10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________ 

FORM 10-Q

___________________________________________ 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2012

Or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 1-34795

 ___________________________________________ 

MENTOR GRAPHICS CORPORATION

(Exact name of registrant as specified in its charter)

___________________________________________ 

Oregon	93-0786033
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
8005 SW Boeckman Road, Wilsonville, Oregon	97070-7777
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (503) 685-7000

None

(Former name, former address and former

fiscal year, if changed since last report)

___________________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  o    Non-accelerated filer  o    Smaller reporting company  o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares of common stock, no par value, outstanding as of June 4, 2012: 109,734,729

MENTOR GRAPHICS CORPORATION

Index to Form 10-Q

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Operations for the three months ended April 30, 2012 and 2011	3
	Condensed Consolidated Statements of Comprehensive Income for the three months ended April 30, 2012 and 2011	3
	Condensed Consolidated Balance Sheets as of April 30, 2012 and January 31, 2012	3
	Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2012 and 2011	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37
SIGNATURES		38

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Mentor Graphics Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

Three months ended April 30,	2012			2011
In thousands, except per share data
Revenues:
System and software	$	149,356		$	139,645
Service and support	98,562			90,390
Total revenues	247,918			230,035
Cost of revenues:
System and software	14,790			16,077
Service and support	28,414			25,211
Amortization of purchased technology	2,179			3,357
Total cost of revenues	45,383			44,645
Gross margin	202,535			185,390
Operating expenses:
Research and development	71,046			69,368
Marketing and selling	79,752			77,924
General and administration	16,649			16,785
Equity in earnings of Frontline	(587		)	(1,017		)
Amortization of intangible assets	1,706			1,610
Special charges	1,147			4,547
Total operating expenses	169,713			169,217
Operating income	32,822			16,173
Other income (expense), net	83			(475		)
Interest expense	(4,594		)	(17,440		)
Income (loss) before income tax	28,311			(1,742		)
Income tax expense	781			611
Net income (loss)	$	27,530		$	(2,353	)
Less: Loss attributable to noncontrolling interest	(652		)	—
Net income (loss) attributable to Mentor Graphics shareholders	$	28,182		$	(2,353	)
Net income (loss) per share:
Basic	$	0.26		$	(0.02	)
Diluted	$	0.25		$	(0.02	)
Weighted average number of shares outstanding:
Basic	109,907			111,769
Diluted	113,243			111,769

See accompanying notes to unaudited condensed consolidated financial statements.

Mentor Graphics Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three months ended April 30,	2012			2011
In thousands
Net income (loss)	$	27,530		$	(2,353	)
Other comprehensive income (loss), net of tax:
Change in unrealized gain on derivative instruments	453			457
Change in accumulated translation adjustment	(781		)	9,084
Change in pension liability	(3		)	—
Other comprehensive income	27,199			7,188
Less: Comprehensive loss attributable to the noncontrolling interest	$	(673	)	$	—
Comprehensive income attributable to Mentor	$	27,872		$	7,188

See accompanying notes to unaudited condensed consolidated financial statements.

Mentor Graphics Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

As of	April 30, 2012		January 31, 2012
In thousands
Assets
Current assets:
Cash and cash equivalents	$	134,811	$	146,499
Restricted cash	—		4,237
Trade accounts receivable, net of allowance for doubtful accounts of $4,537 as of April 30, 2012 and $4,432 as of January 31, 2012	354,919		354,924
Other receivables	14,527		11,085
Inventory	7,253		8,136
Prepaid expenses and other	23,430		24,751
Deferred income taxes	13,590		17,803
Total current assets	548,530		567,435
Property, plant, and equipment, net of accumulated depreciation of $283,832 as of April 30, 2012 and $280,053 as of January 31, 2012	152,026		148,019
Term receivables	212,665		220,355
Goodwill	527,591		527,102
Intangible assets, net of accumulated amortization of $176,067 as of April 30, 2012 and $172,182 as of January 31, 2012	24,671		28,569
Other assets	63,670		59,195
Total assets	$	1,529,153	$	1,550,675
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	$	8,339	$	14,617
Current portion of notes payable	1,357		1,349
Accounts payable	16,746		17,261
Income taxes payable	2,365		2,538
Accrued payroll and related liabilities	57,751		112,349
Accrued and other liabilities	30,000		34,284
Deferred revenue	207,974		191,540
Total current liabilities	324,532		373,938
Notes payable	214,519		213,224
Deferred revenue	12,649		14,883
Income tax liability	32,532		34,257
Other long-term liabilities	33,533		39,033
Total liabilities	617,765		675,335
Commitments and contingencies (Note 7)
Noncontrolling interest with redemption feature	9,291		9,266
Stockholders’ equity:
Common stock, no par value, 300,000 shares authorized as of April 30, 2012 and January 31, 2012; 110,126 shares issued and outstanding as of April 30, 2012 and 109,346 shares issued and outstanding as of January 31, 2012	784,211		775,362
Retained earnings	89,516		62,032
Accumulated other comprehensive income	28,370		28,680
Total stockholders’ equity	902,097		866,074
Total liabilities and stockholders’ equity	$	1,529,153	$	1,550,675

See accompanying notes to unaudited condensed consolidated financial statements.

Mentor Graphics Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three months ended April 30,	2012			2011
In thousands
Operating Cash Flows:
Net income (loss)	$	27,530		$	(2,353	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property, plant, and equipment	8,331			7,750
Amortization of intangible assets and debt costs	5,482			6,651
Dividends received from unconsolidated entities, net of equity in income (loss)	350			(2		)
Loss on debt extinguishment	—			3,518
Write-off of debt discount and debt issuance costs	—			8,010
Stock-based compensation	5,147			5,680
Deferred income taxes	837			(563		)
Changes in other long-term liabilities	348			(1,506		)
Other	18			28
Changes in operating assets and liabilities, net of effect of acquired businesses:
Trade accounts receivable, net	90			36,157
Prepaid expenses and other	(2,047		)	(3,259		)
Term receivables, long-term	7,710			(6,930		)
Accounts payable and accrued liabilities	(60,066		)	(61,698		)
Income taxes payable	(1,996		)	(4,016		)
Deferred revenue	14,411			3,271
Net cash provided by (used in) operating activities	6,145			(9,262		)
Investing Cash Flows:
Purchases of property, plant, and equipment	(11,604		)	(6,345		)
Acquisitions of businesses and equity interests, net of cash acquired	(453		)	(2,036		)
Net cash used in investing activities	(12,057		)	(8,381		)
Financing Cash Flows:
Proceeds from issuance of common stock	3,567			7,368
Repurchase of common stock	—			(24,997		)
Tax benefit from share options exercised	139			—
Net decrease in short-term borrowings	(6,069		)	(6,624		)
Debt and equity issuance costs	—			(8,575		)
Proceeds from notes payable and revolving credit facility	—			253,000
Repayments of notes payable and revolving credit facility	(1,871		)	(219,919		)
Net cash provided by (used in) financing activities	(4,234		)	253
Effect of exchange rate changes on cash and cash equivalents	(1,542		)	758
Net change in cash and cash equivalents	(11,688		)	(16,632		)
Cash and cash equivalents at the beginning of the period	146,499			133,113
Cash and cash equivalents at the end of the period	$	134,811		$	116,481

See accompanying notes to unaudited condensed consolidated financial statements.

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Mentor Graphics Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

All numerical dollar and share references are in thousands, except for per share data.

(1)General—The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with United States (U.S.) generally accepted accounting principles (GAAP) and reflect all material normal recurring adjustments. However, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the condensed consolidated financial statements include adjustments necessary for a fair presentation of the results of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2012.

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Any changes in estimates will be reflected in the financial statements in future periods.

(2)Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include our financial statements and those of our wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

We do not have off-balance sheet arrangements, financings, or other similar relationships with unconsolidated entities or other persons, also known as special purpose entities. In the ordinary course of business, we lease certain real properties, primarily field sales offices, research and development facilities, and equipment as described in Note 7. “Commitments and Contingencies.”

Revenue Recognition

We report revenue in two categories based on how the revenue is generated: (i) system and software and (ii) service and support.

System and software revenues – We derive system and software revenues from the sale of licenses of software products, emulation hardware systems, and finance fee revenues from our long-term installment receivables resulting from product sales. We primarily license our products using two different license types:

1. Term licenses – We use this license type primarily for software sales. This license type provides the customer with the right to use a fixed list of software products for a specified time period, typically three years, with payments spread over the license term, and does not provide the customer with the right to use the products after the end of the term. Term license arrangements may allow the customer to share products between multiple locations and remix product usage from the fixed list of products at regular intervals during the license term. We generally recognize product revenue from term license arrangements upon product delivery and start of the license term. In a term license agreement where we provide the customer with rights to unspecified or unreleased future products, we recognize revenue ratably over the license term.

2. Perpetual licenses – We use this license type for software and emulation hardware system sales. This license type provides the customer with the right to use the product in perpetuity and typically does not provide for extended payment terms. We generally recognize product revenue from perpetual license arrangements upon product delivery assuming all other criteria for revenue recognition have been met.

We include finance fee revenues from the accretion of the discount on long-term installment receivables in system and software revenues.

Service and support revenues – We derive service and support revenues from software and hardware post-contract maintenance or support services and professional services, which include consulting, training, and other services. We recognize revenues ratably over the support services term. We record professional service revenues as the services are provided to the customer.

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We determine whether product revenue recognition is appropriate based upon the evaluation of whether the following four criteria have been met:

1. Persuasive evidence of an arrangement exists – Generally, we use either a customer signed contract or qualified customer purchase order as evidence of an arrangement for both term and perpetual licenses. For professional service engagements, we generally use a signed professional services agreement and a statement of work to evidence an arrangement. Sales through our distributors are evidenced by an agreement governing the relationship, together with binding purchase orders from the distributor on a transaction-by-transaction basis.

2. Delivery has occurred – We generally deliver software and the corresponding access keys to customers electronically. Electronic delivery occurs when we provide the customer access to the software. We may also deliver the software on a compact disc. With respect to emulation hardware systems, we transfer title to the customer upon shipment. Our software license and emulation hardware system agreements generally do not contain conditions for acceptance.

3. Fee is fixed or determinable – We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We have established a history of collecting under the original contract with installment terms without providing concessions on payments, products, or services. Additionally, for installment contracts, we determine that the fee is fixed or determinable if the arrangement has a payment schedule that is within the term of the licenses and the payments are collected in equal or nearly equal installments, when evaluated on a cumulative basis. If the fee is not deemed to be fixed or determinable, we recognize revenue as payments become due and payable.

Significant judgment is involved in assessing whether a fee is fixed or determinable. We must also make these judgments when assessing whether a contract amendment to a term arrangement (primarily in the context of a license extension or renewal) constitutes a concession. Our experience has been that we are able to determine whether a fee is fixed or determinable for term licenses. If we no longer were to have a history of collecting under the original contract without providing concessions on term licenses, revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable. Such a change could have a material impact on our results of operations.

4. Collectibility is probable – To recognize revenue, we must judge collectibility of the arrangement fees on a customer-by-customer basis pursuant to our credit review process. We typically sell to customers with whom there is a history of successful collection. We evaluate the financial position and a customer’s ability to pay whenever an existing customer purchases new products, renews an existing arrangement, or requests an increase in credit terms. For certain industries for which our products are not considered core to the industry or the industry is generally considered troubled, we impose higher credit standards. If we determine that collectibility is not probable based upon our credit review process or the customer’s payment history, we recognize revenue as payments are received.

Multiple element arrangements involving software licenses – For multiple element arrangements involving software and other software-related deliverables, vendor-specific objective evidence of fair value (VSOE) must exist to allocate the total fee among all delivered and non-essential undelivered elements of the arrangement. If undelivered elements of the arrangement are essential to the functionality of the product, we defer revenue until the essential elements are delivered. If VSOE does not exist for one or more non-essential undelivered elements, we defer revenue until such evidence exists for the undelivered elements, or until all elements are delivered, whichever is earlier. If VSOE of all non-essential undelivered elements exist but VSOE does not exist for one or more delivered elements, we recognize revenue using the residual method. Under the residual method, we defer revenue related to the undelivered elements based upon VSOE and we recognize the remaining portion of the arrangement fee as revenue for the delivered elements, assuming all other criteria for revenue recognition are met. If we can no longer establish VSOE for non-essential undelivered elements of multiple element arrangements, we defer revenue until all elements are delivered or VSOE is established for the undelivered elements, whichever is earlier.

We base our VSOE for certain elements of an arrangement upon the pricing in comparable transactions when the element is sold separately. We primarily base our VSOE for term and perpetual support services upon customer renewal history where the services are sold separately. We also base VSOE for professional services and installation services for emulation hardware systems upon the price charged when the services are sold separately.

Multiple element arrangements involving hardware – For multiple element arrangements involving our emulation hardware systems, we allocate revenue to each element based on the relative selling price of each deliverable. In order to meet the separation criteria to allocate revenue to each element we must determine the standalone selling price of each element using a hierarchy of evidence. The authoritative guidance requires that, in the absence of VSOE or third-party evidence (TPE), a company must develop an estimated selling price (ESP). ESP is defined as the price at which the vendor would transact if the deliverable was sold by the vendor regularly on a standalone basis. A company should consider market conditions as well as

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entity-specific factors when estimating a selling price.

