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Mentor Graphics Reports Fiscal Second Quarter Results Thursday, August 23, 2012, 4:15:01 PM ET Mentor Graphics Corporation (MENT) today announced financial results for the company’s fiscal second quarter ended July 31, 2012. The company reported revenue of $240.8 million, non-GAAP earnings per share of $.21, and GAAP earnings per share of $.16. During the quarter, the company continued its share buy-back, repurchasing 1.4 million shares for $20 million. Since the first fiscal quarter of 2012, the company has repurchased 8.2 million shares for $110 million. "Revenues and earnings were an all-time record for a second quarter, and bookings were at the second highest level for any second quarter in company history," said Walden C. Rhines, chairman and CEO of Mentor Graphics. "Like the whole electronic design automation industry, Mentor is benefiting from the transition to 20nm and 28nm which is driving significant design activity and resultant software demand. Additionally, the company’s investments in system design, and non-traditional electronic design automation markets like embedded software, helped produce the strong results in the quarter. We are on track for record revenue and earnings for fiscal year 2013." During the quarter, the company announced collaborations with TSMC, GLOBALFOUNDRIES and Samsung in advanced process nodes. Mentor also introduced a GENIVI 2.0-compliant, Linux-based, in-vehicle infotainment solution. The company’s Capital tool suite for transportation electrical systems design was accredited to IBM’s "Ready for IBM Rational" program. Mentor also introduced a unique, general-purpose software solution that combines one-dimensional and three-dimensional computational fluid dynamics--the first result from the merged technologies made possible by the recent acquisition of Flowmaster Ltd. "We are pleased with our performance this quarter, beating our guidance by four cents. With continued focus on cost controls, 55% of incremental year-over-year revenues dropped through to operating income," said Gregory K. Hinckley, president of Mentor Graphics. "A weak euro, a weak rupee, and a strong yen worked to our advantage. We reaffirm revenue guidance of $1.1 billion and are raising our earnings estimate." Outlook For the full fiscal year 2013, the company reaffirms that it expects revenues of about $1.1 billion, and raises the outlook for non-GAAP earnings per share by $0.01 to approximately $1.38, and GAAP earnings per share by $0.03 to about $1.23. For the third fiscal quarter 2013, the company expects revenues of about $265 million, non-GAAP earnings per share of about $0.28, and GAAP earnings per share of approximately $0.23. Fiscal Year Definition Mentor Graphics’ fiscal year runs from February 1 to January 31. The fiscal year is dated by the calendar year in which the fiscal year ends. As a result, the first three fiscal quarters of any fiscal year will be dated with the next calendar year, rather than the current calendar year. Discussion of Non-GAAP Financial Measures Mentor Graphics’ management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted gross margin, operating margin, net income (loss), and earnings (loss) per share which we refer to as non-GAAP gross margin, operating margin, net income (loss), and earnings (loss) per share, respectively. These non-GAAP measures are derived from the revenues of our product, maintenance, and services business operations and the costs directly related to the generation of those revenues, such as cost of revenue, research and development, sales and marketing, and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. These non-GAAP measures exclude amortization of intangible assets, special charges, equity plan-related compensation expenses, interest expense attributable to net retirement premiums or discounts on the early retirement of debt and associated debt issuance costs, interest expense associated with the amortization of debt discount and premium on convertible debt, and the equity in income (loss) of unconsolidated entities (except Frontline PCB Solutions Limited Partnership (Frontline)), which management does not consider reflective of our core operating business. Management excludes from our non-GAAP measures certain recurring items to facilitate its review of the comparability of our core operating performance on a period-to-period basis because such items are not related to our ongoing core operating performance as viewed by management. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Management uses this view of our operating performance for purposes of comparison with our business plan and individual operating budgets and allocation of resources. Additionally, when evaluating potential acquisitions, management excludes the items described above from its consideration of target performance and valuation. More specifically, management adjusts for the excluded items for the following reasons: -- Identified intangible assets consist primarily of purchased technology, backlog, trade names, and customer relationships. Amortization charges for our intangible assets can vary in frequency and amount due to the timing and magnitude of acquisition transactions. We consider our operating results without these charges when evaluating our core performance due to the variability. Generally, the most significant impact to inter-period comparability of our net income (loss) is in the first twelve months following an acquisition. -- Special charges primarily consist of restructuring costs incurred for employee terminations, including severance and benefits, driven by modifications of business strategy or business emphasis. Special charges may also include expenses incurred related to potential acquisitions, excess facility costs, and asset-related charges. Special charges are incurred based on the particular facts and circumstances of acquisition and restructuring decisions and can vary in size and frequency. These charges are excluded as they are not ordinarily included in our annual operating plan and related budget due to the unpredictability