% 50% 40% 45%
Europe 25% 20% 20% 15% 20% 20% 20% 20% 20% 20% 20% 20% 20% 30% 25%
Japan 10% 10% 10% 5% 5% 10% 5% 10% 15% 10% 10% 15% 10% 10% 10%
Pac Rim 15% 25% 20% 40% 30% 25% 35% 20% 20% 25% 20% 20% 20% 20% 20%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
2015 2014 2013
Bookings by Business Model (c) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
Perpetual 35% 20% 15% 10% 15% 15% 50% 20% 10% 25% 25% 20% 20% 15% 20%
Term Ratable 20% 10% 5% 5% 10% 10% 5% 5% 5% 5% 25% 15% 10% 5% 10%
Term Up Front 45% 70% 80% 85% 75% 75% 45% 75% 85% 70% 50% 65% 70% 80% 70%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
2015 2014 2013
Revenue by Business Model (c) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
Perpetual 35% 30% 15% 10% 20% 20% 25% 20% 20% 20% 20% 25% 25% 15% 20%
Term Ratable 10% 10% 10% 5% 5% 10% 10% 5% 5% 10% 10% 10% 10% 5% 10%
Term Up Front 55% 60% 75% 85% 75% 70% 65% 75% 75% 70% 70% 65% 65% 80% 70%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
(a) Product Category Bookings excludes support bookings for all sub-flow categories.
(b) Product Category Revenue includes support revenue for each sub-flow category as appropriate.
(c) Bookings and Revenue by Business Model are System and Software only (excludes finance fee).



Contact:

Mentor Graphics Corporation
Joe Reinhart, 503-685-1462
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