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

WILSONVILLE, Ore. — (BUSINESS WIRE) — December 3, 2009 — Mentor Graphics Corporation (NASDAQ: MENT) today announced results for the fiscal third quarter 2010, ending October 31, 2009. For the quarter, the company reported revenues of $189.2 million, non-GAAP earnings per share of $.05, and a GAAP loss per share of $.28.

“During the quarter, we saw positive signs of recovery in the semiconductor market with semiconductor unit shipments and revenue, as well as foundry revenue and utilization, up sharply,” said Walden C. Rhines, CEO and chairman of Mentor Graphics. “The diversity of our product line continues to help us weather the difficult economic environment. Embedded software and cabling solutions are both up for the quarter. Strong results from our design-to-silicon platform, including Calibre, Olympus-SoC place and route, and Tessent silicon test products, and a recovery in our emulation business also helped drive results.”

During the quarter, the company announced that its low power RTL-to-GDSII tool flow has been included in Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC) Reference Flow 10.0. TSMC also selected the Calibre® physical verification platform for its Integrated Sign-Off Flow. In October, the company signed a definitive merger agreement with Valor Computerized Systems Ltd., a world leader in printed circuit board design manufacturing software solutions.

In August, the company closed its acquisition of LogicVision Inc., a market leader in built-in-self-test silicon test solutions. In November, the company unveiled its strategy for silicon test and yield analysis solutions incorporating both the company’s existing product line and LogicVision’s technologies under the Tessent™ brand.

“Despite the continuing challenges of the market, we saw annualized contract values of renewals in our top ten contracts increase 5% in the quarter,” said Gregory K. Hinckley, president of Mentor Graphics. “In addition, our cost control efforts are ahead of plan, with operating expenses down about 3% over the year ago third quarter.”

Special charges were primarily related to headcount, acquisitions and ongoing investment banking fees.

Outlook

For the fiscal fourth quarter ending January 31, 2010, the company expects revenue of about $230 million, non-GAAP earnings per share of about $.28 and GAAP earnings per share of about $.33. GAAP earnings in the fiscal fourth quarter will be relatively stronger as a portion of the tax provision recorded earlier in the fiscal year is recaptured. For fiscal 2010, the company expects full year revenues to increase one percent from fiscal 2009 to approximately $795 million, non-GAAP earnings per share of about $0.44 and a GAAP loss per share of approximately $.28. In Fiscal 2009, the company had revenues of $789 million.

Cash flow is expected to be approximately $15 million for the fiscal fourth quarter and consistent with the same quarter last year. Fiscal 2010 year cash flow from operations is expected to be approximately $45 to $50 million up from $23 million in fiscal 2009.

Fiscal Year Definition

Mentor Graphics fiscal year runs from February 1st to January 31st. 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.

Adoption of Accounting Guidance for Convertible Debt

During the first quarter of fiscal 2010, Mentor Graphics adopted the Financial Accounting Standard Board’s (FASB) new accounting guidance for accounting for convertible debt instruments that may be settled in cash upon conversion. This new guidance requires retroactive application to all prior periods reported. Accordingly, we have adjusted the applicable prior period balance sheets, statements of operations (including net income (loss) per share), and statements of cash flows to reflect the adjusted balance of the convertible notes and related items, and to record the amortization of the discount on the convertible notes as a non-cash interest expense. A reconciliation of our adjusted Condensed Consolidated Balance Sheets as of January 31, 2009, our adjusted Condensed Consolidated Statements of Operations, and our adjusted Condensed Consolidated Statements of Cash Flows for the three and nine months ended October 31, 2008 to their original filings is included with this release. Interest expense associated with the adoption of the guidance was $0.7 million for the three months ended October 31, 2009 and $0.6 million for the three months ended October 31, 2008. Interest expense was $2.1 million for the nine months ended October 31, 2009 and $1.9 million for the nine months ended October 31, 2008.

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 and net income (loss), 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, in-process research and development, 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 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. In-process research and development charges represented products in development that had not reached technological feasibility at the time of acquisition. 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, 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 EPS 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:

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 and employs approximately 4,425 people worldwide. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. World Wide Web site: http://www.mentor.com/.

