Mentor Graphics Reports Fiscal First Quarter Results
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Mentor Graphics Reports Fiscal First Quarter Results

WILSONVILLE, Ore. — (BUSINESS WIRE) — May 28, 2010 — Mentor Graphics Corporation (NASDAQ: MENT) today announced results for the fiscal first quarter ending April 30, 2010. For the fiscal first quarter, the company reported revenues of $180.6 million, a non-GAAP loss per share of $.02, and a GAAP loss per share of $.22.

“While the quarter’s bookings were lower than last year due to the concentration of scheduled renewals in the second half of this year, the renewals that did occur in the first quarter were very strong, growing 25% from their prior contract values for the renewals within our top ten contracts,” said Walden C. Rhines, CEO and chairman of Mentor Graphics. “Leading indicators that we have historically tracked were also very positive: support reinstatements grew 70%; our base business, orders less than $1 million typically from smaller customers, grew 20% over the year ago quarter; and consulting and training bookings grew 25% over last year.”

During the quarter, the company extended its customer partnerships with three significant new relationships. Mentor joined the Nano2012 program led by STMicroelectronics, in partnership with the French government, to develop leading-edge technologies for 32nm and below processes. Freescale Semiconductor named Mentor Graphics its commercial Linux strategic partner. NetLogic Microsystems entered into a strategic collaboration with Mentor Graphics to provide multi-core multi-threaded Linux for their processors.

“Despite two sizeable acquisitions in the last year, our operating expense is still down on an absolute basis year on year. We expect our continued strong emphasis on cost controls, as well as an improving foreign exchange environment, particularly the Euro, positions us well for the year,” said Gregory K. Hinckley, president of Mentor Graphics. “This fifth consecutive quarter of meeting or beating guidance, given our transparent real-time financial model, gives us confidence that the recovery is continuing.”

During the quarter, Mentor strengthened its offerings to the DO-254 market with a joint announcement of a product flow with The MathWorks, extensions to Mentor’s HDL Designer product to support DO-254 coding standards, and a new product, the ReqTracer™ tool, that helps automate requirements capture. The company’s Mechanical Analysis Division launched FloTHERM® IC for semiconductor package thermal characterization and design. Mentor launched 3D electromagnetic analysis for its HyperLynx® printed circuit board product line. The company completed its previously announced acquisition of Valor Computerized Systems which offers PCB manufacturing software and also acquired technology that provides on-demand electrical schematics for automobile dealerships. In early May, Mentor launched its Calibre® InRoute software which fully integrates its Calibre tools into its Olympus-SOC™ place and route environment. This allows designers to invoke Calibre verification and design-for-manufacturing tools from within the place and route environment to verify and improve designs much faster, significantly speeding time to design closure.

In April, the Valor® MSS Software suite won the Circuits Assembly New Product Introduction Award and the 2010 Surface Mount Technology Vision Award. Design News granted FloEFD™ mechanical analysis technology its Golden Mousetrap Award for Best Product. In February, the International Engineering Consortium honored HyperLynx Power Integrity with its annual Design Vision Award in the System Modeling and Simulation Tool Category. Additionally, Mentor’s Dr. Vladimir Székely received the Dennis Gabor Award for Innovation, the country of Hungary’s highest technical honor.

Outlook

For the fiscal second quarter ending July 31, 2010, the company expects revenues of about $180 million, non-GAAP earnings per share of break-even to a loss of $.05, and GAAP loss per share of $.17 to $.22. For the full fiscal year 2011 the company expects revenues of $870 million, non-GAAP earnings per share of $.60 to $.65 and GAAP earnings per share of $.10 to $.15.