of economic trends and the rapidly changing technology and competitive environment in our industry. We therefore exclude them when evaluating our managers’ performance internally. -- Equity plan-related compensation expenses represent the fair value of all share-based payments to employees, including grants of employee stock options and restricted stock units. We do not consider equity plan-related compensation expense in evaluating our manager’s performance internally or our core operations in any given period. -- Interest expense attributable to net retirement premiums or discounts on the early retirement of debt, the write-off of associated debt issuance costs and the amortization of the debt discount and premium on convertible debt are excluded. Management does not consider these charges as a part of our core operating performance. The early retirement of debt and the associated debt issuance costs are not included in our annual operating plan and related budget due to unpredictability of market conditions which could facilitate an early retirement of debt. We do not consider the amortization of the debt discount and premium on convertible debt to be a direct cost of operations. -- Equity in earnings or losses of unconsolidated entities represents our equity in the net income (loss) of a common stock investment accounted for under the equity method. The carrying amount of our investment is adjusted for our share of earnings or losses of the investee. The amounts are excluded from our non-GAAP results (with the exception of our investment in Frontline as discussed below) as we do not control the results of operations for this investment and we do not participate in regular and periodic operating activities; therefore, management does not consider this investment as a part of our core operating performance. -- In connection with the Company’s acquisition of Valor on March 18, 2010, we also acquired Valor’s 50% interest in Frontline, a joint venture. We report our equity in the earnings or losses of Frontline within operating income. We actively participate in regular and periodic activities such as budgeting, business planning, marketing and direction of research and development projects. Accordingly, we do not exclude our share of Frontline’s earnings or losses from our non-GAAP results as management considers the joint venture to be core to our operating performance. -- Income tax expense (benefit) is adjusted by the amount of additional tax expense or benefit that we would accrue if we used non-GAAP results instead of GAAP results in the calculation of our tax liability, taking into consideration our long-term tax structure. We use a normalized effective tax rate of 17%, which reflects the weighted average tax rate applicable under the various jurisdictions in which we operate. This non-GAAP tax rate eliminates the effects of non-recurring and period specific items which are often attributable to acquisition decisions and can vary in size and frequency and considers our U.S. loss carryforwards that have not been previously benefited. This rate is subject to change over time for various reasons, including changes in the geographic business mix and changes in statutory tax rates. Our GAAP tax rate for the six months ended July 31, 2012 is (5%), after the consideration of period specific items. Without period specific items of ($5.2) million, our GAAP tax rate is 8%. Our full fiscal year 2013 GAAP tax rate, inclusive of period specific items, is projected to be 4%. The GAAP tax rate considers certain mandatory and other non-scalable tax costs which may adversely or beneficially affect our tax rate depending upon our level of profitability in various jurisdictions. In certain instances our GAAP results of operations may not be profitable when our corresponding non-GAAP results are profitable or vice versa. The number of shares on which our non-GAAP earnings per share is calculated may therefore differ from the GAAP presentation due to the anti-dilutive effect of stock options and restricted stock units in a loss situation. Non-GAAP gross margin, operating margin, and net income are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Moreover, they should not be considered as an alternative to any performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. We present non-GAAP gross margin, operating margin, and net income because we consider them to be important supplemental measures of our operating performance and profitability trends, and because we believe they give investors useful information on period-to-period performance as evaluated by management. Non-GAAP net income also facilitates comparison with other companies in our industry, which use similar financial measures to supplement their GAAP results. Non-GAAP net income has limitations as an analytical tool, and therefore should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we expect to continue to incur expenses similar to the non-GAAP adjustments described above and exclusion of these items in our non-GAAP presentation should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Some of the limitations in relying on non-GAAP net income are: -- Amortization of intangibles represents the loss in value as the technology in our industry evolves, is advanced, or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry, which is addressed through our research and development program. -- We regularly engage in acquisition and assimilation activities as part of our ongoing business and regularly evaluate our business to determine whether any operations should be eliminated or curtailed. We therefore will continue to experience special charges on a regular basis. These costs also directly impact our available funds. -- Our stock incentive and stock purchase plans are important components of our incentive compensation arrangements and will be reflected as expenses in our GAAP results. -- Our income tax expense (benefit) will be ultimately based on our GAAP taxable income and actual tax rates in effect, which often differ significantly from the 17% rate assumed in our non-GAAP presentation. In addition, if we have a GAAP loss and non-GAAP net income, our non-GAAP results will not reflect any projected GAAP tax benefits. Similarly, in the event we were to have GAAP net income and a non-GAAP loss, our GAAP tax expense would be replaced by a credit in our non-GAAP presentation. -- Other companies, including other companies in our industry, calculate non-GAAP net income differently than we do, limiting its usefulness as a comparative measure. About Mentor Graphics Mentor Graphics Corporation is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world’s most successful electronic, semiconductor and systems companies. Established in 1981, the company reported revenues in the last fiscal year of about $1,015 million. