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Mentor Graphics Reports Fiscal First Quarter Results and Announces Quarterly Dividend

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Mentor Graphics Corporation (NASDAQ:MENT) today announced financial results for the company’s fiscal first quarter ended April 30, 2015. The company reported revenues of $272.1 million, non-GAAP earnings per share of $0.28, and a GAAP loss per share of $0.08.

“The first quarter was strong for Mentor Graphics, substantially exceeding financial guidance,” said Walden C. Rhines, chairman and CEO. “In addition to more than 50% bookings growth in three of our four product categories, our automotive business was very strong, driven by a major win with a leading automotive OEM. We also initiated a strategic and geographic realignment of resources. First quarter results provide a solid start to the year.”

During the quarter the company acquired the business assets of Tanner EDA, providing tools for design, layout and verification of internet of things (IoT) devices plus analog/mixed-signal and MEMS integrated circuits. The company also announced a solution with the Nucleus(R) real-time operating system designed to meet the power consumption and IoT requirements of wearable devices.

Two important announcements in the printed circuit board (PCB) space occurred during the quarter. Addressing a challenge for the enterprise-level customer, Mentor launched the Xpedition(R) Package Integrator flow for IC, package and PCB co-design and optimization. Mentor also targeted the advancing needs of the independent engineer: three new PADS(R) products offer unprecedented price-to-performance value at the entry level and progressively provide affordable access to advanced design solutions. In addition, Mentor released the new Calibre(R) xACTTM parasitic extraction platform with an architecture purpose-built to address a wide spectrum of analog and digital extraction needs for the next several process generations, including 14nm and beyond, with certification for a TSMC 10nm offering already in place.

“First quarter revenue was 5% greater than guidance, while continued attention to expenses drove non-GAAP earnings per share to exceed guidance by 55%,” said Gregory K. Hinckley, president of Mentor Graphics. “Automotive bookings, particularly services, were very strong in the quarter, accounting for over 15% of total bookings. Cash flow from operations is off to a strong start with $46 million generated in the first quarter.”

Outlook

For the second quarter of fiscal 2016, the company expects revenue of about $250 million, non-GAAP earnings per share of about $0.14 and GAAP earnings per share of approximately $0.03. For the full year fiscal 2016, the company affirms the previous revenue guidance of about $1.282 billion; increases non-GAAP earnings per share guidance from $1.85 to about $1.88; and currently expects GAAP earnings per share of approximately $1.18. The decrease in fiscal 2016 GAAP earnings per share from previous guidance is primarily the result of workforce restructuring expenses announced during the first quarter.

Dividend

The company announced a quarterly dividend of $0.055 per share on outstanding common stock. The dividend is payable on June 30, 2015 to shareholders of record at the close of business on June 10, 2015.

Fiscal Year Definition

Mentor Graphics Corporation’s 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 profit, operating income, operating margin, net income, and earnings per share which we refer to as non-GAAP gross profit, operating income, operating margin, net income, and earnings 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, marketing and sales, and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. These non-GAAP measures exclude amortization of intangible assets, special charges, equity plan-related compensation expenses, interest expense associated with the amortization of original issuance debt discount on convertible debt, the equity in earnings or losses of unconsolidated entities (except Frontline PCB Solutions Limited Partnership (Frontline)), and the impact on basic and diluted earnings per share of changes in the calculated redemption value of noncontrolling interests, which management does not consider reflective of our core operating business.

Management excludes from our non-GAAP measures certain recurring items to facilitate its review of the comparability of our core operating performance on a period-to-period basis because such items are not related to our ongoing core operating performance as viewed by management. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Management uses this view of our operating performance for purposes of comparison with our business plan and individual operating budgets and allocation of resources. Additionally, when evaluating potential acquisitions, management excludes the items described above from its consideration of target performance and valuation. More specifically, management adjusts for the excluded items for the following reasons:

  • Identified intangible assets consist primarily of purchased technology, backlog, trade names, and customer relationships. Amortization charges for our intangible assets can vary in frequency and amount due to the timing and magnitude of acquisition transactions. We consider our operating results without these charges when evaluating our core performance due to the variability. Generally, the most significant impact to inter-period comparability of our net income is in the first twelve months following an acquisition.
  • Special charges may include expenses related to employee severance, certain litigation costs, acquisitions, excess facility costs, and other asset related charges. Special charges are incurred based on particular facts and circumstances and can vary in size and frequency. Restructuring costs included in special charges include costs incurred for employee terminations, including severance and benefits, driven by modification of business strategy or business emphasis. Litigation costs classified as special charges consist of professional service fees related to patent litigation involving us, EVE S.A., and Synopsys, Inc. These costs are included in special charges because of their unusual nature due to the significance in variability of timing and amount. Special charges are not ordinarily included in our annual operating plan and related budget due to unpredictability, driven in part by rapidly changing technology and the competitive environment in our industry. We therefore exclude them when evaluating our managers’ performance internally.
  • Equity plan-related compensation expenses represent the fair value of all share-based payments to employees, including grants of employee stock options and restricted stock units, and purchases made as a result of our employee stock purchase plans. We do not consider equity plan-related compensation expense in evaluating our managers’ performance internally or our core operations in any given period.
  • Interest expense attributable to amortization of the original issuance debt discount on convertible debt is excluded. Management does not consider this charge as a part of our core operating performance. We do not consider the amortization of the original issuance debt discount on convertible debt to be a direct cost of operations.
  • Equity in earnings or losses of unconsolidated entities represents our equity in the net income (loss) of common stock investments accounted for under the equity method. The carrying amounts of our investments are adjusted for our share of earnings or losses of the investee. We report our equity in the earnings or losses of investments in other income (expense), net (with the exception of our investment in Frontline as discussed below). The amounts are excluded from our non-GAAP results as we do not control the results of operations for the investments and we do not participate in regular and periodic operating activities; therefore, management does not consider these investments as a part of our core operating performance.
  • The Company maintains a 50% interest in Frontline, a joint venture. We report our equity in the earnings or losses of Frontline within operating income. Although we do not exert control, we actively participate in regular and periodic activities such as budgeting, business planning, marketing and direction of research and development projects. Accordingly, we do not exclude our share of Frontline’s earnings or losses from our non-GAAP results as management considers the joint venture to be core to our operating performance.
  • Income tax expense is adjusted by the amount of additional tax expense or benefit that we would accrue if we used non-GAAP results instead of GAAP results in the calculation of our tax liability, utilizing a normalized effective tax rate. The normalized non-GAAP effective tax rate of 19% considers our global tax posture, including the weighted average tax rates applicable in the various jurisdictions in which we operate; eliminates the effects of non-recurring and period specific items which are often attributable to acquisition decisions and can vary in size and frequency; and considers our U.S. tax loss carryforwards and tax credits that were not previously recorded as a benefit in our financial statements. Our non-GAAP effective tax rate is subject to change over time for various reasons, including changes in geographic business mix, statutory tax rates, foreign re-investment expectations, and availability of U.S. tax loss carryforwards and tax credits that were not previously recorded as a benefit. Our normalized effective non-GAAP tax rate increased from 17% for the year ended January 31, 2015 to 19% for the year ended January 31, 2016. The increase in the normalized non-GAAP effective tax rate reflects the reduced availability of U.S. tax loss carryforwards that were not previously recorded as a benefit in our financial statements. Our GAAP tax rate for the three months ended April 30, 2015 is 13% after consideration of period specific items. Without period specific items of $0.2 million, our GAAP tax rate is 15%. Our full fiscal year 2016 GAAP tax rate, inclusive of period specific items recognized through April 30, 2015, is projected to be 17%.
  • Our agreement with the owners of noncontrolling interests in one of our subsidiaries gives them a right to require us to purchase their interests for a price based on a formula defined in the agreement. Under GAAP, increases (or decreases to the extent they offset previous increases) in the calculated redemption value of the noncontrolling interests are recorded directly to retained earnings and therefore do not affect net income. However, as required by GAAP, these amounts are applied to increase or decrease the numerator in the calculation of basic and diluted earnings per share. Management does not consider fluctuations in the calculated redemption value of noncontrolling interests to be relevant to our core operating performance.

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, restricted stock units, and employee stock purchase plan shares in a loss situation.