(Mentor Graphics and Calibre are registered trademarks and Olympus-SOC and Tessent 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 the spending on the company’s products and services by its customers due to the current worldwide downturn, and the company’s ability to appropriately reduce its expenses in response; (ii) continued weakness or recession in the US, EU, Japan or other economies; (iii) the company’s ability to successfully offer products and services that compete in the highly competitive EDA industry; (iv) 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; (v) liquidity concerns, business insolvencies and bankruptcies by the company’s customers; (vi) effects of the increasing volatility of foreign currency fluctuations on the company’s business and operating results; (vii) changes in accounting or reporting rules or interpretations; (viii) 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; (ix) effects of unanticipated shifts in product mix on gross margin; and (x) effects of customer seasonal purchasing patterns and the timing of significant orders may negatively or positively impact the company’s quarterly results of operations, all as may be discussed in more detail under the heading “Risk Factors” in the company’s most recent Form 10-K or Form 10-Q. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. In addition, statements regarding guidance do not reflect potential impacts of mergers or acquisitions that have not been announced or closed as of the time the statements are made. Mentor Graphics disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect future events or developments.

MENTOR GRAPHICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)
         
 
Three Months Ended October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
Revenues:
System and software $ 106,344 $ 97,312 $ 325,646 $ 289,985
Service and support   82,852     87,540     239,946     256,478  
Total revenues   189,196     184,852     565,592     546,463  
Cost of revenues: (1)
System and software 2,966 3,566 17,366 13,204
Service and support 21,414 24,350 63,135 73,722
Amortization of purchased technology   3,089     3,810     8,965     9,040  
Total cost of revenues   27,469     31,726     89,466     95,966  
Gross margin   161,727     153,126     476,126     450,497  
Operating expenses:
Research and development (2) 64,293 65,146 187,427 193,779
Marketing and selling (3) 73,093 76,688 221,124 226,135
General and administration (4) 22,702 24,333 67,468 71,493
Other general expense (income), net 118 168 574 (269 )
Amortization of intangible assets (5) 2,796 3,129 8,554 8,099
Special charges (6) 5,993 2,214 15,890 15,099
In-process research and development (7)   -     6,790     -     22,075  
Total operating expenses   168,995     178,468     501,037     536,411  

Operating loss

(7,268 ) (25,342 ) (24,911 ) (85,914 )
Other income (expense), net (8) (1,004 ) 1,737 (1,262 ) 4,829
Interest expense (9)a   (4,385 )   (4,889 )   (13,259 )   (14,048 )
Loss before income tax (12,657 ) (28,494 ) (39,432 ) (95,133 )
Income tax expense (10)   14,377     50,369     21,824     27,024  
Net loss $ (27,034 ) $ (78,863 ) $ (61,256 ) $ (122,157 )
Net loss per share:
Basic $ (0.28 ) $ (0.85 ) $ (0.64 ) $ (1.34 )
Diluted $ (0.28 ) $ (0.85 ) $ (0.64 ) $ (1.34 )
Weighted average number of shares outstanding:
Basic   97,854     92,354     95,636     91,484  
Diluted   97,854     92,354     95,636     91,484  
 

Refer to following table for a description of footnotes.

 
a Interest expense for the three and nine months ended October 31, 2008 presentation has been adjusted for the retrospective adoption of the FASB's convertible debt accounting guidance.
 

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 October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
(1) Cost of revenues:
Equity plan-related compensation $ 349 $ 351 $ 1,318 $ 1,102
Prepaid royalty costs - - - 103
Amortization of purchased technology   3,089     3,810     8,965     9,040  
$ 3,438   $ 4,161   $ 10,283   $ 10,245  
 
(2) Research and development:
Equity plan-related compensation $ 2,374   $ 2,979   $ 8,879   $ 8,830  
 
(3) Marketing and selling:
Equity plan-related compensation $ 1,856   $ 2,150   $ 6,784   $ 6,371  
 
(4) General and administration:
Equity plan-related compensation $ 1,130   $ 1,518   $ 3,995   $ 4,830  
 
(5) Amortization of intangible assets:
Amortization of other identified intangible assets $ 2,796   $ 3,129   $ 8,554   $ 8,099  
 
