Mentor Graphics Reports Fiscal Second Quarter Results

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)
           
 
Three Months Ended July 31, Six Months Ended July 31,
2011 2010 2011 2010
Revenues:
System and software $ 117,495 $ 100,491 $ 257,140 $ 197,941
Service and support   96,245     87,443     186,635     170,570  
Total revenues   213,740     187,934     443,775     368,511  
Cost of revenues: (1)
System and software a 14,294 7,977 30,371 14,620
Service and support a 26,844 23,633 52,055 46,800
Amortization of purchased technology   2,754     3,560     6,111     7,129  
Total cost of revenues a   43,892     35,170     88,537     68,549  
Gross margin a   169,848     152,764     355,238     299,962  
Operating expenses:
Research and development a (2) 69,905 67,792 139,273 134,436
Marketing and selling a (3) 75,758 72,720 153,682 144,544
General and administration a (4) 17,348 18,763 34,133 37,042
Equity in earnings of Frontline (5) (1,139 ) (1,162 ) (2,156 ) (1,346 )
Amortization of intangible assets (6) 1,455 1,936 3,065 4,297
Special charges (7)   1,677     3,206     6,224     6,474  
Total operating expenses a   165,004     163,255     334,221     325,447  
Operating income (loss) a 4,844 (10,491 ) 21,017 (25,485 )
Other income (expense), net (8) 529 (14 ) 54 (1,155 )
Interest expense (9)   (4,634 )   (4,727 )   (22,074 )   (9,054 )
Income (loss) before income tax 739 (15,232 ) (1,003 ) (35,694 )
Income tax expense (benefit) (10)   (3,595 )   (985 )   (2,984 )   1,578  
Net income (loss) a $ 4,334   $ (14,247 ) $ 1,981   $ (37,272 )
Net income (loss) per share:
Basic $ 0.04   $ (0.13 ) $ 0.02   $ (0.35 )
Diluted $ 0.04   $ (0.13 ) $ 0.02   $ (0.35 )
Weighted average number of shares outstanding:
Basic   110,027     107,629     110,888     105,717  
Diluted   112,844     107,629     113,892     105,717  
 
a Certain items have been reclassified between cost of revenues and operating expenses, and within operating expenses for the six months ended July 31, 2011, and the three and six months ended July 31, 2010. These reclassifications were made to conform to the current period presentation, more closely align with other companies in our industry, and provide a clearer depiction of where certain operating costs are being utilized. While these reclassifications reduced gross margin, they had no impact on operating income (loss) or net income (loss) for the six months ended July 31, 2011, and the three and six months ended July 31, 2010. Additional discussion regarding the reclassifications will be provided in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2011.
 
Refer to following page for a description of footnotes.

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