Mentor Graphics Reports Fiscal Second Quarter Results

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
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
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 intangible assets

$ 1,242   $ 1,242   $ 2,484   $ 2,484  
 
(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 ) $ -  
 

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