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. World Wide Web site: http://www.mentor.com/. (Mentor Graphics, Mentor, and Capital are registered trademarks of Mentor Graphics Corporation. All other company and/or product names are the trademarks and/or registered trademarks of their respective owners.) Statements in this press release regarding the company’s guidance for future periods constitute "forward-looking" statements based on current expectations within the meaning of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company or industry results to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: (i) recession or weakness in the EU, US, Japan, China or other economies, including recession or weakness associated with the EU debt crisis; (ii) the company’s ability to successfully offer products and services that compete in the highly competitive EDA industry, including the risk of production delays or obsolescence for our hardware products; (iii) product bundling or discounting of products and services by competitors, which could force the company to lower its prices or offer other more favorable terms to customers; (iv) effects of unanticipated shifts in hardware and software product mix on gross margin; (v) effects of the volatility of foreign currency fluctuations on the company’s business and operating results; (vi) changes in accounting or reporting rules or interpretations; (vii) the impact of tax audits by the IRS or other taxing authorities, or changes in the tax laws, regulations or enforcement practices where the company does business; (viii) possible delayed or canceled customer orders resulting from the uncertainty created by actions of activist shareholders; and (ix) effects of customer seasonal purchasing patterns and the timing of significant orders which may negatively or positively impact the company’s quarterly results of operations; all as may be discussed in more detail under the heading "Risk Factors" in the company’s most recent Form 10-K or Form 10-Q. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. In addition, statements regarding guidance do not reflect potential impacts of mergers or acquisitions that have not been announced or closed as of the time the statements are made. Mentor Graphics disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect future events or developments. MENTOR GRAPHICS CORPORATION
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
----------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except earnings per share data)
Three Months Ended July 31, Six Months Ended July 31,
------------------------------------------- ---------------------------------
2012 2011 2012 2011
------------------------ ------------ ------------ ------------
Revenues:
System and software $ 139,957 $ 117,495 $ 289,313 $ 257,140
Service and support 100,854 96,245 199,416 186,635
----------- ------- ------- -------
Total revenues 240,811 213,740 488,729 443,775
----------- ------- ------- -------
Cost of revenues: (1)
System and software 15,292 14,294 30,082 30,371
Service and support 29,130 26,844 57,544 52,055
Amortization of purchased technology 2,154 2,754 4,333 6,111
----------- ------- ------- -------
Total cost of revenues 46,576 43,892 91,959 88,537
----------- ------- ------- -------
Gross margin 194,235 169,848 396,770 355,238
----------- ------- ------- -------
Operating expenses:
Research and development (2) 72,951 69,905 143,997 139,273
Marketing and selling (3) 79,068 75,758 158,820 153,682
General and administration (4) 19,865 17,348 36,514 34,133
Equity in earnings of Frontline (5) (662 ) (1,139 ) (1,249 ) (2,156 )
Amortization of intangible assets (6) 1,599 1,455 3,305 3,065
Special charges (7) 1,507 1,677 2,654 6,224
----------- ------- ------- -------
Total operating expenses 174,328 165,004 344,041 334,221
----------- ------- ------- -------
Operating income 19,907 4,844 52,729 21,017
Other income (expense), net (8) (379 ) 529 (296 ) 54
Interest expense (9) (4,737 ) (4,634 ) (9,331 ) (22,074 )
----------- - ------- --- ------- --- ------- ---
Income (loss) before income tax 14,791 739 43,102 (1,003 )
Income tax benefit (10) (2,764 ) (3,595 ) (1,983 ) (2,984 )
----------- - ------- --- ------- --- ------- ---
Net income 17,555 4,334 45,085 1,981
Less: Loss attributable to noncontrolling interest (11) (612 ) - (1,264 ) -
----------- - ------- ------- --- -------
Net income attributable to Mentor Graphics
shareholders $ 18,167 $ 4,334 $ 46,349 $ 1,981
=========== =========== === ======= === ======= === =======
Net income per share attributable to Mentor Graphics
shareholders:
Basic $ 0.17 $ 0.04 $ 0.42 $ 0.02
=========== =========== === ======= === ======= === =======
Diluted $ 0.16 $ 0.04 $ 0.41 $ 0.02
=========== =========== === ======= === ======= === =======
Weighted average number of shares outstanding:
Basic 109,875 110,027 109,891 110,888
=========== ======= ======= =======
Diluted 113,046 112,844 113,078 113,892
=========== ======= ======= =======
Refer to following page for a description of footnotes.
MENTOR GRAPHICS CORPORATION
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FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Listed below are the items included in net income that management
excludes in computing the non-GAAP financial measures referred to in
the text of this press release. Items are further described under
"Discussion of Non-GAAP Financial Measures."
