Mentor Graphics Reports Fiscal Third Quarter Results
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Mentor Graphics Reports Fiscal Third Quarter Results

WILSONVILLE, Ore. — (BUSINESS WIRE) — November 19, 2010 — Mentor Graphics Corporation (NASDAQ: MENT) today announced results for the fiscal third quarter ending October 31, 2010. For the fiscal third quarter, the company reported revenues of $238.9 million, non-GAAP earnings per share of $.22, and GAAP earnings per share of $.14.

“The strength of our third quarter was broad-based with bookings up 60% over the year ago quarter,” said Walden C. Rhines, CEO and chairman of Mentor Graphics. “Our strategy of focusing on areas of differentiation rewarded us this quarter with strong growth in emulation, printed circuit board design software, design for test, physical verification and a number of our newer system-oriented products like automotive networking. Our diversification also helped drive the business with over 30% of new customers coming from non-traditional segments. We remain confident that our strategy will continue to drive earnings growth for the company.”

During the quarter, the company launched new analysis capability in the FloTHERM® thermal analysis tool, which allows designers to easily find and correct bottlenecks in heat flow in a design. The company’s embedded software division released Mentor Embedded ReadyStart™ Platform, a new easy-to-use platform for rapid development of embedded systems, and a version of the Inflexion Platform™ graphical user interface for the Android platform. Additionally, the embedded market analyst firm VisionMobile reported that Mentor’s Nucleus® real-time operating system is the market leader in handsets with over 2.3 billion copies shipped.

“The third quarter was a record on revenue, bookings and product book-to-bill,” said Gregory K. Hinckley, president of Mentor Graphics. “Despite some headwinds from currency and product mix, we are confident that this momentum will continue into the fourth quarter. As a result, we are raising guidance.

Outlook

For the fiscal fourth quarter, the company expects revenue of about $293 million, non-GAAP earnings per share of approximately $.46, and GAAP earnings per share of about $.40. For the full fiscal year 2011 ending January 31, 2011 the company sees revenue in the range of $900 million, non-GAAP earnings per share of about $.67, and GAAP earnings per share of approximately $.19.

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, semiconductor and systems companies. Established in 1981, the company reported revenues over the last 12 months of about $850 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, FloTHERM and Nucleus are registered trademarks and Inflexion Platform and ReadyStart are trademarks of Mentor Graphics Corp. All other company names are the trademarks of their respective owners.)

(Android is a trademark of Google Inc. Use of this trademark is subject to Google permissions.)

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) the company’s ability to successfully offer products and services that compete in the highly competitive EDA industry; (ii) product bundling or discounting of products and services by competitors; (iii) effects of foreign currency fluctuations on the company’s business; (iv) changes in accounting or reporting rules or interpretations; (v) the impact of tax audits, or changes in the tax laws, regulations or enforcement practices; (vi) effects of unanticipated shifts in product mix on gross margin; and (vii) 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 and liquidity, 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)
                       
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
Revenues:
System and software $ 148,101 $ 106,344 $ 346,042 $ 325,646
Service and support   90,836     82,852     261,406     239,946  
Total revenues   238,937     189,196     607,448     565,592  
Cost of revenues: (1)
System and software 11,218 2,966 20,409 17,366
Service and support 24,445 21,414 69,511 63,135
Amortization of purchased technology   3,299     3,089     10,428     8,965  
Total cost of revenues   38,962     27,469     100,348     89,466  
Gross margin   199,975     161,727     507,100     476,126  
Operating expenses:
Research and development (2) 70,727 64,293 199,904 187,427
Marketing and selling (3) 82,603 73,093 230,889 221,124
General and administration (4) 23,396 22,820 69,118 68,042
Equity in earnings of Frontline (5) (415 ) - (1,761 ) -
Amortization of intangible assets (6) 1,445 2,796 5,742 8,554
Special charges (7)   1,578     5,993     8,052     15,890  
Total operating expenses   179,334     168,995     511,944     501,037  
Operating income (loss) 20,641 (7,268 ) (4,844 ) (24,911 )
Other expense, net (8) (206 ) (1,004 ) (1,361 ) (1,262 )
Interest expense (9)   (4,324 )   (4,385 )   (13,378 )   (13,259 )
Income (loss) before income tax 16,111 (12,657 ) (19,583 ) (39,432 )
Income tax expense (10)   854     14,377     2,432     21,824  
Net income (loss) $ 15,257   $ (27,034 ) $ (22,015 ) $ (61,256 )
Net income (loss) per share:
Basic $ 0.14   $ (0.28 ) $ (0.21 ) $ (0.64 )
Diluted $ 0.14   $ (0.28 ) $ (0.21 ) $ (0.64 )
Weighted average number of shares outstanding:
Basic   109,364     97,854     106,942     95,636  
Diluted   112,139     97,854     106,942     95,636  
 

