WILSONVILLE, Ore. — (BUSINESS WIRE) — May 27, 2011 — Mentor Graphics Corporation (NASDAQ: MENT) today announced financial results for the company’s fiscal first quarter ended April 30, 2011. The company reported revenues of $230 million, non-GAAP earnings per share of $.20, and a GAAP loss per share of $.02. The GAAP loss was driven primarily by non-cash charges associated with retirement of convertible debt.
“Our strategy of leveraging our strength in design automation into adjacent markets is working,” said Walden C. Rhines, chairman and CEO of Mentor Graphics. “The company reported record revenues for a first quarter as our New and Emerging product category delivered strong growth. In addition, our Integrated Systems Design product category continued to strengthen with year-on-year bookings up 45%. Leading indicators of the business remain strong with services and new customers both up sharply.”
During the quarter, the company refinanced a convertible debt offering, reducing annual cash interest expense, increasing conversion price, and reducing dilution. The company also announced a new four-year $125 million revolving credit facility. During the quarter, the company unveiled its 3D integrated circuit (IC) strategy and released test products designed to support 3D IC. The company extended its Calibre® product line with the Calibre RealTime platform which allows IC designers to optimize their designs while immediately verifying the manufacturability of the chip. The Mentor® Embedded Sourcery CodeBench won best software product of the show at the recent Embedded Systems Conference.
“We are well on track to achieve our full year goal of a non-GAAP operating margin of 15% of revenues,” said Gregory K. Hinckley, president of Mentor Graphics. “Looking forward, we will extend our cost-cutting efforts with further consolidations of facilities and IT, while we continue to raise the bar on commission and variable compensation expense to further align rewards with increasing shareholder value.”
Outlook
For the second quarter, the company expects revenues of about $210 million, non-GAAP earnings per share of about $.05, and a GAAP loss per share of approximately $.05. For the full year, the company now expects revenues of about $1,004 million, non-GAAP earnings per share of approximately $1.01 and GAAP earnings per share of about $.67.
Fiscal Year Definition
Mentor Graphics’ fiscal year runs from February 1 to January 31. The fiscal year is dated by the calendar year in which the fiscal year ends. As a result, the first three fiscal quarters of any fiscal year will be dated with the next calendar year, rather than the current calendar year.
Discussion of Non-GAAP Financial Measures
Mentor Graphics’ management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted gross margin, operating margin, net income (loss), and earnings (loss) per share which we refer to as non-GAAP gross margin, operating margin, net income (loss), and earnings (loss) per share, respectively. These non-GAAP measures are derived from the revenues of our product, maintenance, and services business operations and the costs directly related to the generation of those revenues, such as cost of revenue, research and development, sales and marketing, and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. These non-GAAP measures exclude amortization of intangible assets, special charges, equity plan-related compensation expenses and charges, interest expense attributable to net retirement premiums or discounts on the early retirement of debt and associated debt issuance costs, interest expense associated with the amortization of debt discount and premium on convertible debt, impairment of long-lived assets, impairment of cost method investments, and the equity in income or losses of unconsolidated entities (except Frontline P.C.B. Solutions Limited Partnership (Frontline)), which management does not consider reflective of our core operating business.
Identified intangible assets consist primarily of purchased technology, backlog, trade names, customer relationships, and employment agreements. 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 potential acquisitions, abandonment of in-process research and development, excess facility costs, asset-related charges, post-acquisition rebalance costs and restructuring costs, including severance and benefits. Equity plan-related compensation expenses represent the fair value of all share-based payments to employees, including grants of employee stock options. For purposes of comparability across other periods and against other companies in our industry, non-GAAP net income (loss) is adjusted by the amount of additional tax expense or benefit that we would accrue using the normalized effective tax rate described below applied to the non-GAAP results.
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:
- Amortization charges for our intangible assets are excluded as they are inconsistent in amount and frequency and are significantly impacted by the timing and magnitude of our acquisition transactions. We therefore consider our operating results without these charges when evaluating our core performance. Generally, the most significant impact to inter-period comparability of our net income (loss) is in the first twelve months following an acquisition.
- Special charges are incurred based on the particular facts and circumstances of acquisition and restructuring decisions and can vary in size and frequency. These charges are excluded as they are not ordinarily included in our annual operating plan and related budget due to the unpredictability of economic trends and the rapidly changing technology and competitive environment in our industry. We therefore exclude them when evaluating our managers' performance internally.