When VSOE or TPE does not exist, we base our ESP for certain elements in arrangements on either costs incurred to manufacture a product plus a reasonable profit margin or standalone sales to similar customers. In determining profit

margins, we consider current market conditions, pricing strategies related to the class of customer, and the level of penetration we have with the customer. In other cases, we may have limited sales on a standalone basis to the same or similar customers and/or guaranteed pricing on future purchases of the same item. If we are not able to develop ESP for one or more elements or we are unable to demonstrate value on a standalone basis of an element, we could be required to combine elements which could impact the timing of revenue recognition if not delivered together.

Noncontrolling Interest with Redemption Feature

As of April 30, 2012, our balance sheet includes a noncontrolling interest resulting from a business combination in which we acquired majority ownership in a privately-held company. In conjunction with this business combination, we also entered into an agreement which allows the other owners of the company to require us to purchase their noncontrolling interest at a future date for a price based on a formula defined in the agreement. The noncontrolling interest adjusted for this redemption feature is presented on the condensed consolidated balance sheet under the caption “Noncontrolling interest with redemption feature.” Because the redemption of the noncontrolling interest is outside of our control, we have presented this interest outside of stockholders’ equity.

The noncontrolling interest with redemption feature is recognized at the greater of:

i. The calculated redemption value as of the balance sheet date, as if it were redeemable; or

ii. The initial noncontrolling interest value adjusted for the noncontrolling interest holders' share of:

a. cumulative net income (loss); and

b. other changes in accumulated other comprehensive income.

Adjustments based on the calculated redemption value are recorded directly to retained earnings. To the extent this adjustment is considered to be material, we would adjust the numerator in our earnings per share calculation in the current period.

The results of the majority-owned subsidiary are presented in our consolidated results with an adjustment reflected on the face of our statement of operations and the face of our statement of comprehensive income for the noncontrolling investors’ interest in the results of the subsidiary.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.” ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP. ASU 2011-04 became effective prospectively for interim and annual reporting periods beginning on or after December 15, 2011. We adopted this guidance on February 1, 2012 as required. As this guidance only amends disclosure requirements, the adoption did not impact the Company's consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 increases the prominence of other comprehensive income in the financial statements and gives entities the option to present the components of net income and comprehensive income as either a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present other comprehensive income in the statement of changes in stockholders’ equity. ASU 2011-05 became effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this guidance on February 1, 2012 as required. The adoption of this guidance did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The only impact was on the presentation of comprehensive income in the consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions subject to a master netting arrangement. ASU 2011-11 is intended to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on

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the basis of International Financial Reporting Standards (IFRS). ASU 2011-11 is effective retrospectively for annual reporting periods beginning on or after January 31, 2013 and interim periods within those annual periods. We do not anticipate a material impact on our financial statements upon adoption, other than additional disclosures.

(3)Fair Value Measurement— The FASB's authoritative guidance for the hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our market assumptions. The fair value hierarchy consists of the following three levels:

•Level 1—Quoted prices for identical instruments in active markets;

• Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable; and

•Level 3—One or more significant inputs to the valuation model are unobservable.

We use an income approach to determine the fair value of our foreign currency exchange contracts. The net gains or losses for foreign currency exchange contracts designated as cash flow hedges, which are linked to a specific transaction, are reported in accumulated other comprehensive income in stockholders' equity until the forecasted transaction occurs or the hedge is no longer effective. Once the forecasted transaction occurs or the hedge is no longer effective, we reclassify the gains or losses attributable to the foreign currency exchange contracts to our consolidated statement of operations. Foreign currency exchange contracts are recorded at fair value utilizing observable market inputs at measurement date and standard valuation techniques.

We recognize changes in fair value for foreign currency exchange contracts entered into to offset the variability in exchange rates on certain short-term monetary assets and liabilities in other income (expense), net, in our consolidated statement of operations. The fair value of foreign currency exchange contracts is included in other receivables, if the balance is an asset, or accrued liabilities, if the balance is a liability, on our consolidated balance sheet.

The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2012:

	Fair Value			Level 1		Level 2		Level 3
Foreign currency exchange contracts	$	328		$	—	$	328	$	—
Contingent consideration	(5,153		)	—		—		(5,153		)
Total	$	(4,825	)	$	—	$	328	$	(5,153	)

The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2012:

	Fair Value			Level 1		Level 2		Level 3
Foreign currency exchange contracts	$	882		$	—	$	882	$	—
Contingent consideration	(6,120		)	—		—		(6,120		)
Total	$	(5,238	)	$	—	$	882	$	(6,120	)

In connection with certain acquisitions, payment of a portion of the purchase price is contingent upon the acquired business’ achievement of certain revenue goals. As of April 30, 2012, of the total recorded balance, $772 was included in accrued liabilities and $4,381 was included in other long-term liabilities on our condensed consolidated balance sheet. As of January 31, 2012, of the total recorded balance, $510 was included in accrued liabilities and $5,610 was included in other long-term liabilities on our condensed consolidated balance sheet.

We have estimated the fair value of our contingent consideration as the present value of the expected payments over the term of the arrangements. The fair value measurement of our contingent consideration as of April 30, 2012 encompasses the following significant unobservable inputs:

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Unobservable Inputs	Range
Total estimated contingent consideration	$0		-	$7,686
Discount rate	14	%	-	16%
Timing of cash flows (in years)	1		-	6

Changes in the fair value of our contingent consideration are primarily driven by changes in the estimated amount and timing of payments, resulting from changes in the forecasted revenues of the acquired businesses. Significant changes in any of the inputs in isolation could result in a fluctuation in the fair value measurement of contingent consideration. Changes in fair value are recognized in operating income in the period in which the change is identified. During the three months ended April 30, 2012, we recorded decreases in contingent consideration resulting in a net gain of $537 to special charges in our condensed consolidated statement of operations. The adjustments to the liability were due to changes in the timing and amounts of the expected payments.

The following table summarizes contingent consideration activity:

Balance as of January 31, 2012	$	6,120
Payments	(478		)
Adjustments	(537		)
Interest accretion	48
Balance as of April 30, 2012	$	5,153

The following table summarizes the fair value and carrying value of notes payable:

As of	April 30, 2012		January 31, 2012
Fair value of notes payable	$	273,190	$	259,821
Carrying value of notes payable	$	215,876	$	214,573

We based the fair value of notes payable on the quoted market price or rates available to us for instruments with similar terms and maturities. Of the total carrying value of notes payable, $1,357 as of April 30, 2012 and $1,349 as of January 31, 2012 was classified as current on our condensed consolidated balance sheets.

The carrying amounts of cash equivalents, short-term investments, trade accounts receivable, net, term receivables, short-term borrowings, accounts payable, and accrued liabilities approximate fair value because of the short-term nature of these instruments or because amounts have been appropriately discounted.

(4)Term Receivables and Trade Accounts Receivable—We have long-term installment receivables that are attributable to multi-year, multi-element term license sales agreements. We include balances under term agreements that are due within one year in trade accounts receivable, net and balances that are due more than one year from the balance sheet date in term receivables, long-term. We discount the total product portion of the agreements to reflect the interest component of the transaction. We amortize the interest component of the transaction, using the effective interest method, to system and software revenues over the period in which payments are made and balances are outstanding. We determine the discount rate at the outset of the arrangement based upon the current credit rating of the customer. We reset the discount rate periodically considering changes in prevailing interest rates but do not adjust previously discounted balances.

Term receivable and trade accounts receivable balances were as follows:

As of	April 30, 2012		January 31, 2012
Trade accounts receivable	$	117,981	$	133,494
Term receivables, short-term	$	236,938	$	221,430
Term receivables, long-term	$	212,665	$	220,355

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Trade accounts receivable include billed amounts whereas term receivables, short-term are comprised of unbilled amounts. Term receivables, short-term represent the portion of long-term installment agreements that are due within one year. Billings for term agreements typically occur 30 days prior to the contractual due date, in accordance with individual contract installment terms. Term receivables, long-term represent unbilled amounts which are scheduled to be collected beyond one year.

We perform a credit risk assessment of all customers using the Standard & Poor’s (S&P) credit rating as our primary credit-quality indicator. The S&P credit ratings are based on the most recent S&P score available. For customers that do not have an S&P credit rating, we base our credit risk assessment on an internal credit assessment which is based on selected short-term financial ratios. Our internal credit assessment is based upon results provided in the customers’ most recent financial statements.

The credit risk assessment for our long-term receivables was as follows:

As of	April 30, 2012		January 31, 2012
S&P credit rating:
AAA+ through BBB-	$	134,324	$	130,545
BB+ and lower	18,211		15,161
	152,535		145,706
Internal credit assessment	60,130		74,649
Total long-term term receivables	$	212,665	$	220,355

We maintain allowances for doubtful accounts on trade accounts receivable and term receivables for estimated losses resulting from the inability of our customers to make required payments. We regularly evaluate the collectibility of our trade accounts receivable based on a combination of factors. When we become aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy or deterioration in the customer’s operating results, financial position, or credit rating, we record a specific reserve for bad debt to reduce the related receivable to the amount believed to be collectible. We also record unspecified reserves for bad debt for all other customers based on a variety of factors including length of time the receivables are past due, the financial health of the customers, the current business environment, and historical experience. Current economic conditions we consider include forecasted spending in the semiconductor industry, consumer spending for electronics, integrated circuit research and development spending, and volatility in gross domestic product. If these factors change or circumstances related to specific customers change, we adjust the estimates of the recoverability of receivables resulting in either additional selling expense or a reduction in selling expense in the period such determination is made.

The following shows the change in allowance for doubtful accounts:

Allowance for doubtful accounts	Beginning balance		Charged  to expense		Deductions(1)			Ending balance
Three months ended April 30, 2012	$	4,432	$	153	$	(48	)	$	4,537

(1)Specific account write-offs and foreign exchange.

We enter into agreements to sell qualifying accounts receivable from time to time to certain financing institutions on a non-recourse basis. We received net proceeds from the sale of receivables of $7,457 for the three months ended April 30, 2012 compared to $11,403 for the three months ended April 30, 2011.

(5) Short-Term Borrowings

Short-term borrowings consisted of the following:

As of	April 30, 2012		January 31, 2012
Collections of previously sold accounts receivable	$	3,360	$	9,373
Other borrowings	4,979		5,244
Short-term borrowings	$	8,339	$	14,617

9

In April 2011, we entered into a syndicated, senior, unsecured, four-year revolving credit facility that terminates April 27, 2015. The revolving credit facility has a maximum borrowing capacity of $125,000. Under this revolving credit facility, we have the option to pay interest based on:

(i) London Interbank Offered Rate (LIBOR) with varying maturities commensurate with the borrowing period we select, plus a spread of between 2.25% and 3.25% based on a pricing grid tied to a financial covenant, or

(ii) A base rate plus a spread of between 1.25% and 2.25%, based on a pricing grid tied to a financial covenant.

The base rate is defined as the higher of:

(i) The federal funds rate, as defined, plus 0.5%,

(ii) The prime rate of the lead bank, or

(iii) One-month LIBOR plus 1.0%.

As a result of these interest rate options, our interest expense associated with borrowings under this revolving credit facility will vary with market interest rates. In addition, commitment fees are payable on the unused portion of the revolving credit facility at rates between 0.40% and 0.50% based on a pricing grid tied to a financial covenant.

We paid commitment fees as follows:

Three months ended April 30,	2012		2011
Commitment fees	$	126	$	80

This revolving credit facility contains certain financial and other covenants, including the following:

• Our adjusted quick ratio (ratio of the sum of cash and cash equivalents, short-term investments, and net current receivables to total current liabilities) shall not be less than1.00;

• Our tangible net worth (stockholders’ equity less goodwill and other intangible assets) must exceed the calculated required tangible net worth as defined in the credit agreement;

• Our leverage ratio (ratio of total liabilities less subordinated debt to the sum of subordinated debt and tangible net worth) shall be less than 2.00;

• Our senior leverage ratio (ratio of total debt less subordinated debt to the sum of subordinated debt and tangible net worth) shall not be greater than 0.90; and

• Our minimum cash and accounts receivable ratio (ratio of the sum of cash and cash equivalents, short-term investments, and 42.0% of net current accounts receivable, to outstanding credit agreement borrowings) shall not be less than 1.25.

The revolving credit facility limits the aggregate amount we can pay for dividends and repurchases of our stock over the four year term of the facility to $50,000 plus 70% of our cumulative net income.

We were in compliance with all financial covenants as of April 30, 2012. If we were to fail to comply with the financial covenants and do not obtain a waiver from our lenders, we would be in default under the revolving credit facility and our lenders could terminate the facility and demand immediate repayment of all outstanding loans under the revolving credit facility.

We had no borrowings against the revolving credit facility during the three months ended April 30, 2012 and 2011.

Short-term borrowings include amounts collected from customers on accounts receivable previously sold on a non-recourse basis to financial institutions. These amounts are remitted to the financial institutions in the following quarter.