(6) Special charges:
Rebalance, restructuring, and other costs $ 5,993   $ 2,214   $ 15,890   $ 15,099  
 
(7) In-process research and development
In-process research and development $ -   $ 6,790   $ -   $ 22,075  
 
(8) Other income (expense), net:
Equity in losses of unconsolidated entities and impairment of investments $ 170   $ 445   $ 851   $ 1,088  
 
(9) Interest expensea:
Amortization of debt discount $ 698 $ 642 $ 2,051 $ 1,885
Debt retirement costs   -     -     (354 )   -  
$ 698   $ 642   $ 1,697   $ 1,885  
 
(10) Income tax expense:
Income tax effects $ 13,391   $ 51,128   $ 18,849   $ 29,848  
 
a Interest expense for the three and nine months ended October 31, 2008 presentation has been adjusted for the retrospective adoption of the FASB's convertible debt accounting guidance.
 

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,
  2009     2008     2009     2008  
GAAP net lossa $ (27,034 ) $ (78,863 ) $ (61,256 ) $ (122,157 )
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 349 351 1,318 1,102
Research and development 2,374 2,979 8,879 8,830
Marketing and selling 1,856 2,150 6,784 6,371
General and administration 1,130 1,518 3,995 4,830
System and software cost of revenues (2) - - - 103
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (3) 3,089 3,810 8,965 9,040
Amortization of intangible assets (4) 2,796 3,129 8,554 8,099
In-process research and development (5) - 6,790 - 22,075
Special charges (6) 5,993 2,214 15,890 15,099
Other income, net (7) 170 445 851 1,088
Interest expense a(8) 698 642 1,697 1,885
Income tax effects (9)   13,391     51,128     18,849     29,848  
Total of non-GAAP adjustments   31,846     75,156     75,782     108,370  
Non-GAAP net income (loss)a $ 4,812   $ (3,707 )   $ 14,526   $ (13,787 )  
 
GAAP weighted average shares (diluted) 97,854 92,354 95,636 91,484
Non-GAAP adjustment   2,042     -     656     -  
Non-GAAP weighted average shares (diluted)   99,896     92,354     96,292     91,484  
 
GAAP net loss per share (diluted)a $

(0.28

)

$

(0.85

)

$

(0.64

)

$

(1.34

)

Non-GAAP adjustments detailed above  

0.33

 

   

0.81

 

   

0.79

 

   

1.19

 

 
Non-GAAP net income (loss) per share (diluted)a $

0.05

 

  $

(0.04

)

$

0.15

 

  $

(0.15

)

 
a The three and nine months ended October 31, 2008 presentations have been adjusted for the retrospective adoption of the FASB's convertible debt accounting guidance.
 
                       
(1 ) Equity plan-related compensation expense.
 
(2 ) Amount represents the write-off of prepaid royalty amounts associated with the closure of our Intellectual Property division.
 
(3 ) Amount represents amortization of purchased technology resulting from acquisitions. Purchased intangible assets are amortized over two to five years.
 
(4 ) 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.
 
(5 ) Three months ended October 31, 2008: Write-off of $6,790 for in-process research and development related to the Flomerics acquisition.
Nine months ended October 31, 2008: Write-off of $8,090 for in-process research and development related to the Ponte and Flomerics acquisitions and $13,985 related to the acquisition of technology which has not yet reached technological feasibility and provided no alternative future uses. The technology is expected to be the basis for a new offering in the Calibre product family once development is completed.
 
(6 ) 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.
Three months ended October 31, 2008: Special charges consist of (i) $2,273 in advisory fees, (ii) $350 of costs incurred for employee rebalances consisting of severance benefits, notice pay and outplacement services, and (iii) $(409) related to leased facilities.
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) $983 related to the abandonment of excess leased facility space, (iv) $1,769 in acquisition costs, (v) $566 related to a casualty loss, and (vi) $51 in other costs.
Nine months ended October 31, 2008: Special charges consist of (i) $9,194 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $3,345 in advisory fees, (iii) $2,547 related to the abandonment of excess leased facility space, and (iv) $13 in fixed asset write-offs related to the closure of our Intellectual Property Division.
 