- We view equity plan-related compensation as a key element of our employee retention and long-term incentives, not as an expense that we use in evaluating core operations in any given period.
- Interest expense attributable to net retirement premiums or discounts on the early retirement of debt, the write-off of associated debt issuance costs and the amortization of the debt discount and premium on convertible debt are excluded. Management does not consider these charges as a part of our core operating performance. The early retirement of debt and the associated debt issuance costs are not included in our annual operating plan and related budget due to unpredictability of market conditions which could facilitate an early retirement of debt. We do not consider the amortization of the debt discount and premium on convertible debt to be a direct cost of operations.
- In connection with the Company’s acquisition of Valor on March 18, 2010, we also acquired Valor’s 50% interest in Frontline, a joint venture. We report our equity in the earnings or losses of Frontline within operating income. We actively participate in regular and periodic activities such as budgeting, business planning, marketing and direction of research and development projects. Accordingly, we do not exclude our share of Frontline’s earnings or losses from our non-GAAP results as management considers the joint venture to be core to our operating performance.
- Equity in earnings or losses of unconsolidated subsidiaries, with the exception of our investment in Frontline, represents the net income (losses) in an investment accounted for under the equity method. The amounts represent our equity in the net income (losses) of a common stock investment. The carrying amount of our investment is adjusted for our share of earnings or losses of the investee. The amounts are excluded as we do not control the results of operations for these investments, we do not participate in regular and periodic operating activities and management does not consider these businesses a part of our core operating performance.
- Income tax expense (benefit) is adjusted by the amount of additional tax expense or benefit that we would accrue if we used non-GAAP results instead of GAAP results in the calculation of our tax liability, taking into consideration our long-term tax structure. We use a normalized effective tax rate of 17%, which reflects the weighted average tax rate applicable under the various jurisdictions in which we operate. This non-GAAP tax rate eliminates the effects of non-recurring and period specific items which are often attributable to acquisition decisions and can vary in size and frequency and considers our U.S. loss carryforwards that have not been previously benefited. This rate is subject to change over time for various reasons, including changes in the geographic business mix and changes in statutory tax rates. Our GAAP tax rate for the three months ended April 30, 2011 is (35)%, after the consideration of period specific items. Without period specific items of $(1.3) million, our GAAP tax rate is (112)%. Our full fiscal year 2012 GAAP tax rate, inclusive of period specific items, is projected to be 12%. The GAAP tax rate considers certain mandatory and other non-scalable tax costs which may adversely or beneficially affect our tax rate depending upon our level of profitability in various jurisdictions.
In certain instances our GAAP results of operations may not be profitable when our corresponding non-GAAP results are profitable or vice versa. The number of shares on which our non-GAAP earnings per share is calculated may therefore differ from the GAAP presentation due to the anti-dilutive effect of stock options and restricted stock units in a loss situation.
Non-GAAP gross margin, operating margin, and net income (loss) are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Moreover, they should not be considered as an alternative to any performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. We present non-GAAP gross margin, operating margin, and net income (loss) because we consider them to be important supplemental measures of our operating performance and profitability trends, and because we believe they give investors useful information on period-to-period performance as evaluated by management. Non-GAAP net income (loss) also facilitates comparison with other companies in our industry, which use similar financial measures to supplement their GAAP results. Non-GAAP net income (loss) has limitations as an analytical tool, and therefore should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we expect to continue to incur expenses similar to the non-GAAP adjustments described above and exclusion of these items in our non-GAAP presentation should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Some of the limitations in relying on non-GAAP net income (loss) are:
- Amortization of intangibles represents the loss in value as the technology in our industry evolves, is advanced, or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income (loss) presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry, which is addressed through our research and development program.
- We regularly engage in acquisition and assimilation activities as part of our ongoing business and regularly evaluate our businesses to determine whether any operations should be eliminated or curtailed. We therefore will continue to experience special charges on a regular basis. These costs also directly impact our available funds.
- Our stock option and stock purchase plans are important components of our incentive compensation arrangements and will be reflected as expenses in our GAAP results.