Three Months Ended July 31, Six Months Ended July 31,
------------------------------------------- ---------------------------------
2012 2011 2012 2011
------------------------ ------------ ------------ ------------
(1) Cost of revenues:
Equity plan-related compensation $ 368 $ 237 $ 687 $ 504
Amortization of purchased technology 2,154 2,754 4,333 6,111
----------- ------- ------- -------
$ 2,522 $ 2,991 $ 5,020 $ 6,615
=========== =========== === ======= === ======= === =======
(2) Research and development:
Equity plan-related compensation $ 2,215 $ 1,975 $ 4,332 $ 4,114
=========== =========== === ======= === ======= === =======
(3) Marketing and selling:
Equity plan-related compensation $ 1,625 $ 1,413 $ 3,174 $ 3,028
=========== =========== === ======= === ======= === =======
(4) General and administration:
Equity plan-related compensation $ 2,098 $ 2,204 $ 3,260 $ 3,863
=========== =========== === ======= === ======= === =======
(5) Equity in earnings of Frontline:
Amortization of purchased technology and other identified $ 1,242 $ 1,242 $ 2,484 $ 2,484
intangible assets
=========== =========== = === ======= === === ======= === === ======= ===
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 1,599 $ 1,455 $ 3,305 $ 3,065
=========== =========== === ======= === ======= === =======
(7) Special charges:
Rebalance, restructuring, and other costs $ 1,507 $ 1,677 $ 2,654 $ 6,224
=========== =========== === ======= === ======= === =======
(8) Other income (expense), net:
Net (gain) loss of unconsolidated entities $ (59 ) $ 52 $ (72 ) $ 52
=========== =========== = === ======= === ======= === === =======
(9) Interest expense:
Amortization of debt discount and premium, net $ 1,318 $ 1,228 $ 2,613 $ 2,403
Premium and costs related to debt retirement - - - 11,504
----------- ------- ------- -------
$ 1,318 $ 1,228 $ 2,613 $ 13,907
=========== =========== === ======= === ======= === =======
(10) Income tax benefit:
Non-GAAP income tax effects $ (7,670 ) $ (6,141 ) $ (13,861 ) $ (10,183 )
=========== =========== = === ======= === === ======= === === ======= ===
(11) Loss attributable to noncontrolling interest:
Amortization of intangible assets and income tax effects $ (333 ) $ - $ (602 ) $ -
=========== =========== = === ======= === ======= === === =======
MENTOR GRAPHICS CORPORATION
------------------------------------------------------------------------------------------------------------------------------------------------
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except earnings per share data)
Three Months Ended July 31, Six Months Ended July 31,
----------------------------------------- -------------------------------------
2012 2011 2012 2011
-------------------- ------------- ------------- -------------
GAAP net income attributable to Mentor Graphics shareholders $ 18,167 $ 4,334 $ 46,349 $ 1,981
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 368 237 687 504
Research and development 2,215 1,975 4,332 4,114
Marketing and selling 1,625 1,413 3,174 3,028
General and administration 2,098 2,204 3,260 3,863
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 2,154 2,754 4,333 6,111
Frontline purchased technology and intangible assets (3) 1,242 1,242 2,484 2,484
Amortization of intangible assets (4) 1,599 1,455 3,305 3,065
Special charges (5) 1,507 1,677 2,654 6,224
Other income (expense), net (6) (59 ) 52 (72 ) 52
Interest expense (7) 1,318 1,228 2,613 13,907
Non-GAAP income tax effects (8) (7,670 ) (6,141 ) (13,861 ) (10,183 )
Noncontrolling interest (9) (333 ) - (602 ) -
--------- - ------- ------- ---- -------
Total of non-GAAP adjustments 6,064 8,096 12,307 33,169
--------- ------- ------- -------
Non-GAAP net income attributable to Mentor Graphics shareholders $ 24,231 $ 12,430 $ 58,656 $ 35,150
========= ========= ==== ======= ==== ======= ==== =======
GAAP and Non-GAAP weighted average shares (diluted) 113,046 112,844 113,078 113,892
========= ======= ======= =======
Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted) $ 0.16 $ 0.04 $ 0.41 $ 0.02
Non-GAAP adjustments detailed above 0.05 0.07 0.11 0.29
--------- ------- ------- -------
Non-GAAP (diluted) $ 0.21 $ 0.11 $ 0.52 $ 0.31
========= ========= ==== ======= ==== ======= ==== =======
(1 ) Equity plan-related compensation expense is the fair value of all
share-based payments to employees for stock options and restricted
stock units, and purchases made as a result of the employee stock
purchase plans.
(2 ) Amount represents amortization of purchased technology resulting
from acquisitions. Purchased intangible assets are amortized over
two to five years.