We generally have other short-term borrowings, including multi-currency lines of credit, capital leases, and other borrowings. Interest rates are generally based on the applicable country’s prime lending rate.

(6) Notes Payable

Notes payable consist of the following:

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As of	April 30, 2012		January 31, 2012
4.00% Debentures due 2031	$	214,519	$	213,224
Other	1,357		1,349
Notes payable	$	215,876	$	214,573

4.00% Debentures due 2031: In April 2011, we issued $253,000 of 4.00% Convertible Subordinated Debentures (4.00% Debentures) due 2031 in a private placement pursuant to SEC Rule 144A under the Securities Act of 1933. Interest on the 4.00% Debentures is payable semi-annually in April and October.

The 4.00% Debentures are convertible, under certain circumstances, into our common stock at a conversion price of $20.538 per share for a total of 12,319 shares as of April 30, 2012. These circumstances include:

• The market price of our common stock exceeding 120% of the conversion price;

• A call for redemption of the 4.00% Debentures;

• Specified distributions to holders of our common stock;

• If a fundamental change, such as a change of control, occurs;

• During the two months prior to, but not on, the maturity date; or

• The market price of the 4.00% Debentures declining to less than 98% of the value of the common stock into which the 4.00% Debentures are convertible.

Upon conversion of any 4.00% Debentures, a holder will receive:

(i) Cash up to the principal amount of the 4.00% Debentures that are converted; and

(ii) Cash or shares of common stock, at our election, for the excess, if any, of the value of the converted shares over the principal amount.

If a holder elects to convert their 4.00% Debentures in connection with a fundamental change in the company that occurs prior to April 5, 2016, the holder will also be entitled to receive a make whole premium upon conversion in some circumstances.

We may redeem some or all of the 4.00% Debentures for cash on or after April 5, 2016 at the following redemption prices expressed as a percentage of principal, plus any accrued and unpaid interest:

Period	Price
Beginning on April 5, 2016 and ending on March 31, 2017	101.143	%
Beginning on April 1, 2017 and ending on March 31, 2018	100.571	%
On April 1, 2018 and thereafter	100.000	%

The holders, at their option, may redeem the 4.00% Debentures in whole or in part for cash on April 1, 2018, April 1, 2021, and April 1, 2026, and in the event of a fundamental change in the company. In each case, our repurchase price will be 100% of the principal amount of the 4.00% Debentures plus any accrued and unpaid interest.

As the 4.00% Debentures contain a conversion feature that allows the debt to be settled in cash upon conversion, we separately account for the implied liability and equity components of the 4.00% Debentures. The principal amount, unamortized debt discount, net carrying amount of the liability component, and carrying amount of the equity component of the 4.00% Debentures are as follows:

As of	April 30, 2012			January 31, 2012
Principal amount	$	253,000		$	253,000
Unamortized debt discount	(38,481		)	(39,776		)
Net carrying amount of the liability component	$	214,519		$	213,224
Equity component	$	43,930		$	43,930

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The unamortized debt discount will be amortized to interest expense using the effective interest method through March 2018.

We recognized the following amounts in interest expense in the condensed consolidated statement of operations related to the 4.00% Debentures:

Three months ended April 30,	2012		2011
Interest expense at the contractual interest rate	$	2,530	$	759
Amortization of debt discount	$	1,295	$	404

The effective interest rate on the 4.00% Debentures was 7.25% for the three months ended April 30, 2012.

6.25% Debentures due 2026: During the three months ended April 30, 2011, we redeemed the remaining $196,509 principal amount of the 6.25% Convertible Subordinated Debentures (6.25% Debentures) due 2026 utilizing proceeds received from the issuance of the 4.00% Debentures and cash on hand. In connection with this redemption, we incurred a before tax net loss on the early extinguishment of debt of $11,192, which included a $6,190 write-off of net unamortized debt discount, a $3,518 premium on redemption of the 6.25% Debentures, and a write-off of $1,484 for the unamortized debt issuance costs. This loss is included in interest expense on the condensed consolidated statement of operations. No balance remained outstanding following this redemption.

We recognized the following amounts in interest expense in the condensed consolidated statements of operations related to the 6.25% Debentures:

Three months ended April 30,	2012		2011
Interest expense at the contractual interest rate	$	—	$	2,900
Amortization of debt discount	$	—	$	793

Term Loan due 2013: In April 2010, we entered into a three-year term loan (Term Loan) for $20,000 to repay borrowings under our revolving credit facility used to purchase office buildings in Fremont, California. During the three months ended April 30, 2011, we repaid the remaining obligation of $18,500 under the Term Loan utilizing proceeds received from the issuance of the 4.00% Debentures. In connection with this repayment, we incurred a before tax net loss on the early retirement of debt of $312, representing the write-off of the unamortized debt issuance costs. This loss is included in interest expense on the condensed consolidated statement of operations. No balance remained outstanding following this repayment.

Other Notes Payable: In November 2009, we issued a subordinated note payable as part of a business combination. The note bears interest at a rate of 3.875% and is due in full along with all accrued interest on November 17, 2012.

(7) Commitments and Contingencies

Leases

We lease a majority of our field sales offices and research and development facilities under non-cancelable operating leases. In addition, we lease certain equipment used in our research and development activities. This equipment is generally leased on a month-to-month basis after meeting a six-month lease minimum. There have been no significant changes to the future minimum lease payments due under non-cancelable operating leases disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2012.

Indemnifications

Our license and services agreements generally include a limited indemnification provision for claims from third parties relating to our intellectual property. The indemnification is generally limited to the amount paid by the customer, a multiple of the amount paid by the customer, or a set cap. As of April 30, 2012, we were not aware of any material liabilities arising from these indemnification obligations.

Legal Proceedings

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From time to time we are involved in various disputes and litigation matters that arise in the ordinary course of business. These include disputes and lawsuits relating to intellectual property rights, contracts, distributorships, and employee relations matters. Periodically, we review the status of various disputes and litigation matters and assess our potential exposure. When we consider the potential loss from any dispute or legal matter probable and the amount or the range of loss can be estimated, we will accrue a liability for the estimated loss. To the extent there is a reasonable possibility (within the meaning of ASC 450 Contingencies) that losses could exceed amounts already accrued, if any, and the additional loss or range of loss is able to be estimated, we would disclose the additional loss or range of loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, we base accruals on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation matters and may revise estimates. We believe that the outcome of current litigation, individually and in the aggregate, will not have a material effect on our results of operations.

In some instances, we are unable to reasonably estimate any potential loss or range of loss. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have. There are many reasons that we cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding; damages sought that are unspecific, unsupportable, unexplained or uncertain; discovery not having been started or incomplete; the complexity of the facts that are in dispute; the difficulty of assessing novel claims; the parties not having engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and/or the often slow pace of litigation.

(8) Employee Stock and Savings Plans

Stock Options Plans and Stock Plans

Our 2010 Omnibus Incentive Plan (Incentive Plan) is administered by the Compensation Committee of our Board of Directors and permits accelerated vesting of outstanding options, restricted stock units, restricted stock awards, and other equity incentives upon the occurrence of certain changes in control of our company. Stock options and restricted stock units under the Incentive Plan are generally expected to vest over four years. Stock options have an expiration date of ten years from the date of grant and an exercise price no less than the fair market value of the shares on the date of grant.

Employee Stock Purchase Plans

We have an employee stock purchase plan (ESPP) for U.S. employees and an ESPP for certain foreign subsidiary employees. The ESPPs provide for six-month offerings commencing on January 1 and July 1 of each year with purchases on June 30 and December 31 of each year. Each eligible employee may purchase up to six thousand shares of stock on each purchase date (but no more than an annual offering date total fair market value of $25) at prices no less than 85% of the lesser of the fair market value of the shares on the offering date or on the purchase date.

Stock-Based Compensation Expense

The following table summarizes stock compensation expense recognized:

Three months ended April 30,	2012		2011
Cost of revenues	$	319	$	267
Operating expenses:
Research and development	2,117		2,139
Marketing and selling	1,549		1,615
General and administration	1,162		1,659
Equity plan-related compensation expense	$	5,147	$	5,680

(9)Incentive Stock Rights—Our Board of Directors has the authority to issue incentive stock in one or more series and to determine the relative rights and preferences of the incentive stock. On June 24, 2010, we adopted an Incentive Stock Purchase Rights Plan and declared a dividend distribution of one right for each outstanding share of common stock, payable to holders of record on July 6, 2010. On December 23, 2011 our Board of Directors amended the Stock Purchase Rights Plan to, among other things, extend the expiration date of the rights and increase the exercise price of each right. As long as the rights are attached to our common stock, we will issue one right with each new share of common stock so that all such shares will have attached rights. Under certain conditions, each right may be exercised to purchase 1/10,000 of a share of Series B Junior

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Participating Incentive Stock at a purchase price of sixty-five dollars, subject to adjustment. The rights are not presently exercisable and will only become exercisable if a person or group acquires or commences a tender offer to acquire 15% or more of our common stock. If a person or group acquires 15% or more of the common stock, each right will be adjusted to entitle its holder to receive, upon exercise, common stock (or, in certain circumstances, other assets of ours) having a value equal to two times the exercise price of the right, or each right will be adjusted to entitle its holder to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the right, depending on the circumstances. The rights expire on June 30, 2013 and may be redeemed by us for $0.001 per right. The rights do not have voting or dividend rights and have no dilutive effect on our earnings.

(10)Net Income (Loss) Per Share—We compute basic net income (loss) per share using the weighted average number of common shares outstanding during the period. We compute diluted net income (loss) per share using the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of common shares issuable upon vesting of restricted stock units, common shares issuable upon exercise of stock options, and purchase rights from ESPPs using the treasury stock method, and common shares issuable upon conversion of the convertible subordinated debentures, if dilutive.

The following provides the computation of basic and diluted net income (loss) per share:

Three months ended April 30,	2012		2011
Net income (loss) attributable to Mentor Graphics shareholders	$	28,182	$	(2,353	)
Weighted average common shares used to calculate basic net income (loss) per share	109,907		111,769
Employee stock options, restricted stock units, and employee stock purchase plan	3,336		—
Weighted average common and potential common shares used to calculate diluted net income (loss) per share	113,243		111,769
Basic net income (loss) per share attributable to Mentor Graphics shareholders	$	0.26	$	(0.02	)
Diluted net income (loss) per share attributable to Mentor Graphics shareholders	$	0.25	$	(0.02	)

We excluded from the computation of diluted net income (loss) per share stock options, restricted stock units, and ESPP purchase rights to purchase 3,022 shares of common stock for the three months ended April 30, 2012 compared to 6,959 for the three months ended April 30, 2011. The stock options, restricted stock units, and ESPP purchase rights were anti-dilutive either because we incurred a net loss for the period or the stock options or ESPP purchase rights were determined to be anti-dilutive as a result of applying the treasury stock method.

The effect of the conversion of the 4.00% Debentures was anti-dilutive and therefore excluded from the computation of diluted net income (loss) per share. We assume that the 4.00% Debentures will be settled in common stock for purposes of calculating the dilutive effect of the 4.00% Debentures.

The conversion features of the 4.00% Debentures, which allow for settlement in cash or a combination of cash and common stock, are further described in Note 6. “Notes Payable.”

(11) Special Charges—The following is a summary of the components of the special charges:

Three months ended April 30,	2012		2011
Employee severance and related costs	$	988	$	1,147
Other costs	159		3,400
Total special charges	$	1,147	$	4,547

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. Employee severance and related costs include severance benefits, notice pay, and outplacement services. These rebalance charges generally represent the aggregate of numerous unrelated rebalance plans which impact several employee groups, none of which is individually material to our financial position or results of operations. We determine termination benefit amounts based on employee status, years of service, and local statutory requirements. We communicate termination benefits to the affected employees prior to the end of the quarter in which we record the charge. Special charges may also include expenses incurred related to acquisitions, excess facility costs, and asset related charges.

Approximately 38% of the employee severance and related costs for the three months ended April 30, 2012 were paid during the period. We expect to pay the remainder during the fiscal year ending January 31, 2013.

14

Substantially all of the employee severance and related costs for the three months ended April 30, 2011 were paid during the fiscal year ending January 31, 2012. There have been no significant modifications to the amount of these charges.

Other special charges for the three months ended April 30, 2011 included costs of $3,102 related to consulting fees associated with our fiscal 2012 proxy contest.

Accrued special charges are included in accrued liabilities and other long-term liabilities in the condensed consolidated balance sheets. The following table shows changes in accrued special charges during the three months ended April 30, 2012:

	Accrued special charges as of		Charges during the three months ended		Payments during the three months ended			Accrued special charges as of
	January 31, 2012		April 30, 2012		April 30, 2012			April 30, 2012		(1	)
Employee severance and related costs	$	3,668	$	988	$	(2,326	)	$	2,330
Other costs	2,811		159		(135		)	2,835
Total accrued special charges	$	6,479	$	1,147	$	(2,461	)	$	5,165

⁽¹⁾  Of the $5,165 total accrued special charges as of April 30, 2012, $2,101 represented the long-term portion of accrued lease termination fees and other facility costs, net of sublease income and other long-term costs. The remaining balance of $3,064 represented the short-term portion of accrued special charges.