- Our income tax expense (benefit) will be ultimately based on our GAAP taxable income and actual tax rates in effect, which often differ significantly from the 17% rate assumed in our non-GAAP presentation. In addition, if we have a GAAP loss and non-GAAP net income, our non-GAAP results will not reflect any projected GAAP tax benefits. Similarly, in the event we were to have GAAP net income and a non-GAAP loss, our GAAP tax expense would be replaced by a credit in our non-GAAP presentation.
- Other companies, including other companies in our industry, calculate non-GAAP net income (loss) differently than we do, limiting its usefulness as a comparative measure.
About Mentor Graphics
Mentor Graphics Corporation is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world’s most successful electronic, semiconductor and systems companies. Established in 1981, the company reported revenues in the last fiscal year of about $915 million. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. World Wide Web site: http://www.mentor.com/.
(Mentor Graphics, Mentor, Calibre and Valor are registered trademarks of Mentor Graphics Corporation. All other company or product names are the registered trademarks or 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 or recession in the US, EU, Japan or other economies, including the possibility of a “double-dip” recession; (ii) the company’s ability to successfully offer products and services that compete in the highly competitive EDA industry; (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) possible delayed or canceled customer orders resulting from the business disruption and uncertainty of actions of activist shareholders or offers to purchase the company’s securities; (v) effects of the increasing volatility of foreign currency fluctuations on the company’s business and operating results; (vi) changes in accounting or reporting rules or interpretations; (vii) the impact of tax audits by the IRS or other taxing authorities, or changes in the tax laws, regulations or enforcement practices where the company does business; (viii) effects of unanticipated shifts in product mix on gross margin; and (ix) effects of customer seasonal purchasing patterns and the timing of significant orders 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 |
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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(In thousands, except earnings per share data) | |||||||||||||
Three Months Ended April 30, | |||||||||||||
2011 | 2010 | ||||||||||||
Revenues: | |||||||||||||
System and software | $ | 139,645 | $ | 97,450 | |||||||||
Service and support | 90,390 | 83,127 | |||||||||||
Total revenues | 230,035 | 180,577 | |||||||||||
Cost of revenues: (1) | |||||||||||||
System and software | 13,016 | 3,954 | |||||||||||
Service and support | 24,166 | 22,320 | |||||||||||
Amortization of purchased technology | 3,357 | 3,569 | |||||||||||
Total cost of revenues | 40,539 | 29,843 | |||||||||||
Gross margin | 189,496 | 150,734 | |||||||||||
Operating expenses: | |||||||||||||
Research and development (2) | 69,906 | 64,132 | |||||||||||
Marketing and selling (3) | 76,404 | 73,652 | |||||||||||
General and administration (4) | 21,873 | 22,499 | |||||||||||
Equity in earnings of Frontline (5) | (1,017 | ) | (184 | ) | |||||||||
Amortization of intangible assets (6) | 1,610 | 2,361 | |||||||||||
Special charges (7) | 4,547 | 3,268 | |||||||||||
Total operating expenses | 173,323 | 165,728 | |||||||||||
Operating income (loss) | 16,173 | (14,994 | ) | ||||||||||
Other expense, net (8) | (475 | ) | (1,141 | ) | |||||||||
Interest expense (9) | (17,440 | ) | (4,327 | ) | |||||||||
Loss before income tax | (1,742 | ) | (20,462 | ) | |||||||||
Income tax expense (10) | 611 | 2,563 | |||||||||||
Net loss | $ | (2,353 | ) | $ | (23,025 | ) | |||||||
Net loss per share: | |||||||||||||
Basic | $ | (0.02 | ) | $ | (0.22 | ) | |||||||
Diluted | $ | (0.02 | ) | $ | (0.22 | ) | |||||||
Weighted average number of shares outstanding: | |||||||||||||
Basic | 111,769 | 103,763 | |||||||||||
Diluted | 111,769 | 103,763 | |||||||||||