About Mentor Graphics

Mentor Graphics Corporation (NASDAQ: MENT) 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 electronics and semiconductor companies. Established in 1981, the company reported revenues over the last 12 months of about $800 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, FloTHERM, HyperLynx, Calibre, and Valor are registered trademarks and ReqTracer, Olympus-SOC, and FloEFD are 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) reductions in spending on the company’s products and services by its customers due to the troubled worldwide economic environment, and the company’s ability to appropriately reduce its expenses in response; (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; (iv) effects of the increasing volatility of foreign currency fluctuations on the company’s business; (v) changes in accounting or reporting rules or interpretations; (vi) the impact of tax audits, or changes in the tax laws, regulations or enforcement practices; (vii) effects of unanticipated shifts in product mix on gross margin; and (viii) effects of customer seasonal purchasing patterns and the timing of significant orders which may negatively or positively impact the company’s quarterly results of operations, all as may be discussed in more detail under the heading “Risk Factors” in the company’s most recent Form 10-K or Form 10-Q. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. In addition, statements regarding guidance do not reflect potential impacts of mergers or acquisitions that have not been announced or closed as of the time the statements are made. Mentor Graphics disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect future events or developments.

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 on convertible debt, impairment of long-lived assets, impairment of cost method investments, and the equity in income or losses of unconsolidated entities, 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 acquired in an acquisition, 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 a normalized effective tax rate 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:

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 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:

MENTOR GRAPHICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)
       
 
Three Months Ended April 30,
2010 2009
Revenues:
System and software $ 97,450 $ 115,418
Service and support   83,127     78,357  
Total revenues   180,577     193,775  
Cost of revenues: (1)
System and software 3,954 4,889
Service and support 22,320 21,203
Amortization of purchased technology   3,569     2,948  
Total cost of revenues   29,843     29,040  
Gross margin   150,734     164,735  
Operating expenses:
Research and development (2) 64,132 62,291
Marketing and selling (3) 73,652 76,601
General and administration (4) 22,499 23,424
Equity in (earnings) losses of Frontline (5) (184 ) -
Amortization of intangible assets (6) 2,361 2,870
Special charges (7)   3,268     5,695  
Total operating expenses   165,728     170,881  
Operating loss (14,994 ) (6,146 )
Other income (expense), net (8) (1,141 ) 98
Interest expense (9)   (4,327 )   (4,151 )
Loss before income tax (20,462 ) (10,199 )
Income tax expense (10)   2,563     2,757  
Net loss $ (23,025 ) $ (12,956 )
Net loss per share:
Basic $ (0.22 ) $ (0.14 )
Diluted $ (0.22 ) $ (0.14 )
Weighted average number of shares outstanding:
Basic   103,763     94,168  
Diluted   103,763     94,168  
 

Refer to following table for a description of footnotes.

MENTOR GRAPHICS CORPORATION

FOOTNOTES TO UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(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,
2010 2009
(1) Cost of revenues:
Equity plan-related compensation $ 212 $ 499
Amortization of purchased technology   3,569   2,948  
$ 3,781 $ 3,447  
 
(2) Research and development:
Equity plan-related compensation $ 2,438 $ 3,447  
 
(3) Marketing and selling:
Equity plan-related compensation $ 2,190 $ 2,537  
 
(4) General and administration:
Equity plan-related compensation $ 1,741 $ 1,287  
 
(5) Equity in (earnings) losses of Frontline
Amortization of purchased technology and other identified intangible assets $ 621 $ -  
 
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 2,361 $ 2,870  
 
(7) Special charges:
Rebalance, restructuring, and other costs $ 3,268 $ 5,695  
 
(8) Other income (expense), net:

Equity in losses of unconsolidated entities and impairment of investments

$ 270 $ 437  
 
(9) Interest expense:
Amortization of debt discount $ 729 $ 669
Debt retirement costs   -   (248 )
$ 729 $ 421  
 
(10) Income tax expense:
Income tax effects $ 3,084 $ 1,067  

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

(In thousands, except earnings per share data)
   
 
Three Months Ended April 30,
2010 2009
GAAP net loss $ (23,025 ) $ (12,956 )
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 212 499
Research and development 2,438 3,447
Marketing and selling 2,190 2,537
General and administration 1,741 1,287
Acquisition - related items:

Amortization of purchased assets

Cost of revenues (2) 3,569 2,948
Amortization of intangible assets (3) 2,361 2,870

Frontline purchased technology and intangible assets (4)