Non-GAAP gross profit, operating income, operating margin, net income, and earnings per share are supplemental measures of our performance that are not 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 profit, operating income, operating margin, net income, and earnings per share because we consider them to be important supplemental measures of our operating performance and profitability trends, and because we believe they give investors useful information on period-to-period performance as evaluated by management. Non-GAAP net income also facilitates comparison with other companies in our industry, which use similar financial measures to supplement their GAAP results. Non-GAAP net income has limitations as an analytical tool, and therefore should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In the future, we expect to continue to incur expenses similar to the non-GAAP adjustments described above and exclusion of these items in our non-GAAP presentation should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Some of the limitations in relying on non-GAAP net income are:

  • Amortization of intangible assets represents the loss in value as the technology in our industry evolves, is advanced, or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry, which is addressed through our research and development program.
  • We regularly evaluate our business to determine whether any operations should be eliminated or curtailed. Additionally, as part of our ongoing business, we engage in acquisition and assimilation activities and patent litigation. We therefore will continue to experience special charges on a regular basis. These costs also directly impact our available funds.
  • Our stock incentive and stock purchase plans are important components of our incentive compensation arrangements and will be reflected as expenses in our GAAP results.
  • Our income tax expense will be ultimately based on our GAAP taxable income and actual tax rates in effect, which often differ significantly from the rate assumed in our non-GAAP presentation. In addition, if we have a GAAP loss and non-GAAP net income, our non-GAAP results will not reflect any projected GAAP tax benefits.
  • Other companies, including other companies in our industry, calculate non-GAAP net income differently than we do, limiting its usefulness as a comparative measure.

About Mentor Graphics

Mentor Graphics Corporation is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world’s most successful electronic, semiconductor and systems companies. Established in 1981, the company reported revenues in the last fiscal year in excess of $1.24 billion. 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, Nucleus, Calibre, Xpedition and PADS are registered trademarks and xACT is a trademark 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) economic weakness in the European Union, China, Japan or other countries, and the potential adverse impact of such weakness on the semiconductor and electronics industries; (ii) the company’s ability to successfully offer products and services that compete in the highly competitive EDA industry, including the risk of 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 the volatility of foreign currency fluctuations on the company’s business and operating results; (v) litigation, including the company’s ongoing patent litigation with Synopsys, Inc.; (vi) changes in accounting or reporting rules or interpretations, including new rules affecting revenue recognition; (vii) the impact of tax audits by taxing authorities, or changes in applicable tax laws, regulations or enforcement practices; (viii) effects of unanticipated shifts in product mix on gross margin; and (ix) effects of customer mergers or divestitures, 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 OPERATIONS

(In thousands, except earnings per share data)
Three Months Ended April 30,
2015 2014
Revenues:
System and software $ 155,931 $ 148,229
Service and support 116,212 103,922
Total revenues 272,143 252,151
Cost of revenues: (1)
System and software 13,624 26,971
Service and support 33,569 29,111
Amortization of purchased technology 1,858 1,361
Total cost of revenues 49,051 57,443
Gross profit 223,092 194,708
Operating expenses:
Research and development (2) 89,515 84,451
Marketing and selling (3) 84,951 84,634
General and administration (4) 17,963 17,682
Equity in earnings of Frontline (5) (870 ) (1,379 )
Amortization of intangible assets (6) 2,219 1,750
Special charges (7) 36,977 5,926
Total operating expenses 230,755 193,064
Operating income (loss) (7,663 ) 1,644
Other income (expense), net (8) 342 (258 )
Interest expense (9) (4,694 ) (4,585 )
Loss before income tax (12,015 ) (3,199 )
Income tax benefit (10) (1,512 ) (174 )
Net loss (10,503 ) (3,025 )
Less: Loss attributable to noncontrolling interest (11) (618 ) (474 )

Net loss attributable to Mentor Graphics shareholders

$ (9,885 ) $ (2,551 )

Net loss per share attributable to Mentor Graphics shareholders:

Basica $ (0.08 ) $ (0.02 )
Diluteda $ (0.08 ) $ (0.02 )
Weighted average number of shares outstanding:
Basic 116,003 114,935
Diluted 116,003 114,935
aWe have increased the numerator of our basic and diluted earnings per share calculation for the adjustment of the noncontrolling interest with redemption feature to its calculated redemption value, recorded directly to retained earnings, as follows:
$ 269 $ 667

Refer to description of footnotes below.