Refer to following page for a description of footnotes. | |||||||||||||
MENTOR GRAPHICS CORPORATION |
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FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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(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 April 30, | ||||||||||||
2011 | 2010 | |||||||||||
(1) Cost of revenues: | ||||||||||||
Equity plan-related compensation | $ | 267 | $ | 212 | ||||||||
Amortization of purchased technology | 3,357 | 3,569 | ||||||||||
$ | 3,624 | $ | 3,781 | |||||||||
(2) Research and development: | ||||||||||||
Equity plan-related compensation | $ | 2,139 | $ | 2,438 | ||||||||
(3) Marketing and selling: | ||||||||||||
Equity plan-related compensation | $ | 1,615 | $ | 2,190 | ||||||||
(4) General and administration: | ||||||||||||
Equity plan-related compensation | $ | 1,659 | $ | 1,741 | ||||||||
(5) Equity in earnings of Frontline: | ||||||||||||
Amortization of purchased technology and other identified intangible assets |
$ | 1,242 | $ | 621 | ||||||||
(6) Amortization of intangible assets: | ||||||||||||
Amortization of other identified intangible assets | $ | 1,610 | $ | 2,361 | ||||||||
(7) Special charges: | ||||||||||||
Rebalance, restructuring, and other costs | $ | 4,547 | $ | 3,268 | ||||||||
(8) Other expense, net: | ||||||||||||
Equity in losses of unconsolidated entities and impairment of investments |
$ | - | $ | 270 | ||||||||
(9) Interest expense: | ||||||||||||
Amortization of debt discount and premium, net | $ | 1,175 | $ | 729 | ||||||||
Premium and costs related to debt retirement | 11,504 | - | ||||||||||
$ | 12,679 | $ | 729 | |||||||||
(10) Income tax expense: | ||||||||||||
Non-GAAP income tax effects | $ | (4,042 | ) | $ | 3,084 | |||||||
MENTOR GRAPHICS CORPORATION |
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UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS |
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(In thousands, except earnings per share data) | |||||||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
GAAP net loss | $ | (2,353 | ) | $ | (23,025 | ) | |||||
Non-GAAP adjustments: | |||||||||||
Equity plan-related compensation: (1) | |||||||||||
Cost of revenues | 267 | 212 | |||||||||
Research and development | 2,139 | 2,438 | |||||||||
Marketing and selling | 1,615 | 2,190 | |||||||||
General and administration | 1,659 | 1,741 | |||||||||
Acquisition - related items: | |||||||||||
Amortization of purchased assets | |||||||||||
Cost of revenues (2) | 3,357 | 3,569 | |||||||||
Amortization of intangible assets (3) | 1,610 | 2,361 | |||||||||
Frontline purchased technology and intangible assets (4) | 1,242 | 621 | |||||||||
Special charges (5) | 4,547 | 3,268 | |||||||||
Other expense, net (6) | - | 270 | |||||||||
Interest expense (7) | 12,679 | 729 | |||||||||
Non-GAAP income tax effects (8) | (4,042 | ) | 3,084 | ||||||||
Total of non-GAAP adjustments | 25,073 | 20,483 | |||||||||
Non-GAAP net income (loss) | $ | 22,720 | $ | (2,542 | ) | ||||||
GAAP weighted average shares (diluted) | 111,769 | 103,763 | |||||||||
Non-GAAP adjustment | 3,649 | - | |||||||||
Non-GAAP weighted average shares (diluted) | 115,418 | 103,763 | |||||||||
GAAP net loss per share (diluted) | $ | (0.02 | ) | $ | (0.22 | ) | |||||
Non-GAAP adjustments detailed above | 0.22 | 0.20 | |||||||||
Non-GAAP net income (loss) per share (diluted) | $ | 0.20 | $ | (0.02 | ) | ||||||
(1) Equity plan-related compensation expense. | |||||||||||
(2) Amount represents amortization of purchased technology resulting from acquisitions. Purchased intangible assets are amortized over two to five years. | |||||||||||
(3) Other identified intangible assets are amortized to other operating expense over two to five years. Other identified intangible assets include trade names, employment agreements, customer relationships, and deferred compensation which are the result of acquisition transactions. | |||||||||||