(7 ) Three months ended October 31, 2009: Loss of $170 on investment accounted for under the equity method of accounting.
Three months ended October 31, 2008: Loss of $445 on investment accounted for under the equity method of accounting.
Nine months ended October 31, 2009: Other income, net consists of (i) loss 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.
Nine months ended October 31, 2008: Loss of $1,088 on investment accounted for under the equity method of accounting.
 
(8 ) Three months ended October 31, 2009: $698 in amortization of original issuance debt discount.
Three months ended October 31, 2008: $642 in amortization of original issuance debt discount.
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.

Nine months ended October 31, 2008: $1,885 in amortization of original issuance debt discount.

 

(9 ) 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,
  2009     2008     2009     2008  
GAAP gross margin $ 161,727 $ 153,126 $ 476,126 $ 450,497
Reconciling items to non-GAAP gross margin
Equity plan-related compensation 349 351 1,318 1,102
Prepaid royalty costs - - - 103
Amortization of purchased technology   3,089     3,810     8,965     9,040  
Non-GAAP gross margin $ 165,165   $ 157,287   $ 486,409   $ 460,742  
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
GAAP gross margin as a percent of total revenues 85 % 83 % 84 % 82 %
Non-GAAP adjustments detailed above   2 %   2 %   2 %   2 %
Non-GAAP gross margin as a percent of total revenues   87 %   85 %   86 %   84 %
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
GAAP operating expenses $ 168,995 $ 178,468 $ 501,037 $ 536,411
Reconciling items to non-GAAP operating expenses
Equity plan-related compensation (5,360 ) (6,647 ) (19,658 ) (20,031 )
Amortization of other identified intangible assets (2,796 ) (3,129 ) (8,554 ) (8,099 )
Special charges (5,993 ) (2,214 ) (15,890 ) (15,099 )
In-process research and development   -     (6,790 )   -     (22,075 )
Non-GAAP operating expenses $ 154,846   $ 159,688   $ 456,935   $ 471,107  
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
GAAP operating loss $ (7,268 ) $ (25,342 ) $ (24,911 ) $ (85,914 )
Reconciling items to non-GAAP operating income
Equity plan-related compensation 5,709 6,998 20,976 21,133
Prepaid royalty costs - - - 103
Amortization of purchased intangible assets:
Cost of revenues 3,089 3,810 8,965 9,040
Amortization of intangible assets 2,796 3,129 8,554 8,099
Special Charges 5,993 2,214 15,890 15,099
In-process research and development   -     6,790     -     22,075  
Non-GAAP operating income (loss) $ 10,319   $ (2,401 ) $ 29,474   $ (10,365 )
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
GAAP operating margin as a percent of total revenues -4 % -14 % -4 % -16 %
Non-GAAP adjustments detailed above   9 %   13 %   9 %   14 %
Non-GAAP operating margin as a percent of total revenues   5 %   -1 %   5 %   -2 %
 
 
Three Months Ended October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
GAAP other income, net and interest expensea $ (5,389 ) $ (3,152 ) $ (14,521 ) $ (9,219 )
Reconciling items to non-GAAP other income, net and interest expense
Equity in losses of unconsolidated entities 170 445 851 1,088
Amortization of debt discount and retirement costs   698     642     1,697     1,885  
Non-GAAP other income, net and interest expensea $ (4,521 ) $ (2,065 ) $ (11,973 ) $ (6,246 )
 

a The three and nine months ended October 31, 2008 presentations have been adjusted for the retrospective adoption of the FASB's convertible debt accounting guidance.

 

MENTOR GRAPHICS CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)
     
 
October 31, January 31,
  2009   2009a  
 
Assets
Current assets:
Cash, cash equivalents, and short-term investments $ 84,658 $ 95,639
Trade accounts receivable, net 76,988 133,719
Term receivables, short-term 164,871 139,133
Prepaid expenses and other 32,559 39,146
Deferred income taxes   8,755     10,163  
 
Total current assets 367,831 417,800
Property, plant, and equipment, net 95,921 100,991
Term receivables, long-term 146,167 146,682
Goodwill and intangible assets, net 485,116 480,956
Other assets   38,988     39,641  
 