(3 ) Amount represents amortization of purchased technology and other
identified intangible assets identified as part of the fair value of
the Frontline P.C.B. Solutions Limited Partnership (Frontline)
investment. Mentor Graphics acquired a 50% joint venture in
Frontline as a result of the Valor Computerized Systems, Ltd.
acquisition in the first quarter of fiscal 2011. The purchased
technology will be amortized over three years, other identified
intangible assets will be amortized over three to four years, and
are reflected in the income statement in the equity in earnings of
Frontline. This expense is the same type as being adjusted for in
note (2) above and (4) below.
(4 ) Other identified intangible assets are amortized to other operating
expense over two to five years. Other identified intangible assets
include trade names, customer relationships, and backlog which are
the result of acquisition transactions.
(5 ) Three months ended July 31, 2012: Special charges consist of
(i) $1,029 of costs incurred for employee rebalances which includes
severance benefits, notice pay, and outplacement services and (ii)
$478 in other adjustments.
Three months ended July 31, 2011: Special charges consist of
(i) $1,207 of costs incurred for employee rebalances which includes
severance benefits, notice pay, and outplacement services, (ii) $736
of costs related to consulting fees associated with our proxy
contest, and (iii) $(266) in other adjustments.
Six months ended July 31, 2012: Special charges consist of
(i) $2,017 of costs incurred for employee rebalances which includes
severance benefits, notice pay, and outplacement services and (ii)
$637 in other adjustments.
Six months ended July 31, 2011: Special charges consist of
(i) $3,838 of costs related to consulting fees associated with our
proxy contest , (ii) $2,354 of costs incurred for employee
rebalances which includes severance benefits, notice pay, and
outplacement services, and (iii) $32 in other adjustments.
(6 ) Three months ended July 31, 2012: Income of $59 on investment
accounted for under the equity method of accounting.
Three months ended July 31, 2011: Loss of $(52) on investment
accounted for under the equity method of accounting.
Six months ended July 31, 2012: Income of $72 on investment
accounted for under the equity method of accounting.
Six months ended July 31, 2011: Loss of $(52) on investment
accounted for under the equity method of accounting.
(7 ) Three months ended July 31, 2012: $1,318 in amortization of
original issuance debt discount.
Three months ended July 31, 2011: $1,228 in amortization of
original issuance debt discount.
Six months ended July 31, 2012: $2,613 in amortization of
original issuance debt discount.
Six months ended July 31, 2011: $2,403 in amortization of
original issuance debt discount and bond premium, and $11,504 for
the premium and other costs related to the retirement of the 6.25%
convertible debentures and the term loan.
(8 ) Non-GAAP income tax expense adjustment reflects the application of
our assumed normalized effective 17% tax rate, instead of our GAAP
tax rate, to our non-GAAP pre-tax income.
(9 ) Adjustment for the impact of amortization of intangible assets,
equity plan-related compensation, and income tax expense on
noncontrolling interest.
MENTOR GRAPHICS CORPORATION
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UNAUDITED RECONCILIATION OF GAAP FINANCIAL MEASURES TO
NON-GAAP FINANCIAL MEASURES
--------------------------------------------------------------------------------------------------------------
(In thousands, except percentages)
Three Months Ended July 31, Six Months Ended July 31,
--------------------------------- ---------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
GAAP gross margin $ 194,235 $ 169,848 $ 396,770 $ 355,238
Reconciling items to non-GAAP gross margin:
Equity plan-related compensation 368 237 687 504
Amortization of purchased technology 2,154 2,754 4,333 6,111
------- ------- ------- -------
Non-GAAP gross margin $ 196,757 $ 172,839 $ 401,790 $ 361,853
=== ======= === ======= === ======= === =======
Three Months Ended July 31, Six Months Ended July 31,
--------------------------------- ---------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
GAAP gross margin as a percent of total revenues 80.7 % 79.5 % 81.2 % 80.0 %
Non-GAAP adjustments detailed above 1.0 % 1.4 % 1.0 % 1.5 %
------- --- ------- --- ------- --- ------- ---
Non-GAAP gross margin as a percent of total revenues 81.7 % 80.9 % 82.2 % 81.5 %
======= === ======= === ======= === ======= ===
Three Months Ended July 31, Six Months Ended July 31,
--------------------------------- ---------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
GAAP operating expenses $ 174,328 $ 165,004 $ 344,041 $ 334,221
Reconciling items to non-GAAP operating expenses:
Equity plan-related compensation (5,938 ) (5,592 ) (10,766 ) (11,005 )
(1,242 ) (1,242 ) (2,484 ) (2,484 )
Amortization of Frontline purchased technology and other
identified intangible assets
Amortization of other identified intangible assets (1,599 ) (1,455 ) (3,305 ) (3,065 )
Special charges (1,507 ) (1,677 ) (2,654 ) (6,224 )
------- --- ------- --- ------- --- ------- ---
Non-GAAP operating expenses $ 164,042 $ 155,038 $ 324,832 $ 311,443