(12) Other Income (Expense), Net—Other income (expense), net was comprised of the following:

Three months ended April 30,	2012			2011
Interest income	$	475		$	534
Foreign currency exchange loss	(215		)	(651		)
Other, net	(177		)	(358		)
Other income (expense), net	$	83		$	(475	)

(13)Related Party Transactions—Certain members of our Board of Directors also serve on the board of directors for some of our customers. Management believes the transactions between these customers and us were carried out on an arm’s-length basis. As of April 30, 2012 and January 31, 2012, accounts receivable from these customers were not significant. The following table shows revenue recognized from these customers:

Three months ended April 30,	2012			2011
Revenues from customers	$	9,002		$	17,306
Percentage of total revenues	3.6		%	7.5		%

(14) Income Taxes—The provision for income taxes was comprised of the following:

Three months ended April 30,	2012		2011
Income tax expense	$	781	$	611

Generally, the provision for income taxes is the result of the mix of profits and losses earned in various tax jurisdictions with a broad range of income tax rates, withholding taxes (primarily in certain foreign jurisdictions), changes in tax reserves, and the application of valuation allowances on deferred tax assets. Accounting guidance requires for interim reporting that we evaluate our provision for income tax expense (benefit) based on our projected results of operations for the full year, and record an adjustment in the quarter. Because some of our consolidated entities have losses for which no tax benefit is recognized, their provisions for income tax expense (benefit) must be separately evaluated.

Three months ended April 30,	2012			2011
Effective Tax Rate	3		%	(35		)%
Period specific items benefit	$	(1,327	)	$	(1,334	)

15

For the three months ended April 30, 2012, our effective tax rate is 3% inclusive of $1,327 net favorable period specific items that are primarily due to a reduction in liabilities for uncertain tax positions. Without period specific items, our effective tax rate is 7% for the three months ended April 30, 2012. We project an effective tax rate of 7% inclusive of period specific items for the year ended January 31, 2013.

Our full year effective tax rate differs from tax computed at the U.S. federal statutory rate of 35% primarily due to:

•The benefit of lower tax rates on earnings of foreign subsidiaries;

•Reduction in reserves for uncertain tax positions;

•Forecasted utilization of net operating loss carryforwards for which no previous benefit was recognized; and

•The application of tax incentives for research and development.

These differences are partially offset by:

•Non-deductible employee stock purchase plan compensation expense; and

•Withholding taxes in certain foreign jurisdictions.

Actual results may differ significantly from our current projections. Further, on a quarterly basis, our effective tax rate could fluctuate considerably and could be adversely affected to the extent earnings are higher or lower than anticipated in countries where we have corresponding higher or lower statutory rates.

As of April 30, 2012, we had a liability of $32,532 for income taxes associated with uncertain income tax positions. All of these tax positions are classified as long-term liabilities in our condensed consolidated balance sheet, as we generally do not anticipate the settlement of the liabilities will require payment of cash within the next twelve months. Further, certain liabilities may result in the reduction of deferred tax assets rather than settlement in cash. We are not able to reasonably estimate the timing of any cash payments required to settle these liabilities and do not believe that the ultimate settlement of these liabilities will materially affect our liquidity.

(15)Supplemental Cash Flow Information—The following provides information concerning supplemental disclosures of cash flow activities:

Three months ended April 30,	2012		2011
Cash paid, net for:
Interest	$	5,400	$	8,538
Income taxes	$	2,723	$	2,353

As part of the Valor Computerized Systems, Ltd. acquisition in fiscal 2011, we acquired an investment in Frontline PCB Solutions Limited Partnership (Frontline). During the three months ended April 30, 2012, we received returns on investment of $950 from Frontline which is included in net cash provided by operating activities in our condensed consolidated statement of cash flows.

(16)Segment Reporting—Our Chief Operating Decision Makers (CODMs), which consist of the Chief Executive Officer and the President, review our consolidated results within one operating segment. In making operating decisions, our CODMs primarily consider consolidated financial information accompanied by disaggregated revenue information by geographic region.

We eliminate all intercompany revenues in computing revenues by geographic regions. Revenues related to operations in the geographic regions were:

Three months ended April 30,	2012		2011
Revenues:
North America	$	129,110	$	90,323
Europe	52,631		52,197
Japan	24,983		41,634
Pacific Rim	41,194		45,881
Total revenues	$	247,918	$	230,035

For the three months ended April 30, 2012, one customer accounted for 20% of our total revenues. For the three months ended April 30, 2011, one customer accounted for 21% of our total revenues.

16

We segregate revenues into five categories of similar products and services. Each category includes both product and related support revenues. Revenues information is as follows:

Three months ended April 30,	2012		2011
Revenues:
IC Design to Silicon	$	103,189	$	86,288
Integrated System Design	55,676		51,609
Scalable Verification	56,310		58,742
New & Emerging Products	15,405		17,968
Services & Other	17,338		15,428
Total revenues	$	247,918	$	230,035

Certain reclassifications have been made between categories in the fiscal 2012 presentation to be consistent with the fiscal 2013 presentation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, numerical references are in millions, except for percentages and per share data.

Overview

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Form 10-Q. Certain of the statements below contain forward-looking statements. These statements are predictions based upon our current expectations about future trends and events. Actual results could vary materially as a result of certain factors, including but not limited to, those expressed in these statements. In particular, we refer you to the risks discussed in Part II, Item 1A. “Risk Factors” and in our other Securities and Exchange Commission filings, which identify important risks and uncertainties that could cause our actual results to differ materially from those contained in the forward-looking statements.

We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Form 10-Q. All subsequent written or spoken forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Form 10-Q are made only as of the date of this Form 10-Q. We do not intend, and undertake no obligation, to update these forward-looking statements.

The Company

We are a supplier of electronic design automation (EDA) tools — advanced computer software and emulation hardware systems used to automate the design, analysis, and testing of complex electro-mechanical systems, electronic hardware, and embedded systems software in electronic systems and components. We market our products and services worldwide, primarily to large companies in the military/aerospace, communications, computer, consumer electronics, semiconductor, networking, multimedia, and transportation industries. Through the diversification of our customer base among these various customer markets, we attempt to reduce our exposure to fluctuations within each market. We sell and license our products through our direct sales force and a channel of distributors and sales representatives. In addition to our corporate offices in Wilsonville, Oregon, we have sales, support, software development, and professional service offices worldwide.

We focus on products and design platforms where we have or believe we can attain leading market share. Part of this approach includes developing new applications and exploring new markets where EDA companies have not generally participated. We believe this strategy leads to a more diversified product and customer mix and can help reduce the volatility of our business and our risk as a creditor, while increasing our potential for growth.

We derive system and software revenues primarily from the sale of term software license contracts, which are typically three to four years in length. We generally recognize revenue for these arrangements upon product delivery at the beginning of the license term. Larger enterprise-wide customer contracts, which can represent 50% or more of our system and software revenue, drive the majority of our period-to-period revenue variances. We identify term licenses where collectibility is not probable and recognize revenue on those licenses when cash is received. Ratable license revenues also include short-term term licenses as well as other term licenses where we provide the customer with rights to unspecified or unreleased future products. For these reasons, the timing of large contract renewals, customer circumstances, and license terms are the primary drivers of revenue changes from period to period, with revenue changes also being driven by new contracts and increases in the capacity of existing contracts, to a lesser extent.

The EDA industry is competitive and is characterized by very strong leadership positions in specific segments of the EDA market. These strong leadership positions can be maintained for significant periods of time as the software can be difficult to master and customers are disinclined to make changes once their employees, as well as others in the industry, have developed familiarity with a particular software product. For these reasons, much of our profitability arises from areas in which we are the leader. We will continue our strategy of developing high quality tools with number one market share potential, rather than being a broad-line supplier with undifferentiated product offerings. This strategy allows us to focus investment in areas where customer needs are greatest and where we have the opportunity to build significant market share.

Our products and services are dependent to a large degree on new design projects initiated by customers in the integrated circuit and electronics system industries. These industries can be cyclical and are subject to constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, short product life cycles, and wide fluctuations in product supply and demand. Furthermore, extended economic downturns can result in reduced funding for development due to downsizing and other business restructurings. These pressures are offset by the need for the development and introduction of next generation products once an economic recovery occurs.

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Known Trends and Uncertainties Impacting Future Results of Operations

Our revenue has historically fluctuated quarterly and has generally been the highest in the fourth quarter of our fiscal year due to our customers’ corporate calendar year-end spending trends and the timing of contract renewals.

Our top ten accounts make up approximately 50% of our receivables, including both short and long-term balances. We have not experienced and do not presently expect to experience collection issues with these customers. Net of reserves, we have no receivables greater than 60 days past due, and continue to experience no difficulty in factoring our high quality receivables.

Bad debt expense recorded for the first three months of fiscal 2013 was not material. However, we do have exposures within our receivables portfolio to customers with weak credit ratings. These receivable balances do not represent a material portion of our portfolio but could have a material adverse effect on earnings in any given quarter, should additional allowances for doubtful accounts be necessary.

A multi-quarter increase or decrease in service and support revenue can be an early indicator that our business is either strengthening or weakening. Our experience is that customers will scale back on the purchase of outside services in times of economic decline or weakness. Conversely, in times of economic growth and strengthening, we generally observe an increase in the purchase of outside services. In the first three months of fiscal 2013 compared to the first three months of fiscal 2012, service and support revenues increased approximately 10%.

Bookings during the first three months of fiscal 2013decreased by approximately 30% compared to the first three months of fiscal 2012 primarily due to the timing of term license contract renewals. Bookings are the value of executed orders during a period for which revenue has been or will be recognized within six months for products and within twelve months for professional services and training. The ten largest transactions for the first three months of fiscal 2013 accounted for approximately 35% of total bookings compared to 40% for the first three months of fiscal 2012. The number of new customers during the first three months of fiscal 2013, excluding PADS (our ready to use printed circuit board design tools) remained consistent with the levels experienced during the first three months of fiscal 2012.

Product Developments

During the three months ended April 30, 2012, we continued to execute our strategy of focusing on challenges encountered by customers, as well as building upon our well-established product families. We believe that customers, faced with leading-edge design challenges in creating new products, generally choose the best EDA products in each category to build their design environment. Through both internal development and strategic acquisitions, we have focused on areas where we believe we can build a leading market position or extend an existing leading market position.

We believe that the development and commercialization of EDA software tools is generally a three to five year process with limited customer adoption and sales in the first years of tool availability. Once tools are adopted, however, their life spans tend to be long. During the first three months of fiscal 2013, we introduced new products and upgrades to existing products and did not have any significant products reaching the end of their useful economic life.

Critical Accounting Policies

We base our discussion and analysis of our financial condition and results of operations upon our condensed consolidated financial statements which have been prepared in accordance with United States (U.S.) generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our estimates on an on-going basis. We base our estimates on historical experience, current facts, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs, and expenses that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results could differ from those estimates.

We believe that the accounting for revenue recognition, valuation of trade accounts receivable, valuation of deferred tax assets, income tax reserves, business combinations, goodwill, intangible assets, long-lived assets, special charges, and accounting for stock-based compensation are the critical accounting estimates and judgments used in the preparation of our condensed consolidated financial statements. For further discussion of our critical accounting policies, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in Part II of our

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Annual Report on Form 10-K for the year ended January 31, 2012.

RESULTS OF OPERATIONS

Revenues and Gross Margins

Three months ended April 30,	2012			Change		2011
System and software revenues	$	149.4		7	%	$	139.6
System and software gross margin	$	132.4		10	%	$	120.2
Gross margin percent	89		%			86		%
Service and support revenues	$	98.6		9	%	$	90.4
Service and support gross margin	$	70.1		8	%	$	65.2
Gross margin percent	71		%			72		%
Total revenues	$	247.9		8	%	$	230.0
Total gross margin	$	202.5		9	%	$	185.4
Gross margin percent	82		%			81		%

System and Software

Three months ended April 30,	2012		Change		2011
Upfront license revenues	$	126.0	7	%	$	118.3
Ratable license revenues	23.4		10	%	21.3
Total system and software revenues	$	149.4	7	%	$	139.6

We derive system and software revenues from the sale of licenses of software products and emulation hardware systems, including finance fee revenues from our long-term installment receivables resulting from product sales. Upfront license revenues consist of perpetual licenses and term licenses for which we recognize revenue upon product delivery at the start of a license term. We identify term licenses where collectibility is not probable and recognize revenue on those licenses when cash is received. Additionally, ratable license revenues also include short-term term licenses, term licenses where we provide the customer with rights to unspecified or unreleased future products, and finance fees from the accretion of the discount on long-term installment receivables.

Our top ten customers accounted for approximately 65% of system and software revenues for the three months ended April 30, 2012 compared to approximately 60% for the three months ended April 30, 2011.

