Mentor Graphics Reports Fiscal Third Quarter Results

Participants in Solicitation

The Company and its directors, executive officers and certain employees may be deemed, and Siemens Industry, Inc. and its managing board, officers and employees may be deemed, under SEC rules, to be participants in the solicitation of proxies from the Company’s shareholders with respect to the proposed acquisition of the Company by Siemens Industry, Inc. With respect to Siemens Industry, Inc. and its managing board, officers and employees, certain additional information is available and has been prepared in accordance with the German Commercial Code. Information concerning the ownership of the Company’s securities by the Company’s directors and executive officers is included in their SEC filings on Forms 3, 4 and 5, and additional information regarding the names, affiliations and interests of such individuals is available in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2016 and its definitive proxy statement for the 2016 annual meeting of shareholders filed with the SEC on May 18, 2016. Information regarding the Company’s directors, executive officers and certain other employees who may be deemed, under SEC rules, to be participants in the solicitation of proxies from the Company’s shareholders with respect to the proposed acquisition of the Company by Siemens Industry, Inc., including their respective interests by security holdings or otherwise, also will be included in the proxy statement relating to such acquisition when it is filed with the SEC. These documents will be available free of charge from the SEC’s website at www.sec.gov and the Company’s website at www.mentor.com.

Forward-Looking Statements

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) uncertainty associated with the announcement and pendency of our agreement to be acquired by U.S.-based entities affiliated with Siemens AG could adversely affect our business and relationships with customers; (ii) continued economic weakness in the European Union, China, Japan or other countries, and the adverse impact of such weakness on the company’s customers in those regions; (iii) the company’s ability to successfully update existing hardware and software products and offer new products and services that compete in the highly competitive EDA industry, including the risk of obsolescence for our hardware products; (iv) effects of customer mergers, divestitures or shutdowns of business units or divisions, customer seasonal purchasing patterns and the timing of significant orders which may negatively or positively impact the company’s quarterly results of operations; (v) effects of the volatility of foreign currency fluctuations on the company’s business and operating results; (vi) 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, or result in loss of business; (vii) changes in accounting or reporting rules or interpretations, including new rules affecting revenue recognition; (viii) the impact of audits by taxing authorities, or changes in applicable tax laws, regulations or enforcement practices; (ix) political and economic uncertainty regarding Britain’s exit from the EU; (x) effects of unanticipated shifts in product mix on gross margin; and (x) litigation; 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 October 31, Nine Months Ended October 31,
2016 2015 2016 2015
Revenues:
System and software $ 198,605 $ 168,699 $ 439,064 $ 486,831
Service and support   123,911     121,817     365,435     356,890  
Total revenues   322,516     290,516     804,499     843,721  
Cost of revenues: (1)
System and software 13,713 9,759 37,375 36,432
Service and support 35,649 35,286 100,910 100,275
Amortization of purchased technology   1,828     1,844     5,400     5,496  
Total cost of revenues   51,190     46,889     143,685     142,203  
Gross profit   271,326     243,627     660,814     701,518  
Operating expenses:
Research and development (2) 101,023 99,669 285,561 278,237
Marketing and selling (3) 91,646 93,165 259,816 262,857
General and administration (4) 20,015 19,665 56,777 56,298
Equity in earnings of Frontline (634 ) (1,755 ) (2,311 ) (3,976 )
Amortization of intangible assets (5) 1,462 2,364 4,536 6,817
Special charges (6)   1,500     4,831     5,936     43,994  

Total operating expenses

  215,012     217,939     610,315     644,227  
Operating income: 56,314 25,688 50,499 57,291
Other income, net (7) 268 320 1,795 849
Interest expense (8)   (5,143 )   (4,915 )   (14,971 )   (14,381 )
Income before income tax 51,439 21,093 37,323 43,759
Income tax expense (9)   9,677     7,204     5,560     9,763  
Net income 41,762 13,889 31,763 33,996
Less: Loss attributable to noncontrolling interest (10)   -     (790 )   -     (2,010 )

Net income attributable to Mentor Graphics shareholders

$ 41,762   $ 14,679   $ 31,763   $ 36,006  

Net income per share attributable to Mentor Graphics shareholders:

Basic a $ 0.38   $ 0.13   $ 0.29   $ 0.31  
Diluted a,b $ 0.37   $ 0.12   $ 0.29   $ 0.30  
Weighted average number of shares outstanding:
Basic   108,887     117,759     108,442     116,787  
Diluted   114,112     120,141     110,931     121,963  
 

a We 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:

 
$ 133   $ 258  
 
b We have increased the numerator of our diluted earnings per share calculation by $519 for the three months ended October 31, 2016 and the nine months ended October 31, 2015 for the dilutive effect of our convertible debt. Corresponding dilutive shares of 2,496 for the three months ended October 31, 2016 and 2,565 for the nine months ended October 31, 2015 are included in the diluted weighted average number of shares outstanding.
 
Refer to following page for a description of footnotes.
 

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