621 -
Special charges (5) 3,268 5,695
Other income, net (6) 270 437
Interest expense (7) 729 421
Income tax effects (8)   3,084     1,067  
Total of non-GAAP adjustments   20,483     21,208  
Non-GAAP net income (loss) $ (2,542 ) $ 8,252  
 
GAAP weighted average shares (diluted) 103,763 94,168
Non-GAAP adjustment   -     3  
Non-GAAP weighted average shares (diluted)   103,763     94,171  
 
GAAP net loss per share (diluted) $ (0.22 ) $ (0.14 )
Non-GAAP adjustments detailed above   0.20     0.23  
Non-GAAP net income (loss) per share (diluted) $ (0.02 ) $ 0.09  
         

(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) losses 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, 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) $843 related to the abandonment of excess leased facility space, (iv) $200 in acquisition costs, (v) a recovery of $(566) related to a prior casualty loss, and (vi) $27 in other charges.

Three months ended April 30, 2009: Special charges consist of (i) $4,028 of costs incurred for employee rebalances which includes severance benefits, notice pay and outplacement services, (ii) $1,175 in advisory fees, (iii) $268 in acquisition costs, (iv) $265 related to a casualty loss, and (v) $(41) in other adjustments.

(6)

Three months ended April 30, 2010: Loss of $270 on investment accounted for under the equity method of accounting.

Three months ended April 30, 2009: Other income, net consists of: (i) loss of $324 on an investment accounted for under the equity method of accounting and (ii) an impairment of $113 for investments accounted for under the cost method.

(7)

Three months ended April 30, 2010: $729 in amortization of original issuance debt discount.

Three months ended April 30, 2009: $669 in amortization of original issuance debt discount and $(248) in discounts and unamortized debt costs related to a partial redemption of the $110.0M convertible debt.

(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 and the application of the 17% tax rate to our non-GAAP adjustments.

MENTOR GRAPHICS CORPORATION

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

(In thousands, except percentages)
     
 
Three Months Ended April 30,
2010 2009
GAAP gross margin $ 150,734 $ 164,735
Reconciling items to non-GAAP gross margin
Equity plan-related compensation 212 499
Amortization of purchased technology   3,569     2,948  
Non-GAAP gross margin $ 154,515   $ 168,182  
 
 
Three Months Ended April 30,
2010 2009
GAAP gross margin as a percent of total revenues 83 % 85 %
Non-GAAP adjustments detailed above   3 %   2 %
Non-GAAP gross margin as a percent of total revenues   86 %   87 %
 
 
Three Months Ended April 30,
2010 2009
GAAP operating expenses $ 165,728 $ 170,881
Reconciling items to non-GAAP operating expenses

Amortization of Frontline purchased technology and other identified intangible assets

(621 ) -
Equity plan-related compensation (6,369 ) (7,271 )
Amortization of other identified intangible assets (2,361 ) (2,870 )
Special charges   (3,268 )   (5,695 )
Non-GAAP operating expenses $ 153,109   $ 155,045  
 
 
Three Months Ended April 30,
2010 2009
GAAP operating loss $ (14,994 ) $ (6,146 )
Reconciling items to non-GAAP operating income

Amortization of Frontline purchased technology and other identified intangible assets

621 -
Equity plan-related compensation 6,581 7,770
Amortization of purchased intangible assets:
Cost of revenues 3,569 2,948
Amortization of intangible assets 2,361 2,870
Special Charges   3,268     5,695  
Non-GAAP operating income $ 1,406   $ 13,137  
 
 
Three Months Ended April 30,
2010 2009
GAAP operating loss as a percent of total revenues -8 % -3 %
Non-GAAP adjustments detailed above   9 %   10 %
Non-GAAP operating income as a percent of total revenues   1 %   7 %
 
 
Three Months Ended April 30,
2010 2009
GAAP other income (expense), net and interest expense $ (5,468 ) $ (4,053 )

Reconciling items to non-GAAP other income (expense), net and interest expense

Equity in losses of unconsolidated entities 270 324
Impairment of cost method investments - 113
Amortization of debt discount and retirement costs   729     421  
Non-GAAP other income (expense), net and interest expense $ (4,469 ) $ (3,195 )