System and software revenues increased for the three months ended April 30, 2012 compared to the three months ended April 30, 2011 primarily as a result of increased software license revenues of $10.3, driven by contract renewals during the three months ended April 30, 2012 compared to the three months ended April 30, 2011.

For the three months ended April 30, 2012, one customer accounted for 20% of our total revenues. For the three months ended April 30, 2011, one customer accounted for 21% of our total revenues.

System and software gross margin percentage was higher for the three months ended April 30, 2012 compared to the three months ended April 30, 2011 primarily due to an increase in software product revenues and a decrease in amortization of purchased technology.

Service and Support

We derive service and support revenues from software and hardware post-contract maintenance or support services and professional services, which includes consulting, training, and other services. Professional services are lower margin offerings which are staffed according to fluctuations in demand. Support services operate under a less variable cost structure.

The increase in service and support revenues for the three months ended April 30, 2012 compared to the three months ended April 30, 2011 was driven by increased support revenues of $6.4 resulting from an increase in our installed base. Consulting and training services increased by $1.8 for the three months ended April 30, 2012 compared to the three months ended April 30,

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2011, primarily due to increased customer demand for services.

Geographic Revenues Information

Revenue by Geography

Three months ended April 30,	2012		Change		2011
North America	$	129.1	43	%	$	90.3
Europe	52.6		1	%	52.2
Japan	25.0		(40	)%	41.6
Pacific Rim	41.2		(10	)%	45.9
Total revenues	$	247.9	8	%	$	230.0

The change in revenues in North America and Japan for the three months ended April 30, 2012 compared to the three months ended April 30, 2011 were the result of the timing and geographic location of contract renewals.

For the three months ended April 30, 2012, approximately one-third of European and three-fourths of Japanese revenues were subject to exchange rate fluctuations as they were booked in local currencies. We recognize additional revenues in periods when the U.S. dollar weakens in value against foreign currencies. Likewise, we recognize lower revenues in periods when the U.S. dollar strengthens in value against foreign currencies.

Foreign currency had a nominal impact for the three months ended April 30, 2012 compared to the three months ended April 30, 2011.

For additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see discussion in Part I, “Item 3. Quantitative and Qualitative Disclosures About Market Risk –Foreign Currency Risk.”

Operating Expenses

Three months ended April 30,	2012			Change		2011
Research and development	$	71.1		2	%	$	69.4
Marketing and selling	79.8			2	%	77.9
General and administration	16.6			(1	)%	16.8
Equity in earnings of Frontline	(0.6		)	40	%	(1.0		)
Amortization of intangible assets	1.7			6	%	1.6
Special charges	1.1			(76	)%	4.5
Total operating expenses	$	169.7		—	%	$	169.2

Selected Operating Expenses as a Percentage of Total Revenues

Three months ended April 30,	2012		2011
Research and development	29	%	30	%
Marketing and selling	32	%	34	%
General and administration	7	%	7	%
Total selected operating expenses	68	%	71	%

Research and Development

Research and development expenses increased by $1.7 for the three months ended April 30, 2012 compared to the three months ended April 30, 2011. The components of this increase are summarized as follows:

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	Change for the three months ended April 30
Salaries, variable compensation, and benefits expenses	$	(1.1	)
Expenses associated with acquired businesses	2.1
Other expenses	0.7
Total change in research and development expenses	$	1.7

Marketing and Selling

Marketing and selling expenses increased by $1.9 for the three months ended April 30, 2012 compared to the three months ended April 30, 2011. The components of this increase are summarized as follows:

	Change for the three months ended April 30
Expenses associated with acquired businesses	$	1.6
Other expenses	0.3
Total change in marketing and selling expenses	$	1.9

General and Administration

There were no significant changes within general and administration expenses which decreased by ($0.2) for the three months ended April 30, 2012 compared to the three months ended April 30, 2011.

We incur a substantial portion of our operating expenses outside the U.S. in various foreign currencies. When currencies weaken against the U.S. dollar, our operating expense performance is positively affected and when currencies strengthen, our operating expense performance is adversely affected. We experienced favorable currency movements of approximately $1.9 for the three months ended April 30, 2012 in total operating expenses, compared to the three months ended April 30, 2011, primarily due to the euro and the Indian rupee, as well as other foreign currencies. The impact of these currency movements is reflected in the movements in operating expenses detailed above.

Equity in Earnings of Frontline

In connection with our acquisition of Valor Computerized Systems, Ltd. (Valor) on March 18, 2010, we acquired Valor’s 50% interest in a joint venture, Frontline PCB Solutions Limited Partnership (Frontline). Frontline is owned equally by Valor and Orbotech, Ltd., an Israeli company.

Frontline reports on a calendar year basis. As such, we record our interest in the earnings or losses of Frontline in the subsequent month following incurrence. The following presents the summarized financial information of Mentor’s 50% interest in Frontline for the three months ended March 31, 2012 and 2011:

For the three months ended March 31,	2012			2011
Net income, as reported	$	1.8		$	2.2
Amortization of purchased technology and other identified intangible assets	(1.2		)	(1.2		)
Equity in earnings of Frontline	$	0.6		$	1.0

Special Charges

For the three months ended March 31,	2012		Change		2011
Employee severance and related costs	$	1.0	(9	)%	$	1.1
Other costs, net	0.1		(97	)%	3.4
Total special charges	$	1.1	(76	)%	$	4.5

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. Employee severance and related costs include severance benefits,

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notice pay, and outplacement services. These rebalance charges generally represent the aggregate of numerous unrelated rebalance plans which impact several employee groups, none of which is individually material to our financial position or results of operations. We determine termination benefit amounts based on employee status, years of service, and local statutory requirements. We communicate termination benefits to the affected employees prior to the end of the quarter in which we record the charge. Special charges may also include expenses incurred related to acquisitions, excess facility costs, and asset related charges.

Other special charges for the three months ended April 30, 2011 primarily consisted of $3.1 for advisory fees associated with our proxy contest.

Interest Expense

Interest expense decreased by $12.8 for the three months ended April 30, 2012 compared to the three months ended April 30, 2011. The decrease was primarily due to the repayment of debt in April 2011 and the resulting loss of $11.5 on the early extinguishment of debt, which included a $6.2 write-off of the net unamortized debt discount, a $3.5 premium for the redemption of the 6.25% Convertible Subordinated Debentures, and a write-off of $1.8 for the remaining portion of unamortized debt issuance costs.

Provision for Income Taxes

Three months ended April 30,	2012		Change		2011
Income tax expense	$	0.8	33	%	$	0.6

Generally, the provision for income taxes is the result of the mix of profits and losses earned in various tax jurisdictions with a broad range of income tax rates, withholding taxes (primarily in certain foreign jurisdictions), changes in tax reserves, and the application of valuation allowances on deferred tax assets. Further, the provision considers certain foreign operations, including that of our Irish subsidiaries, which are forecasted to have significant earnings. Accounting guidance requires for interim reporting that we evaluate our provision for income tax expense (benefit) based on our projected results of operations for the full year, and record an adjustment in the quarter. Because some of our consolidated entities have losses for which no tax benefit is recognized, their provision for income tax expense (benefit) must be separately evaluated.

Three months ended April 30,	2012			2011
Effective Tax Rate	3		%	(35		)%
Net period specific items benefit	$	(1.3	)	$	(1.3	)
Effective tax rate without period specific items	7		%	(112		)%

For the three months ended April 30, 2012, we have a 7% effective tax rate without period specific items. The change in the current period effective tax rate compared to the three months ended April 30, 2011 is the result of the application of the accounting guidance for interim periods to a jurisdiction that had a prior year loss for which no tax benefits were recognized, while in the current year this jurisdiction is forecasting income.

For the full year forecast, inclusive of period specific items, we have projected a 7% effective tax rate that differs from tax computed at the U.S. federal statutory rate of 35% primarily due to:

• The benefit of lower tax rates on earnings of foreign subsidiaries;

• Reduction in reserves for uncertain tax positions;

• Forecasted utilization of net operating loss carryforwards for which no benefit was previously recognized; and

• The application of tax incentives for research and development.

These differences are partially offset by:

• Non-deductible employee stock purchase plan compensation expense; and

• Withholding taxes in certain foreign jurisdictions.

We have not provided for income taxes on the undistributed earnings of our foreign subsidiaries to the extent they are considered

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permanently reinvested outside of the U.S. Upon repatriation, some of these earnings may be sheltered by U.S. loss carryforwards, research and development credits and foreign tax credits, which may reduce the federal tax liability associated with any future foreign dividend. Where the earnings of our foreign subsidiaries are not treated as permanently reinvested, we have considered the impact in our provision.

We determined deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities. In addition, we record deferred tax assets for net operating loss carryforwards and tax credit carryforwards. We calculated the deferred tax assets and liabilities using the enacted tax rates and laws that will be in effect when we expect the differences to reverse. A valuation allowance is recorded when it is more likely than not that all or some portion of the

deferred tax asset will not be realized. Since 2004, we have determined it is uncertain whether our U.S. entity will generate sufficient taxable income and foreign source income to fully utilize net operating loss carryforwards, research and experimentation credit carryforwards, and foreign tax credit carryforwards before expiration. Accordingly, we recorded a valuation allowance against those deferred tax assets for which realization does not meet the more likely than not standard. We have established valuation allowances related to certain foreign deferred tax assets based on historical losses as well as future expectations in certain jurisdictions. We will continue to evaluate the realizability of the deferred tax assets on a periodic basis.

We are subject to income taxes in the U.S. and in numerous foreign jurisdictions. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. The statute of limitations for adjustments to our historic tax obligations varies from jurisdiction to jurisdiction. In some cases it may be extended or be unlimited. Furthermore, net operating loss and tax credit carryforwards may be subject to adjustment after the expiration of the statute of limitations of the year such net operating losses and tax credits originated. Our larger jurisdictions generally provide for a statute of limitations from three to five years. We are currently under examination in various jurisdictions. The examinations are in different stages and timing of their resolution is difficult to predict. For U.S. federal income tax purposes, the statute of limitations is open for fiscal year 2009 and forward although net operating losses and credits from all years are subject to examination and adjustments for the three years following the year in which they were utilized. The statute of limitations remains open for years on or after fiscal 2008 in Japan and in Ireland.

We have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by taxing authorities even though we believe that the positions we have taken are appropriate. We believe our tax reserves are adequate to cover potential liabilities. We review the tax reserves quarterly and as circumstances warrant and adjust the reserves as events occur that affect our potential liability for additional taxes. Many of these events cannot be predicted, such as clarifications of tax law by administrative or judicial means, and it is often difficult to predict the final outcome or timing of resolution of any particular tax matter. We expect to record additional reserves in future periods with respect to our tax filing positions. To the extent that uncertain tax positions resolve in our favor, it could have a positive impact on our effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Our primary ongoing cash requirements are for product development, operating activities, capital expenditures, debt service, and acquisition opportunities that may arise. Our primary sources of liquidity are cash generated from operations and borrowings on our revolving credit facility.

We currently have sufficient funds for domestic operations and do not anticipate the need to repatriate funds associated with our permanently reinvested foreign earnings. As of April 30, 2012, we have cash totaling $104.8 held by our foreign subsidiaries. A significant portion of our offshore cash is accessible without a significant tax cost as some of our foreign earnings were previously taxed in the U.S., and other foreign earnings may be sheltered from U.S. tax by net operating loss and tax credit carryforwards. To the extent our foreign earnings are not permanently reinvested, we have provided for the tax consequences that would ensue upon their repatriation. In the event funds which are treated as permanently reinvested are repatriated, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.

To date, we have experienced no loss or lack of access to our invested cash; however, we can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets.

At any point in time, we have significant balances in operating accounts that are with individual third-party financial institutions, which may exceed the Federal Deposit Insurance Corporation insurance limits or other regulatory insurance program limits. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.

We anticipate that the following will be sufficient to meet our working capital needs on a short-term (twelve months or less) and a

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long-term (more than twelve months) basis:

• Current cash balances;

• Anticipated cash flows from operating activities, including the effects of selling and financing customer term receivables;

• Amounts available under existing revolving credit facilities; and

• Other available financing sources, such as the issuance of debt or equity securities.

We have experienced no difficulties to date in raising debt. However, capital markets have been volatile, and we cannot assure that we will be able to raise debt or equity capital on acceptable terms, if at all.

Three months ended April 30,	2012			2011
Cash provided by (used in) operating activities	$	6.1		$	(9.3	)
Cash used in investing activities	$	(12.1	)	$	(8.4	)
Cash provided by (used in) financing activities	$	(4.2	)	$	0.3

Operating Activities

Cash flows from operating activities consist of our net income (loss), adjusted for certain non-cash items and changes in operating assets and liabilities. Our cash flows from operating activities are significantly influenced by the payment terms on our license agreements and by our sales of qualifying accounts receivable. Our customers’ inability to fulfill payment obligations could adversely affect our cash flow. Though we have not, to date, experienced a material level of defaults, material payment defaults by our customers as a result of negative economic conditions or otherwise could have a material adverse effect on our financial condition. We monitor our accounts receivable portfolio for customers with low or declining credit ratings and increase our collection efforts when necessary.