MENTOR GRAPHICS CORPORATION

FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)
Listed below are the items included in net loss 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,
2015 2014
(1) Cost of revenues:
Equity plan-related compensation $ 708 $ 535
Amortization of purchased technology 1,858 1,361
$ 2,566 $ 1,896
(2) Research and development:
Equity plan-related compensation $ 4,318 $ 3,241
(3) Marketing and selling:
Equity plan-related compensation $ 2,480 $ 2,178
(4) General and administration:
Equity plan-related compensation $ 2,772 $ 2,175
(5) Equity in earnings of Frontline:
Amortization of other identified intangible assets $ $ 116
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 2,219 $ 1,750
(7) Special charges:
Rebalance, restructuring, certain litigation, and other costs $ 36,977 $ 5,926
(8) Other income (expense), net:
Net (income) loss of unconsolidated entities $ (25 ) $ 13
(9) Interest expense:
Amortization of original issuance debt discount $ 1,604 $ 1,494
(10) Income tax benefit:
Non-GAAP income tax effects $ (9,282 ) $ (2,825 )
(11) Loss attributable to noncontrolling interest:
Amortization of intangible assets, equity-plan related
compensation, and income tax effects $ (200 ) $ (200 )

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

(In thousands, except earnings per share data)
Three Months Ended April 30,
2015 2014
GAAP net loss attributable to Mentor Graphics shareholders $ (9,885 ) $ (2,551 )
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 708 535
Research and development 4,318 3,241
Marketing and selling 2,480 2,178
General and administration 2,772 2,175
Acquisition – related items:
Amortization of purchased assets
Cost of revenues (2) 1,858 1,361
Amortization of intangible assets (3) 2,219 1,866
Special charges (4) 36,977 5,926
Other income (expense), net (5) (25 ) 13
Interest expense (6) 1,604 1,494
Non-GAAP income tax effects (7) (9,282 ) (2,825 )
Noncontrolling interest (8) (200 ) (200 )
Total of non-GAAP adjustments 43,429 15,764
Non-GAAP net income attributable to Mentor Graphics shareholders $ 33,544 $ 13,213
GAAP weighted average shares 116,003 114,935
Non-GAAP adjustment 4,753 2,479
Non-GAAP weighted average shares (diluted) 120,756 117,414
Net income (loss) per share attributable to Mentor Graphics shareholders:
GAAP $ (0.08 ) $ (0.02 )
Noncontrolling interest adjustment (9) (0.01 )
Non-GAAP adjustments detailed above 0.36 0.14
Non-GAAP (diluted) $ 0.28 $ 0.11
(1) Equity plan-related compensation expense is the fair value of all share-based payments to employees for stock options and restricted stock units, and purchases made as a result of the employee stock purchase plans.
(2) Amount represents amortization of purchased technology resulting from acquisitions. Purchased technology is amortized over two to five years.
(3) Other identified intangible assets are amortized to operating expense generally over two to five years. Other identified intangible assets include trade names, customer relationships, and backlog which are the result of acquisition transactions. The amount presented for the three months ended April 30, 2014 also includes $116 of amortization of other identified intangible assets for Frontline, which were fully amortized in the first quarter of fiscal 2015.
(4) Three months ended April 30, 2015: Special charges consist of (i) $25,435 of severance costs incurred for the voluntary early retirement program, (ii) $9,863 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, (iii) $1,575 for EVE litigation costs, and (iv) $104 in other adjustments.
Three months ended April 30, 2014: Special charges consist of (i) $3,958 for EVE litigation costs, (ii) $1,125 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $843 in other adjustments.
(5) Amount represents (income) loss on an investment accounted for under the equity method of accounting.
(6) Amount represents the amortization of original issuance debt discount.
(7) Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 19% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income for the three months ended April 30, 2015 and a 17% tax rate for the three months ended April 30, 2014.
(8) Adjustment for the impact of amortization of intangible assets, equity plan-related compensation, and income tax expense on noncontrolling interest.
(9) Non-GAAP EPS excludes from the numerator of our earnings per share calculation the adjustment of the noncontrolling interest to the calculated redemption value, recorded directly to retained earnings.