(4) Amount represents amortization of purchased technology and other identified intangible assets identified as part of the fair value of the Frontline P.C.B. Solutions Limited Partnership (Frontline) investment. Mentor Graphics acquired a 50% joint venture in Frontline as a result of the Valor Computerized Systems, Ltd. acquisition in the first quarter of fiscal 2011. The purchased technology will be amortized over three years, other identified intangible assets will be amortized over three to four years, and are reflected in the income statement in the equity in earnings of Frontline results. This expense is the same type as being adjusted for in notes (2) and (3) above. | |||||||||||
(5) Three months ended April 30, 2011: Special charges consist of (i) $3,102 in consulting fees associated with our proxy contest, (ii) $1,147 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (iii) $252 related to the abandonment of excess lease space, and (iv) $46 in acquisition costs. | |||||||||||
Three months ended April 30, 2010: Special charges consist of (i) $1,589 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $1,175 in advisory fees, (iii) $474 related to the abandonment of excess leased facility space, (iv) $369 in lease restoration costs, (v) $200 in acquisition costs, (vi) $(566) related to a casualty loss, and (vii) $27 in other adjustments. | |||||||||||
(6) Three months ended April 30, 2010: Loss of $270 on investment accounted for under the equity method of accounting. | |||||||||||
(7) Three months ended April 30, 2011: $1,175 in amortization of original issuance debt discount and bond premium, and $11,504 for the premium and other costs related to the retirement of the 6.25% convertible debentures and the term loan. | |||||||||||
Three months ended April 30, 2010: $729 in 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. | |||||||||||
MENTOR GRAPHICS CORPORATION |
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UNAUDITED RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES |
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(In thousands, except percentages) | |||||||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
GAAP gross margin | $ | 189,496 | $ | 150,734 | |||||||
Reconciling items to non-GAAP gross margin: | |||||||||||
Equity plan-related compensation | 267 | 212 | |||||||||
Amortization of purchased technology | 3,357 | 3,569 | |||||||||
Non-GAAP gross margin | $ | 193,120 | $ | 154,515 | |||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
GAAP gross margin as a percent of total revenues | 82 | % | 83 | % | |||||||
Non-GAAP adjustments detailed above | 2 | % | 3 | % | |||||||
Non-GAAP gross margin as a percent of total revenues | 84 | % | 86 | % | |||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
GAAP operating expenses | $ | 173,323 | $ | 165,728 | |||||||
Reconciling items to non-GAAP operating expenses: | |||||||||||
Equity plan-related compensation | (5,413 | ) | (6,369 | ) | |||||||
Amortization of other identified intangible assets | (1,610 | ) | (2,361 | ) | |||||||
Amortization of Frontline purchased technology and other identified intangible assets |
(1,242 | ) | (621 | ) | |||||||
Special charges | (4,547 | ) | (3,268 | ) | |||||||
Non-GAAP operating expenses | $ | 160,511 | $ | 153,109 | |||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
GAAP operating income (loss) | $ | 16,173 | $ | (14,994 | ) | ||||||
Reconciling items to non-GAAP operating income: | |||||||||||
Equity plan-related compensation | 5,680 | 6,581 | |||||||||
Amortization of purchased intangible assets: | |||||||||||
Cost of revenues | 3,357 | 3,569 | |||||||||
Amortization of intangible assets | 1,610 | 2,361 | |||||||||
Amortization of Frontline purchased technology and other identified intangible assets |
1,242 | 621 | |||||||||
Special Charges | 4,547 | 3,268 | |||||||||
Non-GAAP operating income | $ | 32,609 | $ | 1,406 | |||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
GAAP operating income (loss) as a percent of total revenues | 7 | % | -8 | % | |||||||
Non-GAAP adjustments detailed above | 7 | % | 9 | % | |||||||
Non-GAAP operating income as a percent of total revenues | 14 | % | 1 | % | |||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
GAAP other expense, net and interest expense | $ | (17,915 | ) | $ | (5,468 | ) | |||||