Trade Accounts and Term Receivables

As of	April 30, 2012		January 31, 2012
Trade accounts receivable, net	$	354.9	$	354.9
Term receivables, long-term	$	212.7	$	220.4
Average days sales outstanding in short-term receivables	129 days		100 days
Average days sales outstanding in short-term receivable, net, excluding the current portion of term receivables	43 days		38 days

The increase in the average days sales outstanding in short-term receivables as of April 30, 2012 was primarily due to a decrease in revenue in the first quarter of fiscal 2013 compared to the fourth quarter of fiscal 2012.

The current portion of term receivables was $236.9 as of April 30, 2012 and $221.4 as of January 31, 2012. Term receivables are attributable to multi-year term license sales agreements. We include amounts for term agreements that are due within one year in trade accounts receivable, net, and balances that are due in more than one year in term receivables, long-term. We use term agreements as a standard business practice and have a history of successfully collecting under the original payment terms without making concessions on payments, products, or services. Total term receivables were $449.6 as of April 30, 2012 compared to $441.8 as of January 31, 2012.

We enter into agreements to sell qualifying accounts receivable from time to time to certain financing institutions on a non-recourse basis. We received net proceeds from the sale of receivables of $7.5 for the three months ended April 30, 2012 compared to $11.4 for the three months ended April 30, 2011. We continue to have no difficulty in factoring receivables and continue to evaluate the economics of the sale of accounts receivable. We have not set a target for the sale of accounts receivables for the remainder of fiscal 2013.

Accrued Payroll and Related Liabilities

As of	April 30, 2012		January 31, 2012
Accrued payroll and related liabilities	$	57.8	$	112.3

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The decrease in accrued payroll and related liabilities as of April 30, 2012 compared to January 31, 2012 was primarily due to incentive payments made during the quarter ended April 30, 2012 on fiscal 2012 year-end accruals. We generally experience higher accrued payroll and related liability balances at year-end primarily due to increased commission accruals associated with an increase in revenues in the fourth quarter. Additionally, we generally experience an increase in variable compensation at year-end due to the full year achievement of results.

Investing Activities

Cash used in investing activities for the three months ended April 30, 2012 primarily consisted of cash paid for capital expenditures.

Expenditures for property, plant, and equipment increased to $11.6 for the three months ended April 30, 2012 compared to $6.3 for the three months ended April 30, 2011. The expenditures for property, plant, and equipment for the three months ended April 30, 2012 were primarily a result of spending on information technology and infrastructure improvements within facilities. We expect total capital expenditures for property, plant, and equipment for fiscal 2013 to be approximately $60.0. We plan to finance our investments in property, plant, and equipment using cash on hand or borrowings on the revolving credit facility.

Financing Activities

For the three months ended April 30, 2012, cash used in financing activities consisted primarily of repayments of short-term borrowings offset in part by proceeds from the issuance of common stock. Additional discussion regarding notes payable are presented in the section below.

In April 2011, we announced a share repurchase program under which we may purchase up to $150.0 of our common stock over a three year period through April 2014. In February 2012, the Board of Directors approved an increase in the amount we may repurchase under this program from $150.0 to $200.0. During the three months ended April 30, 2012, we did not repurchase any shares of common stock under this program. Under the terms of our revolving credit facility, the amount we can repurchase under the share repurchase program is limited to $50.0 plus 70% of our cumulative net income for periods after January 31, 2011. An additional $63.4 of our stock can be repurchased under this limit as of April 30, 2012.

Other factors affecting liquidity and capital resources

4.00% Debentures due 2031

In April 2011, we issued $253.0 of 4.00% Convertible Subordinated Debentures due 2031 (4.00% Debentures). Interest on the 4.00% Debentures is payable semi-annually in April and October. The 4.00% Debentures are convertible, under certain circumstances, into our common stock at a conversion price of $20.538 per share for a total of 12.3 shares as of April 30, 2012.

Upon conversion of any 4.00% Debentures, a holder will receive:

(i) Cash up to the principal amount of the 4.00% Debentures that are converted; and

(ii) Cash or shares of common stock, at our election, for the excess, if any, of the value of the converted shares over the principal amount.

If a holder elects to convert their 4.00% Debentures in connection with a fundamental change in the company that occurs prior to April 5, 2016, the holder will also be entitled to receive a make whole premium upon conversion in some circumstances. Any make whole premium would have the effect of increasing the amount of any cash, securities, or other property or assets otherwise due to holders of debentures upon conversion.

We may redeem some or all of the 4.00% Debentures for cash on or after April 5, 2016 at the following redemption prices expressed as a percentage of principal, plus any accrued and unpaid interest:

Period	Redemption Price
Beginning on April 5, 2016 and ending on March 31, 2017	101.143	%
Beginning on April 1, 2017 and ending on March 31, 2018	100.571	%
On April 1, 2018 and thereafter	100.000	%

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The holders, at their option, may redeem the 4.00% Debentures in whole or in part for cash on April 1, 2018, April 1, 2021, and April 1, 2026, and in the event of a fundamental change in the company. In each case, the repurchase price will be 100% of the principal amount of the 4.00% Debentures plus any accrued and unpaid interest.

For further information on the 4.00% Debentures, see Note 6. “Notes Payable” in Part I, Item 1. “Financial Statements.”

Revolving Credit Facility

In April 2011, we entered into a syndicated, senior, unsecured, four-year revolving credit facility with a maximum borrowing capacity of $125.0. We have the option to pay interest on this revolving credit facility based on:

(i) London Interbank Offered Rate (LIBOR) with varying maturities which are commensurate with the borrowing period we select, plus a spread of between 2.25% and 3.25% based on a pricing grid tied to a financial covenant; or

(ii) A base rate plus a spread of between 1.25% and 2.25%, based on a pricing grid tied to a financial covenant.

The base rate is defined as the highest of:

(i) The federal funds rate, as defined, plus 0.5%;

(ii) The prime rate of the lead bank; or

(iii) One-month LIBOR plus 1.0%.

As a result of these interest rate options, our interest expense associated with borrowings under this revolving credit facility will vary with market interest rates. In addition, commitment fees are payable on the unused portion of the revolving credit facility at rates between 0.40% and 0.50% based on a pricing grid tied to a financial covenant.

We had no borrowings against the revolving credit facility during the three months ended April 30, 2012. The base interest rate was 4.5% as of April 30, 2012.

For further information on our revolving credit facility, see Note 5. “Short-Term Borrowings” in Part I, Item 1. “Financial Statements.”

OFF-BALANCE SHEET ARRANGEMENTS

We do not have off-balance sheet arrangements, financings, or other similar relationships with unconsolidated entities or other persons, also known as special purpose entities. In the ordinary course of business, we lease certain real properties, primarily field sales offices, research and development facilities, and equipment.

OUTLOOK FOR FISCAL 2013

We expect revenues for the second quarter of fiscal 2013 to be approximately $240.0 million with earnings per share for the same period of approximately $0.10 per diluted share. For the full fiscal year 2013, we expect revenues of approximately $1.1 billion with earnings per share of $1.20 per diluted share.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Unless otherwise indicated, all numerical references in tables are in millions, except interest rates and contract rates.

Interest Rate Risk

We are exposed to interest rate risk primarily through our investment portfolio, short-term borrowings, and notes payable. We do not use derivative financial instruments for speculative or trading purposes.

We place our investments in instruments that meet high quality credit standards, as specified in our investment policy. The policy also limits the amount of credit exposure to any one issuer and type of instrument. We do not expect any material loss with respect to our investment portfolio.

The table below presents the carrying amount and related weighted-average fixed interest rates for our investment portfolio. The carrying amount approximates fair value as of April 30, 2012. In accordance with our investment policy, all short-term investments mature in twelve months or less.

Principal (notional) amounts in United States dollars	Carrying Amount	Average Fixed Interest Rate
Cash equivalents - fixed rate	$15.0	4.10%

We had convertible subordinated debentures with a principal balance of $253.0 outstanding with a fixed interest rate of 4.00% as of April 30, 2012 and April 30, 2011. Interest rate changes for fixed rate debt affect the fair value of the debentures but do not affect future earnings or cash flow.

As of April 30, 2012, we had a syndicated, senior, unsecured, revolving credit facility, which expires on April 27, 2015. Borrowings under the revolving credit facility are permitted to a maximum of $125.0. Under this revolving credit facility, we have the option to pay interest based on:

(i) London Interbank Offered Rate (LIBOR) with varying maturities which are commensurate with the borrowing period we select, plus a spread of between 2.25% and 3.25%; or

(ii) A base rate plus a spread of between 1.25% and 2.25%, based on a pricing grid tied to a financial covenant.

The base rate is defined as the highest of:

(i) The federal funds rate, as defined, plus 0.5%;

(ii) The prime rate of the lead bank; or

(iii) One-month LIBOR plus 1.0%.

As a result of these interest rate options, our interest expense associated with borrowings under this revolving credit facility will vary with market interest rates. This revolving credit facility contains certain financial and other covenants, including financial covenants requiring the maintenance of specified liquidity ratios, leverage ratios, and minimum tangible net worth as well as restrictions on the payment of dividends. As of April 30, 2012 and 2011, we had no balance outstanding against this revolving credit facility. Interest rate changes for variable interest rate debt generally do not affect the fair market value, but do affect future earnings and cash flow. For further information on our revolving credit facility, see Note 5. “Short-Term Borrowings” in Part I, Item 1. “Financial Statements.”

We had other short-term borrowings of $5.0 outstanding as of April 30, 2012 and $4.9 as of April 30, 2011 with variable rates based on market indexes. Interest rate changes for variable interest rate debt generally do not affect the fair market value, but do affect future earnings and cash flow.

Foreign Currency Risk

We transact business in various foreign currencies and have established a foreign currency hedging program to hedge certain foreign currency forecasted transactions and exposures from existing assets and liabilities. Our derivative instruments consist of short-term foreign currency exchange contracts, with a duration period of a year or less. We enter into contracts with

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counterparties who are major financial institutions and, as such we do not expect material losses as a result of defaults by our counterparties. We do not hold or issue derivative financial instruments for speculative or trading purposes.

We enter into foreign currency forward contracts to protect against currency exchange risk associated with expected future cash flows. Our practice is to hedge a majority of our existing material foreign currency transaction exposures, which generally represent the excess of expected euro and British pound denominated expenses over expected euro and British pound denominated revenues, and the excess of Japanese yen denominated revenues over expected Japanese yen denominated

expenses. We also enter into foreign currency forward contracts to protect against currency exchange risk associated with existing assets and liabilities.

The following table provides volume information about our foreign currency forward program. The information provided is in United States dollar equivalent amounts. The table presents the gross notional amounts, at contract exchange rates, and the weighted average contractual foreign currency exchange rates. These forward contracts mature within the next twelve months.

As of	April 30, 2012			January 31, 2012
	Gross Notional Amount		Weighted Average Contract Rate	Gross Notional Amount		Weighted Average Contract Rate
Forward Contracts:
Japanese yen	$	49.0	81.11	$	45.0	76.72
Euro	34.1		0.76	26.8		0.77
British pound	12.3		0.62	14.0		0.64
Swedish krona	11.3		6.75	11.7		6.85
Taiwan dollar	8.9		29.47	8.3		29.86
Canadian dollar	8.1		0.99	8.0		1.01
Other (1)	24.6		—	28.2		—
Total forward contracts	$	148.3		$	142.0

⁽¹⁾  Other includes the Indian rupee, Korean won, Israeli shekel, Danish kroner, Hungarian forints, Russian ruble, Polish zloty, Chinese yuan, Swiss franc, Norwegian kroner, and Singapore dollars.

Item 4. Controls and Procedures

(1) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (Exchange Act), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.

(2) Changes in Internal Controls Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

The forward-looking statements contained under “Outlook for Fiscal 2013” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and all other statements contained in this report that are not statements of historical fact, including without limitation, statements containing the words “believes,” “expects,” “projections,” and words of similar meaning, constitute forward-looking statements that involve a number of risks and uncertainties that are difficult to predict. Moreover, from time to time, we may issue other forward-looking statements. Forward-looking statements regarding financial performance in future periods, including the statements under “Outlook for Fiscal 2013,” do not reflect potential impacts of mergers or acquisitions or other significant transactions or events that have not been announced as of the time the statements are made. Actual outcomes and results may differ materially from what is expressed or forecast in forward-looking statements. We disclaim any obligation to update forward-looking statements to reflect future events or revised expectations. Our business faces many risks, and set forth below are some of the factors that could cause actual results to differ materially from the results expressed or implied by our forward-looking statements. Forward-looking statements should be considered in light of these factors.

Weakness in the United States (U.S.) and international economies may harm our business.

Our revenue levels are generally dependent on the level of technology capital spending, which includes worldwide expenditures for electronic design automation (EDA) software, hardware, and consulting services. Periods of economic uncertainty, such as the recession experienced in 2008 and 2009 or the current European debt crisis, can adversely affect our customers and postpone decisions to license or purchase our products, decrease our customers’ spending, and jeopardize or delay our customers’ ability or willingness to make payment obligations, any of which could adversely affect our business.