Total assets $ 1,134,023   $ 1,186,070  
 
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 7,529 $ 36,998
Current portion of notes payable 32,272 -
Accounts payable 7,559 10,197
Income taxes payable 18,644 5,340
Accrued payroll and related liabilities 70,554 65,687
Accrued liabilities 38,517 46,034
Deferred revenue   131,975     155,098  
 
Total current liabilities 307,050 319,354
Long-term notes payable 154,119 188,170
Deferred revenue, long-term 10,443 16,890
Other long-term liabilities   67,905     75,211  
Total liabilities   539,517     599,625  
 
Stockholders' equity:
Common stock 647,834 602,064
Retained earnings (88,109 ) (26,853 )
Accumulated other comprehensive income   34,781     11,234  
Total stockholders' equity   594,506     586,445  
 
Total liabilities and stockholders' equity $ 1,134,023   $ 1,186,070  
 
a The consolidated balance sheet as of January 31, 2009 has been adjusted for the retrospective adoption of the FASB's convertible debt accounting guidance.
 

MENTOR GRAPHICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL INFORMATION

(In thousands, except days sales outstanding)
         
 
Three Months Ended October 31, Nine Months Ended October 31,
  2009     2008     2009     2008  
Operating activities
Net lossa $ (27,034 ) $ (78,863 ) $ (61,256 ) $ (122,157 )
Depreciation and amortization a(1) 14,452 16,151 45,252 44,327
Other adjustments to reconcile:
Operating cash 519 15,190 15,633 43,429
Changes in working capital   25,804     9,454     33,325     39,470  
 
Net cash provided by (used in) operating activities 13,741 (38,068 ) 32,954 5,069
 
Investing activities
Net cash used in investing activities (3,824 ) (4,471 ) (19,901 ) (82,014 )
 
Financing activities
Net cash provided by (used in) financing activities (2,673 ) 33,211 (22,776 ) 40,126
 
Effect of exchange rate changes on cash and cash equivalents   1,330     (3,752 )   732     (3,514 )
 
Net change in cash and cash equivalents 8,574 (13,080 ) (8,991 ) (40,333 )
Cash and cash equivalents at beginning of period   76,077     90,673     93,642     117,926  
 
Cash and cash equivalents at end of period $ 84,651   $ 77,593   $ 84,651   $ 77,593  
 
a The three and nine months ended October 31, 2008 presentations have been adjusted for the retrospective adoption of the FASB's convertible debt accounting guidance.
 
 

(1)

Depreciation and amortization includes a write-off of note issuance costs in the amount of $26 for the nine months ended October 31, 2009.
 
Other data:
Capital expenditures $ 6,983   $ 14,077   $ 17,951   $ 33,850  
Days sales outstanding   115     119  
 

MENTOR GRAPHICS CORPORATION

UNAUDITED SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION

(Rounded to nearest 5%)
 