Refer to following table for a description of footnotes.

 
 

MENTOR GRAPHICS CORPORATION

FOOTNOTES TO UNAUDITED CONDENSED 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 October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
(1) Cost of revenues:
Equity plan-related compensation $ 221 $ 349 $ 671 $ 1,318
Amortization of purchased technology   3,299     3,089     10,428     8,965  
$ 3,520   $ 3,438   $ 11,099   $ 10,283  
 
(2) Research and development:
Equity plan-related compensation $ 1,798   $ 2,374   $ 6,007   $ 8,879  
 
(3) Marketing and selling:
Equity plan-related compensation $ 1,299   $ 1,856   $ 4,802   $ 6,784  
 
(4) General and administration:
Equity plan-related compensation $ 1,589   $ 1,130   $ 5,111   $ 3,995  
 
(5) Equity in earnings of Frontline:

Amortization of purchased technology and other identified intangible assets

$ 1,242   $ -   $ 3,105   $ -  
 
(6) Amortization of intangible assets:

Amortization of other identified intangible assets

$ 1,445   $ 2,796   $ 5,742   $ 8,554  
 
(7) Special charges:
Rebalance, restructuring, and other costs $ 1,578   $ 5,993   $ 8,052   $ 15,890  
 
(8) Other expense, net:

Equity in losses of unconsolidated entities and impairment of investments

$ -   $ 170   $ 271   $ 851  
 
(9) Interest expense:
Amortization of debt discount and bond premium, net $ 753 $ 698 $ 2,226 $ 2,051
Premium (discount) and costs related to debt retirement   -     -     345     (354 )
$ 753   $ 698   $ 2,571   $ 1,697  
 
(10) Income tax expense:
Non-GAAP income tax effects $ (4,133 ) $ 13,391   $ (2,188 ) $ 18,849  
 
 

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

(In thousands, except earnings per share data)
                           
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
GAAP net income (loss) $ 15,257 $ (27,034 ) $ (22,015 ) $ (61,256 )
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 221 349 671 1,318
Research and development 1,798 2,374 6,007 8,879
Marketing and selling 1,299 1,856 4,802 6,784
General and administration 1,589 1,130 5,111 3,995
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 3,299 3,089 10,428 8,965
Amortization of intangible assets (3) 1,445 2,796 5,742 8,554

Frontline purchased technology and intangible assets (4)

1,242 - 3,105 -
Special charges (5) 1,578 5,993 8,052 15,890
Other expense, net (6) - 170 271 851
Interest expense (7) 753 698 2,571 1,697
Non-GAAP income tax effects (8)   (4,133 )   13,391     (2,188 )   18,849  
Total of non-GAAP adjustments   9,091     31,846     44,572     75,782  
Non-GAAP net income $ 24,348   $ 4,812   $ 22,557   $ 14,526  
 
GAAP weighted average shares (diluted) 112,139 97,854 106,942 95,636
Non-GAAP adjustment   -     2,042     2,239     656  
Non-GAAP weighted average shares (diluted)   112,139     99,896     109,181     96,292  
 
GAAP net income (loss) per share (diluted) $ 0.14 $ (0.28 ) $ (0.21 ) $ (0.64 )
Non-GAAP adjustments detailed above   0.08     0.33     0.42     0.79  
Non-GAAP net income per share (diluted) $ 0.22   $ 0.05   $ 0.21   $ 0.15  
                                     