We are subject to the cyclical nature of the integrated circuit (IC) and electronics systems industries.

Purchases of our products and services are highly dependent upon new design projects initiated by customers in the IC and electronics systems industries. These industries are highly cyclical and are subject to constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, short product life cycles, and wide fluctuations in product supply and demand. The increasing complexity of ICs and resulting increase in costs to design and manufacture ICs have in recent years led to fewer design starts, which could cause a reduced demand for our products. In addition, the IC and electronics systems industries regularly experience significant downturns, often connected with, or in anticipation of, maturing product cycles within such companies or decline in general economic conditions. These downturns could cause diminished demand for our products and services.

Our forecasts of our revenues and earnings outlook may be inaccurate.

Our revenues, particularly new software license revenues, are difficult to forecast. We use a “pipeline” system, a common industry practice, to forecast revenues and trends in our business. Sales personnel monitor the status of potential business and estimate when a customer will make a purchase decision, the dollar amount of the sale, and the products or services to be sold. These estimates are aggregated periodically to generate a sales pipeline. Our pipeline estimates may prove to be unreliable either in a particular quarter or over a longer period of time, in part because the “conversion rate” of the pipeline into contracts can be very difficult to estimate and requires management judgment. A variation in the conversion rate could cause us to plan or budget incorrectly and materially adversely impact our business or our planned results of operations. In particular, a slowdown in customer spending or weak economic conditions generally can reduce the conversion rate in a particular quarter as purchasing decisions are delayed, reduced in amount, or canceled. The conversion rate can also be affected by the tendency of some of our customers to wait until the end of a fiscal quarter attempting to obtain more favorable terms. This may result in failure to agree to terms within the fiscal quarter and cause expected revenue to slip into a subsequent quarter.

Our business could be impacted by fluctuations in quarterly results of operations due to customer seasonal purchasing patterns, the timing of significant orders, and the mix of licenses and products purchased by our customers.

We have experienced, and may continue to experience, varied quarterly operating results. Various factors affect our quarterly operating results and some of these are not within our control, including customer demand and the timing of significant orders. We typically experience seasonality in demand for our products, due to the purchasing cycles of our customers, with revenues in the fourth quarter generally being the highest. If planned contract renewals are delayed or the average size of renewed contracts do not increase as we anticipate, we could fail to meet our and investors’ expectations, which could have a material adverse impact on our stock price.

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Our revenues are also affected by the mix of licenses entered into where we recognize software revenues as payments become due and payable, on a cash basis, or ratably over the license term as compared to revenues recognized at the beginning of the license term. We recognize revenues ratably over the license term, for instance, when the customer is provided with rights to unspecified or unreleased future products. A shift in the license mix toward increased ratable, due and payable, and/or cash-based revenue recognition could result in increased deferral of software revenues to future periods and would decrease current revenues, which could result in us not meeting near-term revenue expectations.

The gross margin on our software is greater than that for our emulation hardware systems, software support, and professional services. Therefore, our gross margin may vary as a result of the mix of products and services sold. We also have a significant amount of fixed or relatively fixed costs, such as employee costs and purchased technology amortization, and costs which are committed in advance and can only be adjusted periodically. As a result, a small failure to reach planned

revenues would likely have a relatively large negative effect on resulting earnings. If anticipated revenues do not materialize as expected, our gross margins and operating results could be materially adversely impacted.

We face intense price competition in the EDA industry.

Price competition in the EDA industry is intense, which can lead to, among other things, price reductions, longer selling cycles, lower product margins, loss of market share, and additional working capital requirements. If our competitors offer significant discounts on certain products, we may need to lower our prices or offer other favorable terms to compete successfully. Any such changes would likely reduce margins and could materially adversely impact our operating results. Any broad-based changes to our prices and pricing policies could cause new software license and service revenues to decline or be delayed as the sales force implements and our customers adjust to the new pricing policies. Some of our competitors may bundle certain software products at low prices for promotional purposes or as a long-term pricing strategy. These practices could significantly reduce demand for our products or limit prices we can charge.

We currently compete primarily with two large companies: Synopsys, Inc. and Cadence Design Systems, Inc. We also compete with smaller companies and compete with manufacturers of electronic devices that have developed their own EDA products internally.

We may experience difficulty in manufacturing our emulation hardware.

We currently contract with a single manufacturer to assemble our hardware emulation products and purchase some components from a single supplier. As a result, we may be exposed to delays in production and delivery of our emulation products due to delays in receiving components or manufacturing constraints, low yields of ICs or printed circuit boards, or other delays in the manufacturing process.

Foreign currency fluctuations may have an adverse impact on our operating results.

We typically generate about half of our revenues from customers outside the U.S. and we generate approximately one-third of our expenses outside the U.S. While most of our international sales are denominated in U.S. dollars, our international operating expenses are typically denominated in foreign currencies. Significant changes in currency exchange rates, particularly in the Japanese yen, euro, and the British pound, could have an adverse impact on our operating results.

Our international operations involve risks that could increase our expenses, adversely affect our operating results, and require increased time and attention of our management.

Our international operations subject us to risks in addition to those we face in our domestic operations, including longer receivables collection periods, changes in a specific country’s or region’s economic or political conditions, trade protection measures, local labor laws, import or export licensing requirements, anti-corruption and other similar laws, loss or modification of exemptions for taxes and tariffs, limitations on repatriation of earnings, and difficulties with licensing and protecting our intellectual property rights. If we violate applicable laws related to our business, we could be subject to penalties, fines, or other sanctions and could be prohibited or limited from doing business in one or more countries.

Customer payment defaults could adversely affect our timing of revenue recognition.

We use fixed-term license agreements as standard business practices with customers we believe are creditworthy. These multi-year, multi-element term license agreements have payments spread over the license term and are typically about three years in length for semiconductor companies and about four years in length for military and aerospace companies. The complexity of

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these agreements tends to increase the risk associated with collectibility from customers that can arise for a variety of reasons including ability to pay, product dissatisfaction, and disputes. If we are unable to collect under these agreements, our results of operations could be materially adversely impacted. We use these fixed-term license agreements as a standard business practice and have a history of successfully collecting under the original payment terms without making concessions on payments, products, or services. If we no longer had a history of collecting without providing concessions on the terms of the agreements, then revenue would be required to be recognized, under U.S. generally accepted accounting principles, as the payments become due and payable over the license term. This change could have a material adverse impact on our near-term results.

IC and printed circuit board (PCB) technology evolves rapidly.

The complexity of ICs and PCBs continues to rapidly increase. In response to this increasing complexity, new design tools and methodologies must be invented or acquired quickly to remain competitive. If we fail to quickly respond to new technological developments, our products could become obsolete or uncompetitive, which could materially adversely impact our business.

Errors or defects in our products and services could expose us to liability and harm our reputation.

Our customers use our products and services in designing and developing products that involve a high degree of technological complexity and have unique specifications. Due to the complexity of the systems and products with which we work, some of our products and designs can be adequately tested only when put to full use in the marketplace. As a result, our customers or their end users may discover errors or defects in our software, or the products or systems designed with or manufactured using tools that may not operate as expected. Errors or defects could result in:

• Loss of current customers and loss of, or delay in, revenue and loss of market share;

• Failure to attract new customers or achieve market acceptance;

• Diversion of development resources to resolve the problems resulting from errors or defects; and

• Increased support or service costs.

In addition, we include limited amounts of third-party technology in our products and we rely on those third parties to provide support services to us. Failure of those third parties to provide necessary support services could materially adversely impact our business.

Long sales cycles and delay in customer completion of projects make the timing of our revenues difficult to predict.

We have a lengthy sales cycle. A lengthy customer evaluation and approval process is generally required due to the complexity and expense associated with our products and services. Consequently, we may incur substantial expenses and devote significant management effort and expense to develop potential relationships that do not result in agreements or revenues and may prevent us from pursuing other opportunities. Sales of our products and services are sometimes discretionary and may be delayed if customers delay approval or commencement of projects due to budgetary constraints, internal acceptance review procedures, timing of budget cycles, or timing of competitive evaluation processes. Long sales cycles for our hardware products may subject us to risks over which we have limited control, including insufficient, excess, or obsolete inventory, variations in inventory valuation, and fluctuations in quarterly operating results.

Any loss of our leadership position in certain segments of the EDA market could harm our business.

The industry in which we compete is characterized by very strong leadership positions in specific segments of the EDA market. For example, one company may have a large percentage of sales in the physical verification segment of the market while another may have a similarly strong position in mixed-signal simulation. These strong leadership positions can be maintained for significant periods of time as the software is difficult to master and customers are disinclined to make changes once their employees, as well as others in the industry, have developed familiarity with a particular software product. For these reasons, much of our profitability arises from niche areas in which we are the leader. Conversely, it is difficult for us to achieve significant profits in niche areas where other companies are the leaders. If for any reason we lose our leadership position in a niche, we could be materially adversely impacted.

Accounting rules governing revenue recognition are complex and may change.

The accounting rules governing software revenue recognition are complex and have been subject to authoritative interpretations that have generally made it more difficult to recognize software revenues at the beginning of the license period.

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We derive a substantial portion of our revenues from relatively few product groups.

We derive a substantial portion of our revenues from sales of relatively few product groups and related support services. As a result, any factor adversely affecting sales of these products, including the product release cycles, market acceptance, product competition, performance and reliability, reputation, price competition, and economic and market conditions, could harm our operating results.

We may have additional tax liabilities.

Significant judgments and estimates are required in determining the provision for income taxes and other tax liabilities. Our tax expense may be impacted if our intercompany transactions, which are required to be computed on an arm’s-length basis,

are challenged and successfully disputed by the tax authorities. Also, our tax expense could be impacted depending on the applicability of withholding taxes on software licenses and related intercompany transactions in certain jurisdictions. In determining the adequacy of income taxes, we assess the likelihood of adverse outcomes that could result if our tax positions were challenged by the Internal Revenue Service (IRS) and other tax authorities. The tax authorities in the U.S. and other countries where we do business regularly examine our income and other tax returns. The ultimate outcome of these examinations cannot be predicted with certainty. Should the IRS or other tax authorities assess additional taxes as a result of examinations, we may be required to record charges to operations that could have a material impact on the results of operations, financial position, or cash flows.

Forecasting our income tax rate is complex and subject to uncertainty.

The computation of income tax expense (benefit) is complex as it is based on the laws of numerous taxing jurisdictions and requires significant judgment on the application of complicated rules governing accounting for tax provisions under U.S. generally accepted accounting principles. Income tax expense (benefit) for interim quarters is based on a forecast of our global tax rate for the year, including a separate determination for entities with losses for which no tax benefit is obtained. This forecast includes forward looking financial projections, including the expectations of profit and loss by jurisdiction, and contains numerous assumptions. Various items cannot be accurately forecasted and future events may be treated as discrete to the period in which they occur. Our income tax rate can be materially impacted, for example, by the geographical mix of our profits and losses, changes in our business, such as internal restructuring and acquisitions, changes in tax laws and accounting guidance, and other regulatory, legislative or judicial developments, tax audit determinations, changes in our uncertain tax positions, changes in our intent and capacity to permanently reinvest foreign earnings, changes to our transfer pricing practices, tax deductions attributed to equity compensation, and changes in our valuation allowance for deferred tax assets. For these reasons, our overall global tax rate may be materially different than our forecast.

There are limitations on the effectiveness of controls.

We do not expect that disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us.

We may not realize revenues as a result of our investments in research and development.

We incur substantial expense to develop new software products. Research and development activities are often performed over long periods of time. This effort may not result in a successful product offering because of either a change in market conditions or a failure to successfully develop products based on that research and development activity. As a result, we could realize little or no revenues related to our investment in research and development.

We may acquire other companies and may not successfully integrate them.

The industry in which we compete has experienced significant consolidation in recent years. During this period, we have acquired numerous businesses and have frequently been in discussions with potential acquisition candidates, and we may acquire other businesses in the future. While we expect to carefully analyze all potential transactions before committing to them, we cannot assure that any completed transaction will result in long-term benefits to us or our shareholders or that we will be able to manage the acquired businesses effectively. In addition, growth through acquisition involves a number of risks. If any of the following events occurs after we acquire another business, it could materially adversely impact us:

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• Difficulties in combining previously separate businesses into a single unit;

• The substantial diversion of management’s attention from ongoing business when integrating the acquired business;

• The failure to realize anticipated benefits, such as cost savings and increases in revenues;

• The failure to retain key personnel of the acquired business;

• Difficulties related to assimilating the products of an acquired business in, for example, distribution, engineering, and customer support areas;

• Unanticipated costs;

• Unanticipated liabilities or litigation in connection with or as a result of an acquisition, including claims from terminated employees, customers, or third parties;

• Adverse impacts on existing relationships with suppliers and customers; and

• Failure to understand and compete effectively in markets in which we have limited experience.

Acquired businesses may not perform as projected, which could result in impairment of acquisition-related intangible assets. Additional challenges include integration of sales channels, training and education of the sales force for new product offerings, integration of product development efforts, integration of systems of internal controls, and integration of information systems. Accordingly, in any acquisition there will be uncertainty as to the achievement and timing of projected synergies, cost savings, and sales levels for acquired products. All of these factors could impair our ability to forecast, meet revenues and earnings targets, and manage effectively our business for long-term growth. We cannot assure that we can effectively meet these challenges.