=== ======= === ======= === ======= === =======
Three Months Ended July 31, Six Months Ended July 31,
--------------------------------- ---------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
GAAP operating income $ 19,907 $ 4,844 $ 52,729 $ 21,017
Reconciling items to non-GAAP operating income:
Equity plan-related compensation 6,306 5,829 11,453 11,509
Amortization of purchased technology 2,154 2,754 4,333 6,111
1,242 1,242 2,484 2,484
Amortization of Frontline purchased technology and other
identified intangible assets
Amortization of other identified intangible assets 1,599 1,455 3,305 3,065
Special Charges 1,507 1,677 2,654 6,224
------- ------- ------- -------
Non-GAAP operating income $ 32,715 $ 17,801 $ 76,958 $ 50,410
=== ======= === ======= === ======= === =======
Three Months Ended July 31, Six Months Ended July 31,
--------------------------------- ---------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
GAAP operating income as a percent of total revenues 8.3 % 2.3 % 10.8 % 4.7 %
Non-GAAP adjustments detailed above 5.3 % 6.0 % 4.9 % 6.7 %
------- --- ------- --- ------- --- ------- ---
Non-GAAP operating income as a percent of total revenues 13.6 % 8.3 % 15.7 % 11.4 %
======= === ======= === ======= === ======= ===
Three Months Ended July 31, Six Months Ended July 31,
--------------------------------- ---------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
GAAP other expense, net and interest expense $ (5,116 ) $ (4,105 ) $ (9,627 ) $ (22,020 )
Reconciling items to non-GAAP other expense, net and interest
expense:
Net gain of unconsolidated entities (59 ) 52 (72 ) 52
Amortization of debt discount and retirement costs 1,318 1,228 2,613 13,907
------- ------- ------- -------
Non-GAAP other expense, net and interest expense $ (3,857 ) $ (2,825 ) $ (7,086 ) $ (8,061 )
=== ======= === === ======= === === ======= === === ======= ===
MENTOR GRAPHICS CORPORATION
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------
(In thousands)
July 31, January 31,
2012 2012
---------------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 146,361 $ 146,499
Restricted cash - 4,237
Trade accounts receivable, net 99,097 133,494
Term receivables, short-term 242,359 221,430
Prepaid expenses and other 41,248 43,972
Deferred income taxes 15,386 17,803
--------- ---------
Total current assets 544,451 567,435
Property, plant, and equipment, net 155,081 148,019
Term receivables, long-term 217,338 220,355
Goodwill and intangible assets, net 548,723 555,671
Other assets 64,067 59,195
--------- ---------
Total assets $ 1,529,660 $ 1,550,675
===== ========= ===== =========
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings $ 9,235 $ 14,617
Current portion of notes payable 1,369 1,349
Accounts payable 14,492 17,261
Income taxes payable 7,389 2,538
Accrued payroll and related liabilities 50,796 112,349
Accrued and other liabilities 35,437 34,284
Deferred revenue 202,136 191,540
--------- ---------
Total current liabilities 320,854 373,938
Long-term notes payable 215,837 213,224
Deferred revenue, long-term 10,849 14,883
Other long-term liabilities 58,063 73,290
--------- ---------
Total liabilities 605,603 675,335
--------- ---------
Noncontrolling interest with redemption feature 8,226 9,266
Stockholders’ equity:
Common stock 785,755 775,362
Retained earnings 108,123 62,032
Accumulated other comprehensive income 21,953 28,680
--------- ---------
Total stockholders’ equity 915,831 866,074
--------- ---------
Total liabilities and stockholders’ equity $ 1,529,660 $ 1,550,675
===== ========= ===== =========
MENTOR GRAPHICS CORPORATION
----------------------------------------------------------------------------------------------------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
AND SUPPLEMENTAL INFORMATION
---------------------------------------------------------------------------------------------------------------------
(In thousands, except days sales outstanding)
Three Months Ended July 31, Six Months Ended July 31,
---------------------------------------------------------------------------
2012 2011 2012 2011
------------- ------------- ------------- -------------
Operating activities
Net income $ 17,555 $ 4,334 $ 45,085 $ 1,981
Depreciation and amortization (1) 13,199 13,779 27,012 36,190
Other adjustments to reconcile:
Operating cash 3,493 5,761 10,193 12,916
Changes in working capital (6,005 ) 10,242 (47,903 ) (26,233 )
------- ---- ------- ------- ---- ------- ----
Net cash provided by operating activities 28,242 34,116 34,387 24,854
Investing activities
Net cash used in investing activities (11,929 ) (10,279 ) (23,986 ) (18,660 )
Financing activities
Net cash used in financing activities (3,838 ) (17,662 ) (8,072 ) (17,409 )
Effect of exchange rate changes on cash and cash equivalents (925 ) 813 (2,467 ) 1,571
------- ---- ------- ------- ---- -------
Net change in cash and cash equivalents 11,550 6,988 (138 ) (9,644 )
Cash and cash equivalents at beginning of period 134,811 116,481 146,499 133,113
------- ------- ------- -------
Cash and cash equivalents at end of period $ 146,361 $ 123,469 $ 146,361 $ 123,469
==== ======= ==== ======= ==== ======= ==== =======
(1 ) Depreciation and amortization includes a write-off of note issuance
costs in the amount of $8,010 for the six months ended July 31, 2011.