MENTOR GRAPHICS CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)
     
 
April 30, January 31,
2010 2010
 
Assets
Current assets:
Cash, cash equivalents, and short-term investments $ 99,732 $ 99,343
Trade accounts receivable, net 86,041 110,839
Term receivables, short-term 175,052 178,911
Prepaid expenses and other 35,579 29,629
Deferred income taxes   12,662     11,891  
 
Total current assets 409,066 430,613
Property, plant, and equipment, net 120,299 121,795
Term receivables, long-term 135,097 164,898
Goodwill and intangible assets, net 527,586 484,342
Other assets   43,547     21,393  
 
Total assets $ 1,235,595   $ 1,223,041  
 
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 6,588 $ 37,874
Current portion of notes payable 34,272 32,272
Accounts payable 9,154 9,985
Income taxes payable 304 3,971
Accrued payroll and related liabilities 53,472 77,008
Accrued liabilities 35,421 44,122
Deferred revenue   170,138     153,965  
 
Total current liabilities 309,349 359,197
Long-term notes payable 174,822 156,075
Deferred revenue, long-term 10,631 9,534
Other long-term liabilities   64,027     58,218  
Total liabilities   558,829     583,024  
 
Stockholders' equity:
Common stock 725,522 662,595
Accumulated deficit (71,767 ) (48,742 )
Accumulated other comprehensive income   23,011     26,164  
Total stockholders' equity   676,766     640,017  
 
Total liabilities and stockholders' equity $ 1,235,595   $ 1,223,041  

MENTOR GRAPHICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL INFORMATION

(In thousands, except days sales outstanding)
     
 
Three Months Ended April 30,
2010 2009
Operating activities
Net loss $ (23,025 ) $ (12,956 )
Depreciation and amortization (1) 14,390 16,063
Other adjustments to reconcile:

 

Operating cash

4,715 10,220

 

Changes in working capital

  31,568     (14,297 )
 
Net cash provided by (used in) operating activities 27,648 (970 )
 
Investing activities
Net cash used in investing activities (17,395 ) (4,723 )
 
Financing activities
Net cash used in financing activities (9,555 ) (8,794 )
 

Effect of exchange rate changes on cash and cash equivalents

  (309 )   (378 )
 
Net change in cash and cash equivalents 389 (14,865 )
Cash and cash equivalents at beginning of period   99,340     93,642  
 
Cash and cash equivalents at end of period $ 99,729   $ 78,777  
 
(1) Depreciation and amortization includes a write-off of note issuance costs in the amount of $132 for the three months ended April 30, 2010 and $16 for the three months ended April 30, 2009.
 
Other data:

 

Capital expenditures

$ 7,608   $ 4,570  

 

Days sales outstanding

  130     117  

MENTOR GRAPHICS CORPORATION

UNAUDITED SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION

(Rounded to nearest 5%)
 
  FY 2011       Fiscal year ended January 31, 2010       Fiscal year ended January 31, 2009
Product Group Bookings (a) Q1 Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Integrated Systems Design 20% 20%   20%   20%   20%   20% 15%   20%   25%   15%   20%
IC Design to Silicon 30% 40% 40% 35% 40% 40% 40% 30% 30% 40% 35%
Scalable Verification 30% 20% 25% 15% 20% 20% 20% 20% 20% 30% 20%
New & Emerging Products 10% 10% 5% 20% 15% 10% 10% 20% 15% 10% 15%
Services & Other (b) 10% 10%   10%   10%   5%   10% 15%   10%   10%   5%   10%
Total 100% 100%   100%   100%   100%   100% 100%   100%   100%   100%   100%
 