MENTOR GRAPHICS CORPORATION

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

(In thousands, except percentages)
Three Months Ended April 30,
2015 2014
GAAP gross profit $ 223,092 $ 194,708
Reconciling items to non-GAAP gross profit:
Equity plan-related compensation 708 535
Amortization of purchased technology 1,858 1,361
Non-GAAP gross profit $ 225,658 $ 196,604
Three Months Ended April 30,
2015 2014
GAAP gross profit as a percent of total revenues 82.0 % 77.2 %
Non-GAAP adjustments detailed above 0.9 % 0.8 %
Non-GAAP gross profit as a percent of total revenues 82.9 % 78.0 %
Three Months Ended April 30,
2015 2014
GAAP operating expenses $ 230,755 $ 193,064
Reconciling items to non-GAAP operating expenses:
Equity plan-related compensation (9,570 ) (7,594 )
Amortization of other identified intangible assets (2,219 ) (1,866 )
Special charges (36,977 ) (5,926 )
Non-GAAP operating expenses $ 181,989 $ 177,678
Three Months Ended April 30,
2015 2014
GAAP operating income (loss) $ (7,663 ) $ 1,644
Reconciling items to non-GAAP operating income:
Equity plan-related compensation 10,278 8,129
Amortization of purchased technology 1,858 1,361
Amortization of other identified intangible assets 2,219 1,866
Special charges 36,977 5,926
Non-GAAP operating income $ 43,669 $ 18,926
Three Months Ended April 30,
2015 2014
GAAP operating income (loss) as a percent of total revenues (2.8 %) 0.7 %
Non-GAAP adjustments detailed above 18.8 % 6.8 %
Non-GAAP operating income as a percent of total revenues 16.0 % 7.5 %
Three Months Ended April 30,
2015 2014
GAAP other income (expense), net and interest expense $ (4,352 ) $ (4,843 )

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

Equity in (income) loss of unconsolidated entities (25 ) 13
Amortization of original issuance debt discount 1,604 1,494
Non-GAAP other income (expense), net and interest expense $ (2,773 ) $ (3,336 )

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
April 30, January 31,
2015 2015
Assets
Current assets:
Cash and cash equivalents $ 249,773 $ 230,281
Trade accounts receivable, net 90,050 208,996
Term receivables, short-term 347,880 337,626
Prepaid expenses and other 75,051 65,853
Deferred income taxes 22,860 23,490
Total current assets 785,614 866,246
Property, plant, and equipment, net 167,088 170,737
Term receivables, long-term 282,343 301,862
Goodwill and intangible assets, net 650,902 645,506
Other assets 64,456 64,671
Total assets $ 1,950,403 $ 2,049,022
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings $ 2,065 $ 7,228
Accounts payable 9,645 12,687
Income taxes payable 223 5,994
Accrued payroll and related liabilities 53,596 108,553
Accrued and other liabilities 46,804 47,728
Deferred revenue 233,475 259,340
Total current liabilities 345,808 441,530
Long-term notes payable 235,604 230,400
Deferred revenue, long-term 19,117 21,251
Other long-term liabilities 66,828 69,615
Total liabilities 667,357 762,796
Noncontrolling interest with redemption feature 12,535 13,372
Stockholders’ equity:
Common stock 845,764 832,612
Retained earnings 435,902 451,901
Accumulated other comprehensive income (loss) (11,383 ) (11,887 )
Noncontrolling interest 228 228
Total stockholders’ equity 1,270,511 1,272,854
Total liabilities and stockholders’ equity $ 1,950,403 $ 2,049,022

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL INFORMATION

(In thousands, except days sales outstanding)
Three Months Ended April 30,
2015 2014
Operating activities
Net loss $ (10,503 ) $ (3,025 )
Depreciation and amortization 15,041 13,737
Other adjustments to reconcile:
Operating cash 8,136 6,522
Changes in working capital 33,277 (28,195 )
Net cash provided by (used in) operating activities 45,951 (10,961 )
Investing activities
Net cash used in investing activities (11,928 ) (47,580 )
Financing activities
Net cash used in financing activities (14,778 ) (59,293 )
Effect of exchange rate changes on cash and cash equivalents 247 337
Net change in cash and cash equivalents 19,492 (117,497 )
Cash and cash equivalents at beginning of period 230,281 293,322
Cash and cash equivalents at end of period $ 249,773 $ 175,825
Other data:
Capital expenditures, net $ 4,728 $ 6,170
Days sales outstanding 145 150