Other data:
Capital expenditures $ 10,579 $ 10,279 $ 22,183 $ 16,624
==== ======= ==== ======= ==== ======= ==== =======
Days sales outstanding 128 116
======= =======
MENTOR GRAPHICS CORPORATION
----------------------------------------------------------------------------------------------------
UNAUDITED SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
----------------------------------------------------------------------------------------------------
(Rounded to nearest 5%)
2013 2012 2011
------------------------ ---------------------------------------- ----------------------------------
Product Group Bookings (a) Q1 Q2 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
------------------------ ---------------------------------------- ----------------------------------
IC DESIGN TO SILICON 35 % 25 % 30 % 20 % 25 % 60 % 40 % 40 % 35 % 40 % 45 % 30 % 35 %
SCALABLE VERIFICATION 15 % 30 % 25 % 35 % 30 % 15 % 35 % 30 % 35 % 25 % 25 % 30 % 25 %
INTEGRATED SYSTEMS DESIGN 25 % 25 % 25 % 25 % 25 % 15 % 15 % 15 % 15 % 25 % 20 % 25 % 25 %
NEW & EMERGING MARKETS 10 % 10 % 10 % 10 % 15 % 5 % 5 % 10 % 10 % 5 % 5 % 10 % 10 %
SERVICES / OTHER 15 % 10 % 10 % 10 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 % 5 %
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- --- -- --- -- --- - --- --
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
=== === === === === === === === === === === === === === === === === == === == === == === = === ==
2013 2012 2011
------------------------ ---------------------------------------- ----------------------------------
Product Group Revenue (b) Q1 Q2 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
------------------------ ---------------------------------------- ----------------------------------
IC DESIGN TO SILICON 40 % 35 % 40 % 40 % 25 % 40 % 45 % 40 % 40 % 40 % 35 % 30 % 35 %
SCALABLE VERIFICATION 25 % 25 % 25 % 25 % 30 % 25 % 25 % 25 % 20 % 20 % 30 % 25 % 25 %
INTEGRATED SYSTEMS DESIGN 25 % 25 % 25 % 20 % 25 % 25 % 20 % 25 % 25 % 25 % 25 % 30 % 30 %
NEW & EMERGING MARKETS 5 % 10 % 5 % 10 % 10 % 5 % 5 % 5 % 5 % 5 % 5 % 10 % 5 %
SERVICES / OTHER 5 % 5 % 5 % 5 % 10 % 5 % 5 % 5 % 10 % 10 % 5 % 5 % 5 %
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- --- -- --- -- --- - --- --
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
=== === === === === === === === === === === === === === === === === == === == === == === = === ==
2013 2012 2011
------------------------ ---------------------------------------- ----------------------------------
Bookings by Geography Q1 Q2 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
------------------------ ---------------------------------------- ----------------------------------
North America 35 % 40 % 35 % 45 % 45 % 40 % 50 % 45 % 45 % 40 % 45 % 50 % 45 %
Europe 20 % 35 % 30 % 20 % 30 % 15 % 25 % 20 % 20 % 25 % 20 % 20 % 20 %
Japan 10 % 5 % 10 % 15 % 5 % 5 % 10 % 10 % 15 % 5 % 15 % 15 % 15 %
Pac Rim 35 % 20 % 25 % 20 % 20 % 40 % 15 % 25 % 20 % 30 % 20 % 15 % 20 %
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- --- -- --- -- --- - --- --
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
=== === === === === === === === === === === === === === === === === == === == === == === = === ==
2013 2012 2011
------------------------ ---------------------------------------- ----------------------------------
Revenue by Geography Q1 Q2 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
------------------------ ---------------------------------------- ----------------------------------
North America 50 % 45 % 45 % 40 % 50 % 45 % 35 % 40 % 35 % 40 % 50 % 45 % 40 %
Europe 20 % 20 % 20 % 25 % 20 % 25 % 25 % 25 % 25 % 25 % 25 % 25 % 25 %
Japan 10 % 15 % 15 % 15 % 10 % 10 % 5 % 10 % 15 % 10 % 10 % 15 % 15 %
Pac Rim 20 % 20 % 20 % 20 % 20 % 20 % 35 % 25 % 25 % 25 % 15 % 15 % 20 %
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- --- -- --- -- --- - --- --
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
=== === === === === === === === === === === === === === === === === == === == === == === = === ==
2013 2012 2011
------------------------ ---------------------------------------- ----------------------------------
Bookings by Business Model (c) Q1 Q2 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
------------------------ ---------------------------------------- ----------------------------------
Perpetual 25 % 20 % 25 % 40 % 20 % 15 % 25 % 20 % 40 % 30 % 10 % 15 % 20 %