FY 2011 Fiscal year ended January 31, 2010

Fiscal year ended January 31, 2009

Product Group Revenue (b) Q1 Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Integrated Systems Design 25% 20% 20% 30% 25% 25% 20% 20% 25% 20% 20%
IC Design to Silicon 35% 45% 35% 30% 35% 35% 40% 30% 30% 35% 35%
Scalable Verification 20% 20% 25% 20% 20% 25% 20% 25% 25% 30% 25%
New & Emerging Products 10% 10% 10% 10% 15% 10% 10% 15% 10% 10% 10%
Services & Other (b) 10% 5%   10%   10%   5%   5% 10%   10%   10%   5%   10%
Total 100% 100%   100%   100%   100%   100% 100%   100%   100%   100%   100%
 
 
FY 2011 Fiscal year ended January 31, 2010 Fiscal year ended January 31, 2009
Bookings by Geography Q1 Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
North America 45% 40% 55% 45% 40% 45% 40% 30% 40% 35% 35%
Europe 20% 25% 25% 15% 25% 20% 35% 35% 35% 35% 35%
Japan 15% 25% 5% 20% 15% 15% 15% 20% 10% 5% 15%
Pac Rim 20% 10%   15%   20%   20%   20% 10%   15%   15%   25%   15%
Total 100% 100%   100%   100%   100%   100% 100%   100%   100%   100%   100%
 
 
FY 2011 Fiscal year ended January 31, 2010 Fiscal year ended January 31, 2009
Revenue by Geography Q1 Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
North America 35% 40% 50% 40% 40% 45% 40% 35% 40% 40% 40%
Europe 25% 20% 30% 25% 30% 25% 30% 30% 35% 35% 30%
Japan 20% 20% 5% 15% 15% 15% 20% 20% 10% 10% 15%
Pac Rim 20% 20%   15%   20%   15%   15% 10%   15%   15%   15%   15%
Total 100% 100%   100%   100%   100%   100% 100%   100%   100%   100%   100%
 
FY 2011 Fiscal year ended January 31, 2010 Fiscal year ended January 31, 2009
Bookings by Business Model (c) Q1 Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Perpetual 40% 15% 25% 20% 10% 15% 20% 20% 20% 10% 15%
Ratable 20% 15% 15% 15% 15% 15% 25% 20% 15% 10% 15%
Up Front 40% 70%   60%   65%   75%   70% 55%   60%   65%   80%   70%
Total 100% 100%   100%   100%   100%   100% 100%   100%   100%   100%   100%
 
FY 2011 Fiscal year ended January 31, 2010 Fiscal year ended January 31, 2009
Revenue by Business Model (c) Q1 Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Perpetual 20% 15% 25% 15% 10% 15% 20% 20% 20% 10% 15%
Ratable 25% 10% 15% 15% 10% 15% 20% 20% 20% 10% 15%
Up Front 55% 75%   60%   70%   80%   70% 60%   60%   60%   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

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP

EARNINGS PER SHARE GUIDANCE

 
The following table reconciles management's estimates of the specific items excluded from GAAP in the calculation of expected non-GAAP loss per share for the periods shown below:
   
 
Q2 FY11 FY11
Diluted GAAP net income (loss) per share $(0.17) - (0.22) $0.10 - 0.15
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.05 0.17
Amortization of other identified intangible assets (2) 0.03 0.09
Equity plan-related compensation (3) 0.04 0.16
Special charges (4) 0.00 0.03
Other income and interest expense (5) 0.01 0.04
Income tax effects (6) 0.04 0.01
Non-GAAP net income (loss) per share $0.00 - (0.05) $0.60 - 0.65
 
 
(1) Excludes amortization of purchased intangible assets resulting from acquisition transactions. Purchased intangible assets are amortized over two to five years. The guidance for Q2 FY11 and Full Year FY11 assumes no additional acquisitions.
(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. The guidance for Q2 FY11 and Full Year FY11 assumes no additional acquisitions.
(3) Excludes equity plan-related compensation expense.
(4) Excludes special charges consisting primarily of costs incurred for facility closures, employee rebalances, (which includes severance benefits, notice pay and outplacement services), advisory fees, and acquisition costs. The guidance for Q2 FY11 and Full Year FY11 assumes no additional special charges.
(5) Reflects amortization of original issuance debt discount and equity in losses of an equity method investment.
(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 GAAP pre-tax income and the application of the 17% tax rate to our non-GAAP adjustments.



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