(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 October 31, 2010: Special charges consist of (i) $1,191 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $734 related to the abandonment of excess leased facility space, (iii) $(513) in acquisition costs, (iv) $83 in advisory fees, and (v) $83 in other adjustments.
Three months ended October 31, 2009: Special charges consist of (i) $3,369 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $1,231 in acquisition costs, (iii) $1,175 in advisory fees, (iv) $159 related to the abandonment of excess leased facility space, and (v) $59 related to a casualty loss.
Nine months ended October 31, 2010: Special charges consist of (i) $4,640 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $2,083 in advisory fees, (iii) $1,824 related to the abandonment of excess leased facility space, (iv) $(566) related to a casualty loss, (v) $(93) in acquisition costs , and (vi) $164 in other costs.
Nine months ended October 31, 2009: Special charges consist of (i) $8,996 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $3,525 in advisory fees, (iii) $1,769 in acquisition costs, (iv) $983 related to the abandonment of excess leased facility space, (v) $566 related to a casualty loss, and (vi) $51 in other costs.
(6) Three months ended October 31, 2009: Loss of $170 on investment accounted for under the equity method of accounting.
Nine months ended October 31, 2010: Loss of $271 on investment accounted for under the equity method of accounting.
Nine months ended October 31, 2009: Other income (expense), net consists of: (i) equity losses of $738 on investment accounted for under the equity method of accounting and (ii) an impairment of $113 for an investment accounted for under the cost method of accounting.
(7) Three months ended October 31, 2010: $753 in amortization of original issuance debt discount and bond premiums, net.
Three months ended October 31, 2009: $698 in amortization of original issuance debt discount.
Nine months ended October 31, 2010: $2,226 in amortization of original issuance debt discount and bond premiums, net and $345 in premium on partial redemption of the $110.0M convertible debt.
Nine months ended October 31, 2009: $2,051 in amortization of original issuance debt discount and $(354) 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.
 

MENTOR GRAPHICS CORPORATION

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

(In thousands, except percentages)
                         
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
GAAP gross margin $ 199,975 $ 161,727 $ 507,100 $ 476,126
Reconciling items to non-GAAP gross margin
Equity plan-related compensation 221 349 671 1,318
Amortization of purchased technology   3,299     3,089     10,428     8,965  
Non-GAAP gross margin $ 203,495   $ 165,165   $ 518,199   $ 486,409  
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
GAAP gross margin as a percent of total revenues 84 % 85 % 83 % 84 %
Non-GAAP adjustments detailed above   1 %   2 %   2 %   2 %
Non-GAAP gross margin as a percent of total revenues   85 %   87 %   85 %   86 %
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
GAAP operating expenses $ 179,334 $ 168,995 $ 511,944 $ 501,037
Reconciling items to non-GAAP operating expenses

Amortization of Frontline purchased technology and other identified intangible assets

(1,242 ) - (3,105 ) -
Equity plan-related compensation (4,686 ) (5,360 ) (15,920 ) (19,658 )
Amortization of other identified intangible assets (1,445 ) (2,796 ) (5,742 ) (8,554 )
Special charges   (1,578 )   (5,993 )   (8,052 )   (15,890 )
Non-GAAP operating expenses $ 170,383   $ 154,846   $ 479,125   $ 456,935  
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
GAAP operating income (loss) $ 20,641 $ (7,268 ) $ (4,844 ) $ (24,911 )
Reconciling items to non-GAAP operating income

Amortization of Frontline purchased technology and other identified intangible assets

1,242 - 3,105 -
Equity plan-related compensation 4,907 5,709 16,591 20,976
Amortization of purchased intangible assets:
Cost of revenues 3,299 3,089 10,428 8,965
Amortization of intangible assets 1,445 2,796 5,742 8,554
Special Charges   1,578     5,993     8,052     15,890  
Non-GAAP operating income $ 33,112   $ 10,319   $ 39,074   $ 29,474  
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
GAAP operating income (loss) as a percent of total revenues 9 % -4 % -1 % -4 %
Non-GAAP adjustments detailed above   5 %   9 %   7 %   9 %
Non-GAAP operating income as a percent of total revenues   14 %   5 %   6 %   5 %
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
GAAP other expense, net and interest expense $ (4,530 ) $ (5,389 ) $ (14,739 ) $ (14,521 )
Reconciling items to non-GAAP other income (expense), net
and interest expense
Equity in losses of unconsolidated entities - 170 271 738
Impairment of cost method investment - - - 113
Amortization of debt discount and retirement costs   753     698     2,571     1,697  
Non-GAAP other expense, net and interest expense $ (3,777 ) $ (4,521 ) $ (11,897 ) $ (11,973 )
 