Ratable 25 % 15 % 15 % 20 % 10 % 5 % 5 % 10 % 20 % 15 % 10 % 5 % 10 %
Up Front 50 % 65 % 60 % 40 % 70 % 80 % 70 % 70 % 40 % 55 % 80 % 80 % 70 %
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- --- -- --- -- --- - --- --
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
=== === === === === === === === === === === === === === === === === == === == === == === = === ==
2013 2012 2011
------------------------ ---------------------------------------- ----------------------------------
Revenue by Business Model (c) Q1 Q2 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
------------------------ ---------------------------------------- ----------------------------------
Perpetual 20 % 25 % 25 % 30 % 25 % 15 % 15 % 20 % 20 % 25 % 20 % 15 % 20 %
Ratable 10 % 10 % 10 % 10 % 10 % 10 % 5 % 10 % 25 % 15 % 10 % 5 % 10 %
Up Front 70 % 65 % 65 % 60 % 65 % 75 % 80 % 70 % 55 % 60 % 70 % 80 % 70 %
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- --- -- --- -- --- - --- --
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
=== === === === === === === === === === === === === === === === === == === == === == === = === ==
(a) Product Group Bookings excludes support bookings for all
sub-flow categories.
(b) Product Group Revenue includes support revenue for each sub-flow
category as appropriate.
(c) Bookings and Revenue by Business Model are System and Software
only.
MENTOR GRAPHICS CORPORATION
----------------------------------------------------------------------------------------------
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
----------------------------------------------------------------------------------------------
EARNINGS PER SHARE
----------------------------------------------------------------------------------------------
The following table reconciles management’s estimates of the
specific items excluded from GAAP in the calculation of estimated
non-GAAP net income per share for Q3 FY13 and fiscal 2013.
Estimated Estimated
Q3 FY13 FY13
------------------ ------------------
Diluted GAAP net income per share $ 0.23 $ 1.23
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.01 0.07
Amortization of other identified intangible assets (2) 0.02 0.09
Equity plan-related compensation (3) 0.04 0.17
Special charges (4) - 0.02
Other income (expense), net and interest expense (5) 0.01 0.05
Non-GAAP income tax effects (6) (0.03 ) (0.24 )
Noncontrolling Interest (7) - (0.01 )
------- ------- -
Non-GAAP net income per share $ 0.28 $ 1.38
======= ======= ======= =======
(1 ) Excludes amortization of purchased intangible assets resulting from
acquisition transactions. Purchased intangible assets are amortized
over three to five years.
(2 ) Excludes amortization of other identified intangible assets
including trade names, customer relationships, and backlog resulting
from acquisition transactions. Other identified intangible assets
are amortized over one to five years. This line item also excludes
amortization of purchased intangible assets identified as part of
the fair value of the Frontline P.C.B. Solutions Limited Partnership
investment. The purchased technology will be amortized over three
years and other identified intangible assets will be amortized over
three to four years.
(3 ) Excludes equity plan-related compensation expense for the fair value
of all share-based payments to employees for stock options and
restricted stock units, and purchases made as a result of the
employee stock purchase plans.
(4 ) Excludes special charges consisting primarily of costs incurred for
employee rebalances (which includes severance benefits, notice pay
and outplacement services), facility closures, and acquisition costs.
(5 ) Adjustment for fiscal 2013 reflects the amortization of original
issuance debt discount for our 4.00% Convertible Subordinated
Debentures due 2031.
(6 ) Non-GAAP income tax expense adjustment reflects the application of
our assumed normalized effective 17% tax rate, instead of our GAAP
tax rate, to our non-GAAP pre-tax income.
(7 ) Adjustment for the impact of amortization of intangible assets,
equity plan-related compensation expense and income tax expense on
noncontrolling interest.
SOURCE: Mentor Graphics Corporation Mentor Graphics Corporation Ry Schwark, Media Contact, 503-685-1660 ry_schwark@mentor.com OR Joe Reinhart, Investor Contact, 503-685-1462 joe_reinhart@mentor.com |
  
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