Reconciling items to non-GAAP other expense, net and interest expense: |
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Equity in losses of unconsolidated entities | - | 270 | |||||||||
Amortization of debt discount and retirement costs | 12,679 | 729 | |||||||||
Non-GAAP other expense, net and interest expense | $ | (5,236 | ) | $ | (4,469 | ) | |||||
MENTOR GRAPHICS CORPORATION |
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
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(In thousands) | |||||||||||
April 30, | January 31, | ||||||||||
2011 | 2011 | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash, cash equivalents, and short-term investments | $ | 116,481 | $ | 133,113 | |||||||
Trade accounts receivable, net | 139,028 | 153,733 | |||||||||
Term receivables, short-term | 182,012 | 193,342 | |||||||||
Prepaid expenses and other | 42,277 | 37,124 | |||||||||
Deferred income taxes | 16,370 | 15,992 | |||||||||
Total current assets | 496,168 | 533,304 | |||||||||
Property, plant, and equipment, net | 137,488 | 139,340 | |||||||||
Term receivables, long-term | 179,014 | 167,425 | |||||||||
Goodwill and intangible assets, net | 539,707 | 541,697 | |||||||||
Other assets | 53,623 | 46,212 | |||||||||
Total assets | $ | 1,406,000 | $ | 1,427,978 | |||||||
Liabilities and Stockholders' Equity | |||||||||||
Current liabilities: | |||||||||||
Short-term borrowings | $ | 9,055 | $ | 15,544 | |||||||
Current portion of notes payable | - | 2,000 | |||||||||
Accounts payable | 14,550 | 16,724 | |||||||||
Income taxes payable | 4,847 | 5,517 | |||||||||
Accrued payroll and related liabilities | 58,577 | 109,173 | |||||||||
Accrued liabilities | 33,506 | 39,513 | |||||||||
Deferred revenue | 179,602 | 171,416 | |||||||||
Total current liabilities | 300,137 | 359,887 | |||||||||
Long-term notes payable | 210,787 | 207,348 | |||||||||
Deferred revenue, long-term | 13,062 | 13,953 | |||||||||
Other long-term liabilities | 67,535 | 70,076 | |||||||||
Total liabilities | 591,521 | 651,264 | |||||||||
Stockholders' equity: | |||||||||||
Common stock | 795,756 | 765,179 | |||||||||
Accumulated deficit | (22,511 | ) | (20,158 | ) | |||||||
Accumulated other comprehensive income | 41,234 | 31,693 | |||||||||
Total stockholders' equity | 814,479 | 776,714 | |||||||||
Total liabilities and stockholders' equity | $ | 1,406,000 | $ | 1,427,978 | |||||||
MENTOR GRAPHICS CORPORATION |
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL INFORMATION |
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(In thousands, except days sales outstanding) | |||||||||||
Three Months Ended April 30, | |||||||||||
2011 | 2010 | ||||||||||
Operating activities | |||||||||||
Net loss | $ | (2,353 | ) | $ | (23,025 | ) | |||||
Depreciation and amortization (1) | 22,411 | 14,390 | |||||||||
Other adjustments to reconcile: | |||||||||||
Operating cash | 7,155 | 4,715 | |||||||||
Changes in working capital | (36,475 | ) | 31,568 | ||||||||
Net cash provided by (used in) operating activities | (9,262 | ) | 27,648 | ||||||||
Investing activities | |||||||||||
Net cash used in investing activities | (8,381 | ) | (17,395 | ) | |||||||
Financing activities | |||||||||||
Net cash provided by (used in) financing activities | 253 | (9,555 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 758 | (309 | ) | ||||||||
Net change in cash and cash equivalents | (16,632 | ) | 389 | ||||||||
Cash and cash equivalents at beginning of period | 133,113 | 99,340 | |||||||||
Cash and cash equivalents at end of period | $ | 116,481 | $ | 99,729 | |||||||
(1) Depreciation and amortization includes a write-off of note issuance costs in the amount of $8,010 for the three months ended April 30, 2011 and $132 for the three months ended April 30, 2010. |
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Other data: | |||||||||||
Capital expenditures | $ | 6,345 | $ | 7,608 | |||||||
Days sales outstanding | 126 | 130 | |||||||||
MENTOR GRAPHICS CORPORATION |
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UNAUDITED SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION |
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(Rounded to nearest 5%) | ||||||||||||||||||||||||||||
FY 2012 | Fiscal year ended January 31, 2011 | Fiscal year ended January 31, 2010 | ||||||||||||||||||||||||||
Product Group Bookings (a) | Q1 | Q1 | Q2 | Q3 | Q4 | YEAR | Q1 | Q2 | Q3 | Q4 | YEAR | |||||||||||||||||
Integrated Systems Design | 25% | 20% | 20% | 20% | 25% | 20% | 20% | 20% | 20% | 20% | 20% | |||||||||||||||||
IC Design to Silicon | 15% | 30% | 35% | 30% | 25% | 30% | 40% | 40% | 35% | 40% | 40% | |||||||||||||||||
Scalable Verification | 35% | 30% | 25% | 20% | 30% | 25% | 20% | 25% | 15% | 20% | 20% | |||||||||||||||||
New & Emerging Products | 10% | 10% | 10% | 25% | 10% | 15% | 10% | 5% | 20% | 15% | 10% | |||||||||||||||||
Services & Other (b) | 15% | 10% | 10% | 5% | 10% | 10% | 10% | 10% | 10% | 5% | 10% | |||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||
FY 2012 | Fiscal year ended January 31, 2011 | Fiscal year ended January 31, 2010 | ||||||||||||||||||||||||||
Product Group Revenue (b) | Q1 | Q1 | Q2 | Q3 | Q4 | YEAR | Q1 | Q2 | Q3 | Q4 | YEAR | |||||||||||||||||
Integrated Systems Design | 20% | 25% | 30% | 25% | 30% | 25% | 20% | 20% | 30% | 25% | 25% | |||||||||||||||||
IC Design to Silicon | 35% | 35% | 30% | 25% | 25% | 30% | 45% | 35% | 30% | 35% | 35% | |||||||||||||||||
Scalable Verification | 25% | 20% | 20% | 30% | 25% | 25% | 20% | 25% | 20% | 20% | 25% | |||||||||||||||||
New & Emerging Products | 10% | 10% | 10% | 15% | 15% | 15% | 10% | 10% | 10% | 15% | 10% | |||||||||||||||||
Services & Other (b) | 10% | 10% | 10% | 5% | 5% | 5% | 5% | 10% | 10% | 5% | 5% | |||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||
FY 2012 | Fiscal year ended January 31, 2011 | Fiscal year ended January 31, 2010 | ||||||||||||||||||||||||||
Bookings by Geography | Q1 | Q1 | Q2 | Q3 | Q4 | YEAR | Q1 | Q2 | Q3 | Q4 | YEAR | |||||||||||||||||
North America | 45% | 45% | 40% | 45% | 50% | 45% | 40% | 55% | 45% | 40% | 45% | |||||||||||||||||
Europe | 20% | 20% | 25% | 20% | 20% | 20% | 25% | 25% | 15% | 25% | 20% | |||||||||||||||||
Japan | 15% | 15% | 5% | 15% | 15% | 15% | 25% | 5% | 20% | 15% | 15% | |||||||||||||||||
Pac Rim | 20% | 20% | 30% | 20% | 15% | 20% | 10% | 15% | 20% | 20% | 20% | |||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||
FY 2012 | Fiscal year ended January 31, 2011 | Fiscal year ended January 31, 2010 | ||||||||||||||||||||||||||
Revenue by Geography | Q1 | Q1 | Q2 | Q3 | Q4 | YEAR | Q1 | Q2 | Q3 | Q4 | YEAR | |||||||||||||||||
North America | 40% | 35% | 40% | 50% | 50% | 45% | 40% | 50% | 40% | 40% | 45% | |||||||||||||||||
Europe | 20% | 25% | 25% | 25% | 20% | 25% | 20% | 30% | 25% | 30% | 25% | |||||||||||||||||
Japan | 20% | 20% | 10% | 10% | 15% | 10% | 20% | 5% | 15% | 15% | 15% | |||||||||||||||||
Pac Rim | 20% | 20% | 25% | 15% | 15% | 20% | 20% | 15% | 20% | 15% | 15% | |||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||
FY 2012 | Fiscal year ended January 31, 2011 | Fiscal year ended January 31, 2010 | ||||||||||||||||||||||||||
Bookings by Business Model (c) | Q1 | Q1 | Q2 | Q3 | Q4 | YEAR | Q1 | Q2 | Q3 | Q4 | YEAR | |||||||||||||||||
Perpetual | 40% | 40% | 30% | 15% | 15% | 25% | 15% | 25% | 20% | 10% | 15% | |||||||||||||||||
Ratable | 20% | 20% | 15% | 5% | 5% | 10% | 15% | 15% | 15% | 15% | 15% | |||||||||||||||||
Up Front | 40% | 40% | 55% | 80% | 80% | 65% | 70% | 60% | 65% | 75% | 70% | |||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||
FY 2012 | Fiscal year ended January 31, 2011 | Fiscal year ended January 31, 2010 | ||||||||||||||||||||||||||
Revenue by Business Model (c) | Q1 | Q1 | Q2 | Q3 | Q4 | YEAR | Q1 | Q2 | Q3 | Q4 | YEAR | |||||||||||||||||
Perpetual | 30% | 20% | 25% | 25% | 15% | 20% | 15% | 25% | 15% | 10% | 15% | |||||||||||||||||
Ratable | 10% | 25% | 15% | 10% | 10% | 15% | 10% | 15% | 15% | 10% | 15% | |||||||||||||||||
Up Front | 60% | 55% | 60% | 65% | 75% | 65% | 75% | 60% | 70% | 80% | 70% | |||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||
(a) Product Group Bookings excludes support bookings for all sub-flow categories. | ||||||||||||||||||||||||||||