 

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
                   
 
October 31, January 31,
  2010     2010  
 
Assets
Current assets:
Cash, cash equivalents, and short-term investments $ 64,290 $ 99,343
Trade accounts receivable, net 103,533 110,839
Term receivables, short-term 196,801 178,911
Prepaid expenses and other 38,942 29,629
Deferred income taxes   11,321     11,891  
 
Total current assets 414,887 430,613
Property, plant, and equipment, net 138,689 121,795
Term receivables, long-term 144,725 164,898
Goodwill and intangible assets, net 527,135 484,342
Other assets   48,958     21,393  
 
Total assets $ 1,274,394   $ 1,223,041  
 
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 11,669 $ 37,874
Current portion of notes payable 2,000 32,272
Accounts payable 17,364 9,985
Income taxes payable 8,316 3,971
Accrued payroll and related liabilities 71,284 77,008
Accrued liabilities 37,330 44,122
Deferred revenue   139,282     153,965  
 
Total current liabilities 287,245 359,197
Long-term notes payable 207,078 156,075
Deferred revenue, long-term 9,370 9,534
Other long-term liabilities   61,425     58,218  
Total liabilities   565,118     583,024  
 
Stockholders' equity:
Common stock 749,211 662,595
Accumulated deficit (70,757 ) (48,742 )
Accumulated other comprehensive income   30,822     26,164  
Total stockholders' equity   709,276     640,017  
 
Total liabilities and stockholders' equity $ 1,274,394   $ 1,223,041  
 
 

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL INFORMATION

(In thousands, except days sales outstanding)
                         
 
Three Months Ended October 31, Nine Months Ended October 31,
  2010     2009     2010     2009  
Operating activities
Net income (loss) $ 15,257 $ (27,034 ) $ (22,015 ) $ (61,256 )
Depreciation and amortization (1) 13,596 14,452 43,173 45,252
Other adjustments to reconcile:
Operating cash (2,562 ) 519 11,239 15,633
Changes in working capital   (33,991 )   25,804     (25,302 )   33,325  
 
Net cash provided by (used in) operating activities (7,700 ) 13,741 7,095 32,954
 
Investing activities
Net cash used in investing activities (21,586 ) (3,824 ) (50,972 ) (19,901 )
 
Financing activities
Net cash provided by (used in) financing activities 2,555 (2,673 ) 6,876 (22,776 )
 
Effect of exchange rate changes on cash and cash equivalents   1,702     1,330     1,948     732  
 
Net change in cash and cash equivalents (25,029 ) 8,574 (35,053 ) (8,991 )
Cash and cash equivalents at beginning of period   89,316     76,077     99,340     93,642  
 
Cash and cash equivalents at end of period $ 64,287   $ 84,651   $ 64,287   $ 84,651  
 
 

(1) Depreciation and amortization includes a write-off of note issuance costs in the amount of $132 for the nine months ended October 31, 2010 and $26 for the nine months ended October 31, 2009.

 
 
Other data:
Capital expenditures $ 18,281   $ 6,983   $ 36,769   $ 17,951  
Days sales outstanding   113     115  
 
 