 
  FY 2010   Fiscal year ended January 31, 2009   Fiscal year ended January 31, 2008
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% 15% 20% 25% 15% 20% 15% 20% 20% 15% 20%
IC Design to Silicon 40% 40% 35% 40% 40% 30% 30% 40% 35% 40% 35% 30% 40% 35%
Functional Verification 20% 25% 15% 20% 20% 20% 20% 30% 20% 20% 25% 20% 20% 25%
New & Emerging Products 10% 5% 20% 10% 10% 20% 15% 10% 15% 15% 15% 20% 20% 15%
Services & Other 10% 10% 10% 10% 15% 10% 10% 5% 10% 10% 5% 10% 5% 5%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
FY 2010 Fiscal year ended January 31, 2009 Fiscal year ended January 31, 2008
Product Group Revenues (b) Q1 Q2 Q3 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
Integrated Systems Design 20% 20% 30% 25% 20% 20% 25% 20% 20% 20% 20% 25% 20% 20%
IC Design to Silicon 45% 35% 30% 35% 40% 30% 30% 35% 35% 40% 40% 25% 30% 35%
Functional Verification 20% 25% 20% 25% 20% 25% 25% 30% 25% 20% 20% 25% 30% 25%
New & Emerging Products 10% 10% 10% 10% 10% 15% 10% 10% 10% 10% 15% 15% 15% 15%
Services & Other 5% 10% 10% 5% 10% 10% 10% 5% 10% 10% 5% 10% 5% 5%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
FY 2010 Fiscal year ended January 31, 2009 Fiscal year ended January 31, 2008
Bookings by Geography Q1 Q2 Q3 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
North America 40% 55% 45% 50% 40% 30% 40% 35% 35% 50% 40% 45% 30% 40%
Europe 25% 25% 15% 20% 35% 35% 35% 35% 35% 25% 30% 15% 30% 25%
Japan 25% 5% 20% 15% 15% 20% 10% 5% 15% 10% 10% 20% 20% 15%
Pac Rim 10% 15% 20% 15% 10% 15% 15% 25% 15% 15% 20% 20% 20% 20%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
FY 2010 Fiscal year ended January 31, 2009 Fiscal year ended January 31, 2008
Revenue by Geography Q1 Q2 Q3 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
North America 40% 50% 40% 45% 40% 35% 40% 40% 40% 50% 55% 40% 40% 45%
Europe 20% 30% 25% 25% 30% 30% 35% 35% 30% 25% 20% 25% 30% 25%
Japan 20% 5% 15% 15% 20% 20% 10% 10% 15% 15% 10% 20% 15% 15%
Pac Rim 20% 15% 20% 15% 10% 15% 15% 15% 15% 10% 15% 15% 15% 15%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
FY 2010 Fiscal year ended January 31, 2009 Fiscal year ended January 31, 2008
Bookings by Business Model (c) Q1 Q2 Q3 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
Perpetual 15% 25% 20% 20% 20% 20% 20% 10% 15% 30% 25% 30% 10% 20%
Ratable 15% 15% 15% 15% 25% 20% 15% 10% 15% 20% 20% 10% 10% 15%
Up Front 70% 60% 65% 65% 55% 60% 65% 80% 70% 50% 55% 60% 80% 65%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
 
 
FY 2010 Fiscal year ended January 31, 2009 Fiscal year ended January 31, 2008
Revenues by Business Model (c) Q1 Q2 Q3 YEAR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
Perpetual 15% 25% 15% 20% 20% 20% 20% 10% 15% 25% 20% 20% 15% 20%
Ratable 10% 15% 15% 15% 20% 20% 20% 10% 15% 15% 15% 20% 10% 15%
Up Front 75% 60% 70% 65% 60% 60% 60% 80% 70% 60% 65% 60% 75% 65%
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 Revenues includes support revenue for each sub-flow category as appropriate.
(c) Bookings and Revenues by Business Model are System and Software only.
 

MENTOR GRAPHICS CORPORATION

UNAUDITED IMPACT OF ACCOUNTING CHANGE

(In thousands)
         
Impact of Retrospective Adoption of FASB's Convertible Debt Accounting Guidance on the Unaudited Consolidated Statement of Operations:
 
Three months ended October 31, 2008
Prior to
Adoption Effect of Change As Adjusted
 
Operating loss $ (25,342 ) - $ (25,342 )
Other income (expense), net 1,737 - 1,737
Interest expense   (4,270 )   (619 )   (4,889 )
Loss before income tax (27,875 ) (619 ) (28,494 )
Income tax expense   50,369     -     50,369  
Net loss $ (78,244 ) $ (619 ) $ (78,863 )
 
Basic and diluted net loss per share $ (0.85 ) $ -   $ (0.85 )
 
 
Nine months ended October 31, 2008
Prior to
Adoption Effect of Change As Adjusted
 
Operating loss $ (85,914 ) - $ (85,914 )
Other income (expense), net 4,829 - 4,829
Interest expense   (12,230 )   (1,818 )   (14,048 )
Loss before income tax (93,315 ) (1,818 ) (95,133 )
Income tax expense   27,024     -     27,024  
Net loss $ (120,339 ) $ (1,818 ) $ (122,157 )
 
Basic and diluted net loss per share $ (1.32 ) $ (0.02 ) $ (1.34 )
 
 
Impact of Retrospective Adoption of FASB's Convertible Debt Accounting Guidance on the Unaudited Consolidated Balance Sheet:
 