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP

EARNINGS PER SHARE

The following table reconciles management’s estimates of the specific items excluded from GAAP in the calculation of estimated non-GAAP net income per share for Q2’16 and fiscal year 2016.
Estimated Estimated
Q2’16 FY’16
Diluted GAAP net income per share $ 0.03 $ 1.18
Non-GAAP adjustments:
Amortization of purchased technology (1) 0.02 0.06
Amortization of other identified intangible assets (2) 0.02 0.07
Equity plan-related compensation (3) 0.09 0.35
Special Charges (4) 0.00 0.31
Other income (expense), net and interest expense (5) 0.01 0.06
Non-GAAP income tax effects (6) (0.03 ) (0.14 )
Noncontrolling interest (7) 0.00 (0.01 )
Diluted non-GAAP net income per share $ 0.14 $ 1.88
(1) Excludes amortization of purchased technology resulting from acquisitions. Purchased technology is amortized over two to five years.
(2) Excludes amortization of other identified intangible assets including trade names, customer relationships, and backlog resulting from acquisition transactions. Other identified intangible assets are amortized generally over two to five years.
(3) Excludes equity plan-related compensation expense for the fair value of all share-based payments to employees for stock options and restricted stock units, and purchases made as a result of the employee stock purchase plans.
(4) Excludes special charges consisting primarily of costs incurred for the voluntary early retirement program, employee rebalances, which includes severance benefits, notice pay, and outplacement services, and certain litigation costs. Full year adjustment represents the impact of actual special charges for the three months ended April 30, 2015 as we do not provide guidance for special charges.
(5) Excludes amortization of original issuance debt discount, and income (loss) from an investment accounted for under the equity method of accounting.
(6) Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 19% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income.
(7) Adjustment for the impact of amortization of intangible assets, equity plan-related compensation, and income tax expense on noncontrolling interest.

MENTOR GRAPHICS CORPORATION

UNAUDITED SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION

(Rounded to nearest 5%)

2016 2015 2014
Product Category Bookings (a) Q1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
IC DESIGN TO SILICON 30% 20% 25% 45% 55% 45% 60% 35% 40% 30% 40%
SCALABLE VERIFICATION 25% 25% 25% 20% 20% 20% 15% 45% 25% 30% 30%
INTEGRATED SYSTEMS DESIGN 15% 30% 25% 15% 10% 15% 10% 10% 20% 30% 20%
NEW & EMERGING MARKETS 10% 10% 15% 10% 5% 10% 5% 5% 5% 5% 5%
SERVICES / OTHER 20% 15% 10% 10% 10% 10% 10% 5% 10% 5% 5%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2016 2015 2014
Product Category Revenue (b) Q1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
IC DESIGN TO SILICON 35% 25% 30% 35% 55% 40% 35% 50% 35% 35% 40%
SCALABLE VERIFICATION 30% 35% 25% 20% 20% 25% 20% 20% 25% 30% 25%
INTEGRATED SYSTEMS DESIGN 20% 25% 25% 25% 15% 20% 30% 20% 25% 25% 20%
NEW & EMERGING MARKETS 5% 5% 10% 10% 5% 5% 5% 5% 5% 5% 5%
SERVICES / OTHER 10% 10% 10% 10% 5% 10% 10% 5% 10% 5% 10%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2016 2015 2014
Bookings by Geography Q1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
North America 35% 50% 40% 50% 40% 45% 35% 55% 60% 40% 50%
Europe 25% 15% 25% 15% 15% 15% 10% 15% 15% 30% 20%
Japan 15% 15% 5% 10% 5% 5% 10% 5% 5% 10% 5%
Pac Rim 25% 20% 30% 25% 40% 35% 45% 25% 20% 20% 25%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2016 2015 2014
Revenue by Geography Q1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
North America 50% 50% 45% 50% 40% 45% 45% 40% 50% 45% 45%
Europe 15% 25% 20% 20% 15% 20% 20% 20% 20% 20% 20%
Japan 10% 10% 10% 10% 5% 5% 10% 5% 10% 15% 10%
Pac Rim 25% 15% 25% 20% 40% 30% 25% 35% 20% 20% 25%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2016 2015 2014
Bookings by Business Model (c) Q1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
Perpetual 20% 35% 20% 15% 10% 15% 15% 50% 20% 10% 25%
Term Ratable 10% 20% 10% 5% 5% 10% 10% 5% 5% 5% 5%
Term Up Front 70% 45% 70% 80% 85% 75% 75% 45% 75% 85% 70%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2016 2015 2014
Revenue by Business Model (c) Q1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
Perpetual 15% 35% 30% 15% 10% 20% 20% 25% 20% 20% 20%
Term Ratable 10% 10% 10% 10% 5% 5% 10% 10% 5% 5% 10%
Term Up Front 75% 55% 60% 75% 85% 75% 70% 65% 75% 75% 70%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

(a)

Product Category Bookings excludes support bookings for all sub-flow categories.

(b)

Product Category Revenue includes support revenue for each sub-flow category as appropriate.

(c)

Bookings and Revenue by Business Model are System and Software only (excludes finance fee).

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