          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   Q2   Q3   YEAR Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Integrated Systems Design 20% 20% 20% 20% 20% 20% 20% 20% 20% 15% 20% 25% 15% 20%
IC Design to Silicon 30% 35% 30% 30% 40% 40% 35% 40% 40% 40% 30% 30% 40% 35%
Scalable Verification 30% 25% 20% 25% 20% 25% 15% 20% 20% 20% 20% 20% 30% 20%
New & Emerging Products 10% 10% 25% 15% 10% 5% 20% 15% 10% 10% 20% 15% 10% 15%
Services & Other (b) 10%   10%   5%   10% 10%   10%   10%   5%   10% 15%   10%   10%   5%   10%
Total 100%   100%   100%   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   Q2   Q3   YEAR Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Integrated Systems Design 25% 30% 25% 25% 20% 20% 30% 25% 25% 20% 20% 25% 20% 20%
IC Design to Silicon 35% 30% 25% 30% 45% 35% 30% 35% 35% 40% 30% 30% 35% 35%
Scalable Verification 20% 20% 30% 20% 20% 25% 20% 20% 25% 20% 25% 25% 30% 25%
New & Emerging Products 10% 10% 15% 15% 10% 10% 10% 15% 10% 10% 15% 10% 10% 10%
Services & Other (b) 10%   10%   5%   10% 5%   10%   10%   5%   5% 10%   10%   10%   5%   10%
Total 100%   100%   100%   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   Q2   Q3   YEAR Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
North America 45% 40% 45% 45% 40% 55% 45% 40% 45% 40% 30% 40% 35% 35%
Europe 20% 25% 20% 20% 25% 25% 15% 25% 20% 35% 35% 35% 35% 35%
Japan 15% 5% 15% 10% 25% 5% 20% 15% 15% 15% 20% 10% 5% 15%
Pac Rim 20%   30%   20%   25% 10%   15%   20%   20%   20% 10%   15%   15%   25%   15%
Total 100%   100%   100%   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   Q2   Q3   YEAR Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
North America 35% 40% 50% 40% 40% 50% 40% 40% 45% 40% 35% 40% 40% 40%
Europe 25% 25% 25% 25% 20% 30% 25% 30% 25% 30% 30% 35% 35% 30%
Japan 20% 10% 10% 15% 20% 5% 15% 15% 15% 20% 20% 10% 10% 15%
Pac Rim 20%   25%   15%   20% 20%   15%   20%   15%   15% 10%   15%   15%   15%   15%
Total 100%   100%   100%   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   Q2   Q3   YEAR Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Perpetual 40% 30% 15% 25% 15% 25% 20% 10% 15% 20% 20% 20% 10% 15%
Ratable 20% 15% 5% 15% 15% 15% 15% 15% 15% 25% 20% 15% 10% 15%
Up Front 40%   55%   80%   60% 70%   60%   65%   75%   70% 55%   60%   65%   80%   70%
Total 100%   100%   100%   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   Q2   Q3   YEAR Q1   Q2   Q3   Q4   YEAR Q1   Q2   Q3   Q4   YEAR
Perpetual 20% 25% 25% 25% 15% 25% 15% 10% 15% 20% 20% 20% 10% 15%
Ratable 25% 15% 10% 15% 10% 15% 15% 10% 15% 20% 20% 20% 10% 15%
Up Front 55%   60%   65%   60% 75%   60%   70%   80%   70% 60%   60%   60%   80%   70%
Total 100%   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 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:
 
 
 
Q4 FY11 FY11
Diluted GAAP net income per share $0.40 $0.19
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) $0.03 0.17
Amortization of other identified intangible assets (2) $0.01 0.07
Equity plan-related compensation (3) $0.05 0.20
Special charges (4) $0.00 0.07
Other expense, net and interest expense (5) $0.01 0.03
Non-GAAP income tax effects (6) ($0.04) (0.06)
Non-GAAP net income per share $0.46 $0.67
               
(1)   Excludes amortization of purchased intangible assets resulting from acquisition transactions. Purchased intangible assets are amortized over two to five years. The guidance for Q4 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 Q4 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 legal fees, and acquisition costs. The guidance for Q4 FY11 and Full Year FY11 assumes no additional special charges.
(5) Reflects amortization of original issuance debt discount and bond premium, net, equity in losses of unconsolidated entities, and a premium on the partial redemption of convertible debt. The guidance for Q4 FY11 and Full Year FY11 assumes no additional equity in losses of unconsolidated entities or premium on the partial redemption of convertible debt.
(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.



Contact:

Mentor Graphics Corporation
Ry Schwark
Media Contact
503.685.1660
Email Contact
or
Joe Reinhart
Investor Contact
503.685.1462
Email Contact