(b) Product Group Revenue includes support revenue for each sub-flow category as appropriate. | ||||||||||||||||||||||||||||
(c) Bookings and Revenue by Business Model are System and Software only. | ||||||||||||||||||||||||||||
MENTOR GRAPHICS CORPORATION |
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UNAUDITED RECONCILIATION OF ESTIMATED GAAP TO NON-GAAP |
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EARNINGS PER SHARE |
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The following table reconciles management's estimates of the specific items excluded from GAAP in the calculation of estimated non-GAAP net income (loss) per share for Q2 FY12 and fiscal 2012. | |||||||||||
Estimated | Estimated | ||||||||||
Q2 FY12 | FY12 | ||||||||||
Diluted GAAP net income (loss) per share | $ | (0.05 | ) | $ | 0.67 | ||||||
Non-GAAP Adjustments: | |||||||||||
Amortization of purchased intangible assets (1) | 0.03 | 0.08 | |||||||||
Amortization of other identified intangible assets (2) | 0.02 | 0.09 | |||||||||
Equity plan-related compensation (3) | 0.07 | 0.17 | |||||||||
Special charges (4) | - | 0.04 | |||||||||
Other expense, net and interest expense (5) | 0.01 | 0.14 | |||||||||
Non-GAAP income tax effects (6) | (0.03 | ) | (0.18 | ) | |||||||
Non-GAAP net income per share | $ | 0.05 | $ | 1.01 | |||||||
(1) Excludes amortization of purchased intangible assets resulting from acquisition transactions. Purchased intangible assets are amortized over two to five years. | |||||||||||
(2) Excludes amortization of other identified intangible assets including trade names, employment agreements, customer relationships, and deferred compensation resulting from acquisition transactions. Other identified intangible assets are amortized over two to five years. This line item also excludes amortization of purchased intangible assets identified as part of the fair value of the Frontline P.C.B. Solutions Limited Partnership investment. The purchased technology will be amortized over three years and other identified intangible assets will be amortized over three to four years. | |||||||||||
(3) Excludes equity plan-related compensation expense. | |||||||||||
(4) Excludes special charges consisting primarily of consulting fees associated with our proxy contest, costs incurred for employee rebalances (which includes severance benefits, notice pay and outplacement services), facility closures, and acquisition costs. | |||||||||||
(5) Adjustment for fiscal 2012 reflects the amortization of original issuance debt discount and premium for our 6.25% Convertible Subordinated Debentures due 2026, the amortization of original issuance debt discount for our 4.00% Convertible Subordinated Debentures due 2031, and charges associated with the retirement of our 6.25% Convertible Subordinated Debentures and Term Loan. | |||||||||||
(6) Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 17% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income. | |||||||||||
MENTOR GRAPHICS CORPORATION |
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UNAUDITED RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES |
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(In millions, except percentages) | ||||||
Estimated | ||||||
Twelve Months Ended January 31, | FY 2012 | |||||
GAAP operating income | $ | 110.7 | ||||
Reconciling items to non-GAAP operating income: | ||||||
Equity plan-related compensation | 19.9 | |||||
Amortization of purchased intangible assets: | ||||||
Cost of revenues | 5.2 | |||||
Amortization of intangible assets | 9.6 | |||||
Amortization of Frontline purchased technology and other identified intangible assets |
4.9 | |||||
Special Charges | 4.5 | |||||
Non-GAAP operating income | $ | 154.8 | ||||
Estimated | ||||||
Twelve Months Ended January 31, | FY 2012 | |||||
GAAP operating income as a percent of total revenues | 11 | % | ||||
Non-GAAP adjustments detailed above | 4 | % | ||||
Non-GAAP operating income as a percent of total revenues | 15 | % |
Contact:
Mentor Graphics Corporation
Media Contact
Ry Schwark,
503-685-1660
Email Contact
or
Investor
Contact
Joe Reinhart, 503-685-1462
Email Contact