Prior to
As of January 31, 2009 Adoption Effect of Change As Adjusted
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 95,639 $ - $ 95,639
Trade accounts receivable, net 133,719 - 133,719
Term receivables, short-term 139,133 - 139,133
Prepaid expenses and other 39,236 (90 ) 39,146
Deferred income taxes   10,163     -     10,163  
Total current assets 417,890 (90 ) 417,800
 
Property, plant, and equipment 100,991 - 100,991
Term receivables, long-term 146,682 - 146,682
Goodwill and intangible assets, net 480,956 - 480,956
Other assets   39,918     (277 )   39,641  
Total assets $ 1,186,437   $ (367 ) $ 1,186,070  
 
 
Liabilities and Stockholders' Equity
 
Total current liabilities $ 319,354 $ - $ 319,354
 
Long-term notes payable 201,102 (12,932 ) 188,170
Deferred revenue, long-term 16,890 - 16,890
Other long-term liabilities   75,211     -     75,211  
Total liabilities   612,557     (12,932 )   599,625  
 
Stockholders' equity:
Common stock 580,298 21,766 602,064
Accumulated deficit (17,652 ) (9,201 ) (26,853 )
Accumulated other comprehensive income   11,234     -     11,234  
Total stockholders' equity   573,880     12,565     586,445  
Total liabilities and stockholders' equity $ 1,186,437   $ (367 ) $ 1,186,070  
 
 

MENTOR GRAPHICS CORPORATION

UNAUDITED IMPACT OF ACCOUNTING CHANGE

(In thousands)
 
Impact of Retrospective Adoption of FASB's Convertible Debt Accounting Guidance on the Unaudited Consolidated Statement of Cash Flows:
 
Three months ended October 31, 2008
Prior to
Adoption Effect of Change As Adjusted
Operating Cash Flows:
Net loss $ (78,244 ) $ (619 ) $ (78,863 )
Depreciation and amortization 15,532 619 16,151
Other adjustments to reconcile:
Operating cash 20,413 - 15,190
Changes in working capital   4,231     -     9,454  
Net cash provided by operating activities (38,068 ) - (38,068 )
 
Investing Cash Flows:
Net cash used in investing activities (4,471 ) - (4,471 )
 
Financing Cash Flows:
Net cash used in financing activities 33,211 - 33,211
Effect of exchange rate changes on cash and cash equivalents   (3,752 )   -     (3,752 )
Net change in cash and cash equivalents (13,080 ) - (13,080 )
Cash and cash equivalents at the beginning of the period   90,673     -     90,673  
Cash and cash equivalents at the end of the period $ 77,593   $ -   $ 77,593  
 
 
Nine months ended October 31, 2008
Prior to
Adoption Effect of Change As Adjusted
Operating Cash Flows:
Net loss $ (120,339 ) $ (1,818 ) $ (122,157 )
Depreciation and amortization 42,509 1,818 44,327
Other adjustments to reconcile:
Operating cash 48,633 - 43,429
Changes in working capital   34,266     -     39,470  
Net cash provided by operating activities 5,069 - 5,069
 
Investing Cash Flows:
Net cash used in investing activities (82,014 ) - (82,014 )
 
Financing Cash Flows:
Net cash used in financing activities 40,126 - 40,126
Effect of exchange rate changes on cash and cash equivalents   (3,514 )   -     (3,514 )
Net change in cash and cash equivalents (40,333 ) - (40,333 )
Cash and cash equivalents at the beginning of the period   117,926     -     117,926  
Cash and cash equivalents at the end of the period $ 77,593   $ -   $ 77,593  
 

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 earnings per share for the periods shown below:
 
 
 
Q4 FY10 FY10
Diluted GAAP net income (loss) per share $ 0.33 $ (0.28 )
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.04 0.14
Amortization of other identified intangible assets (2) 0.03 0.12
Equity plan-related compensation (3) 0.05 0.27
Special charges (4) 0.00 0.16
Other income and interest expense (5) 0.01 0.04
Income tax effects (6)   (0.18 )   (0.01 )
Non-GAAP net income per share $ 0.28   $ 0.44  
             
 
(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 FY10 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 FY10 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 Q4 FY10 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 non-GAAP pre-tax income.



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Mentor Graphics Corporation
Media Contact:
Ry Schwark, 503-685-1660
Email Contact Joe Reinhart
or
Investor Contact
503-685-1462
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