We may not adequately protect our proprietary rights or we may fail to obtain software or other intellectual property licenses.

Our success depends, in large part, upon our proprietary technology. We generally rely on patents, copyrights, trademarks, trade secret laws, licenses, and restrictive agreements to establish and protect our proprietary rights in technology and products. Despite precautions we may take to protect our intellectual property, we cannot assure that third parties will not try to challenge, invalidate, or circumvent these protections. The companies in the EDA industry, as well as entities and persons outside the industry, are obtaining patents at a rapid rate. We cannot predict if any of these patents will cover any of our products. In addition, many of these entities have substantially larger patent portfolios than we have. As a result, we may on occasion be forced to engage in costly patent litigation to protect our rights or defend our customers’ rights. We may also need to settle these claims on terms that are unfavorable; such settlements could result in the payment of significant damages or royalties, or force us to stop selling or redesign one or more products. We cannot assure that the rights granted under our patents will provide us with any competitive advantage, that patents will be issued on any of our pending applications, or that future patents will be sufficiently broad to protect our technology. Furthermore, the laws of foreign countries may not protect our proprietary rights in those countries to the same extent as U.S. law protects these rights in the U.S. In addition, despite our measures to limit piracy, other parties may attempt to illegally copy or use our products, which could result in lost revenue.

Some of our products include software or other intellectual property licensed from third parties, and we may have to seek new licenses or renew existing licenses for software and other intellectual property in the future. Failure to obtain software or other intellectual property licenses or rights from third parties on favorable terms could materially adversely impact us.

Our use of open source software could negatively impact our ability to sell our products and may subject us to unanticipated obligations.

The products, services or technologies we acquire, license, provide or develop may incorporate or use open source software. We monitor our use of open source software in an effort to avoid unintended consequences, such as reciprocal license grants, patent retaliation clauses, and the requirement to license our products at no cost. Nevertheless, we may be subject to unanticipated obligations regarding our products which incorporate open source software.

Our failure to attract and retain key employees may harm us.

We depend on the efforts and abilities of our senior management, our research and development staff, and a number of other key management, sales, support, technical, and services personnel. Competition for experienced, high-quality personnel is intense, and we cannot assure that we can continue to recruit and retain such personnel. Our failure to hire and retain such personnel could impair our ability to develop new products and manage our business effectively.

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We have global sales and research and development offices in parts of the world that are not as politically stable as the United States.

We have global sales and research and development offices, some of which are in parts of the world that are not as politically stable as the United States. In particular our offices in Egypt and Pakistan may be subject to disruption or closure from time to time. As a result, we may face a greater risk of business interruption as a result of potential unrest, terrorist acts, or military conflicts than businesses located domestically.

If our IT security measures are breached, our information systems may be perceived as being insecure, which could harm our business and reputation.

Our products and services involve the storage and transmission of proprietary information owned by us and our customers. We have sales and research and development offices throughout the world. Our operations are dependent upon the connectivity of our operations throughout the world. Despite our security measures, our information technology and infrastructure may be vulnerable to cyber-attacks or breached due to employee errors or other disruptions that could result in unauthorized disclosure of sensitive information and could significantly interfere with our business operations. Breaches of our security measures could expose us to a risk of loss or misuse of this information, adverse publicity, violations of privacy laws, and litigation. Because techniques used to obtain unauthorized access or to sabotage information systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition, if we select a vendor that used cyber storage of information as part of their service or product offerings, despite our attempts to validate the security of such services, proprietary information may be misappropriated by third parties. If there is an actual or perceived breach of our security, or the security of one of our vendors, the market perception of the effectiveness of our security measures could be harmed and we could suffer damage to our reputation or our business, or lose existing customers and impair our ability to obtain new customers.

Our shareholder rights plan may have anti-takeover effects.

In December 2011, we extended the term of our shareholder rights plan, which has the effect of making it more difficult for a person to acquire control of us in a transaction not approved by our board of directors. The provisions of our shareholder rights plan could have the effect of delaying, deferring, or preventing a change of control of us, could discourage bids for our common stock at a

premium over the market price of our common stock and could materially adversely impact the market price of, and the voting and other rights of the holders of, our common stock.

Our revolving credit facility has financial and non-financial covenants, and default of any covenant could materially adversely impact us.

Our bank revolving credit facility imposes operating restrictions on us in the form of financial and non-financial covenants. Financial covenants include adjusted quick ratio, tangible net worth, leverage ratio, senior leverage ratio, and minimum cash and accounts receivable ratio. If we were to fail to comply with the financial covenants and did not obtain a waiver from our lenders, we would be in default under the revolving credit facility and our lenders could terminate the facility and demand immediate repayment of all outstanding loans under the revolving credit facility. The declaration of an event of default could have a material adverse effect on our financial condition. We could also find it difficult to obtain other bank lines or credit facilities on comparable terms.

We have a substantial level of indebtedness.

As of April 30, 2012, we had $262.7 million of outstanding indebtedness, which includes $253.0 million of 4.00% Convertible Subordinated Debentures due 2031, $1.4 million in other notes payable, and $8.3 million in short-term borrowings. This level of indebtedness among other things could:

• Make it difficult for us to satisfy our payment obligations on our debt;

• Make it difficult for us to incur additional indebtedness or obtain any necessary financing in the future for working capital, capital expenditures, debt service, acquisitions, or general corporate purposes;

• Limit our flexibility in planning for or reacting to changes in our business;

• Reduce funds available for use in our operations;

• Make us more vulnerable in the event of a downturn in our business; and

• Place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have

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greater access to capital resources.

We may also be unable to borrow funds as a result of an inability of financial institutions to lend due to restrictive lending policies and/or institutional liquidity concerns.

If we experience a decline in revenues, we could have difficulty paying amounts due on our indebtedness. Any default under our indebtedness could have a material adverse impact on our business, operating results, and financial condition.

Our stock price could become more volatile, and your investment could lose value.

All of the factors discussed in this “Risk Factors” section could affect our stock price. The timing of announcements in the public market regarding new products, product enhancements, or technological advances by our competitors or us, and any announcements by us of acquisitions, major transactions, or management changes could also affect our stock price. Our stock price is subject to speculation in the press and the analyst community, changes in recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’ valuation measures for our stock, our credit ratings, and market trends unrelated to our performance. A significant drop in our stock price could also expose us to the risk of securities class actions lawsuits, which could result in substantial costs and divert management’s attention and resources, which could adversely affect our business.

Our business could be negatively affected as a result of actions of activist shareholders.

Responding to actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. The perceived uncertainties as to our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth information regarding repurchases of our common stock by us during the three months ended April 30, 2012:

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced programs	Maximum dollar value of shares that may yet be purchased under the programs
February 1 - February 29, 2012	—	$	—	—	$	110,003,815
March 1 - March 31, 2012	—	—		—	110,003,815
April 1 - April 30, 2012	—	—		—	110,003,815
Total	—	$	—	—

On April 18, 2011, we announced a share repurchase program approved by our Board of Directors which authorized the repurchase of up to $150.0 million of our common stock over a three year period. On February 27, 2012, our Board of Directors authorized an additional $50.0 million shares of our common stock to be repurchased under this program, and clarified that the $25.0 million of shares repurchased in April 2011, using proceeds from our issuance of 4.00% Debentures are considered to have been part of this program.

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Item 6. Exhibits

31.1	Certification of Chief Executive Officer of Registrant Pursuant to SEC Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer of Registrant Pursuant to SEC Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of Chief Executive Officer and Chief Financial Officer of Registrant Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:	June 6, 2012	MENTOR GRAPHICS CORPORATION (Registrant)
		/S/ GREGORY K. HINCKLEY
		Gregory K. Hinckley
		President, Chief Financial Officer

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Exhibit 31.1

CERTIFICATIONS

I, Walden C. Rhines, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mentor Graphics Corporation, the registrant;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: June 6, 2012

/S/ WALDEN C. RHINES

Walden C. Rhines

Chief Executive Officer

39

Exhibit 31.2

CERTIFICATIONS

I, Gregory K. Hinckley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mentor Graphics Corporation, the registrant;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: June 6, 2012

/S/ GREGORY K. HINCKLEY

Gregory K. Hinckley

President, Chief Financial Officer

40

Exhibit 32

Certification of Periodic Financial Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Mentor Graphics Corporation (the “Company”) hereby certifies to such officer’s knowledge that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarter ended April 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 6, 2012

/s/ WALDEN C. RHINES

Walden C. Rhines

Chief Executive Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to Mentor Graphics Corporation and will be retained by Mentor Graphics Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Certification of Periodic Financial Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Mentor Graphics Corporation (the “Company”) hereby certifies to such officer’s knowledge that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarter ended April 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 6, 2012

/s/ GREGORY K. HINCKLEY

Gregory K. Hinckley

President, Chief Financial Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to Mentor Graphics Corporation and will be retained by Mentor Graphics Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

41

XML

Summary of Fair Value and Carrying Value of Notes Payable (Detail) (USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Disclosure Summary Of Fair Value And Carrying Value Of Notes Payable [Abstract]
Fair value of notes payable	$ 273,190	$ 259,821
Carrying value of notes payable	$ 215,876	$ 214,573

XML

Employee Stock and Savings Plans - Stock Compensation Expense Recognized (Detail) (USD $)	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 5,147,000	$ 5,680,000
Employee Stock Purchase Plan Purchase Shares And Contributions By Eligible Participants Description	We have an employee stock purchase plan (ESPP) for U.S. employees and an ESPP for certain foreign subsidiary employees. The ESPPs provide for six month offerings commencing on January 1 and July 1 of each year with purchases on June 30 and December 31 of each year. Each eligible employee may purchase up to six thousand shares of stock on each purchase date (but no more than an annual offering date total fair market value of $25) at prices no less than 85% of the lesser of the fair market value of the shares on the offering date or on the purchase date.
Cost of goods sold
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	319,000	267,000
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	2,117,000	2,139,000
Marketing and selling
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	1,549,000	1,615,000
General and administration
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	1,162,000	1,659,000
Omnibus Incentive Plan [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based payment award, vesting period (in years)	4 years
Options expiration period from the original grant date (in years)	10 years
Employee Stock Purchase Plans
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Employee stock purchase plan expected offering term (in months)	6 months
Employee Stock Purchase Plan Maximum Number Of Shares That May Be Purchased By Eligible Participants (in shares)	6,000
Maximum Share Value Authorized For Purchase Under Employee Stock Purchase Plan	$ 25,000
Eligible employee stock purchase price	85.00%

XML

Notes payable (Detail) (USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Debt Instrument [Line Items]
Notes payable	$ 215,876	$ 214,573
4.00% Debentures due 2031
Debt Instrument [Line Items]
Notes payable	214,519	213,224
Other
Debt Instrument [Line Items]
Notes payable	$ 1,357	$ 1,349

XML

Segment Reporting - Additional Information (Detail)	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Concentration Risk [Line Items]
Number of customer accounted for approximately 10% or more of total revenues	1	1
Description of external customer accounted for total revenues	one customer accounted for 20% of our total revenues	one customer accounted for 21% of our total revenues
Customer Concentration Risk [Member] | Sales Revenue, Goods and Services, Net [Member]
Concentration Risk [Line Items]
Customer percent of total revenues	20.00%	21.00%

XML

Incentive Stock Rights - Additional Information (Detail) (Incentive Stock Rights, USD $)	1 Months Ended		3 Months Ended
	Jul. 31, 2010	Jun. 30, 2010	Apr. 30, 2012	Jun. 24, 2010
Incentive Stock Rights
Compensation Related Costs Share Based Payments Disclosure [Line Items]
Dividend distribution of rights declared for each outstanding share of common stock				1
Record date for distribution of rights	Jul. 06, 2010
Right issuable with each new share of common stock				1
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)				0.0001
Incentive Stock purchase price				$ 65
Percentage of common stock acquired to initiate exercise of incentive stock rights, minimum			15.00%
Percent of incentive stock right exercise price for value of the entity's common stock received upon exercise of incentive stock right			200.00%
Percent of incentive stock right exercise price for value of acquiring company's common stock received upon exercise of incentive stock right			200.00%
Date on which rights expire		6/30/2013
Rights redemption price				$ 0.001
Description of the stock purchase rights plan			As long as the Rights are attached to our common stock, we will issue one Right with each new share of common stock so that all such shares will have attached Rights. Under certain conditions, each Right may be exercised to purchase 1/10,000 of a share of Series B Junior Participating Incentive Stock at a purchase price of sixty-five dollars, subject to adjustment. The Rights are not presently exercisable and will only become exercisable if a person or group acquires or commences a tender offer to acquire 15% or more of our common stock. If a person or group acquires 15% or more of the common stock, each Right will be adjusted to entitle its holder to receive, upon exercise, common stock (or, in certain circumstances, other assets of ours) having a value equal to two times the exercise price of the Right, or each Right will be adjusted to entitle its holder to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right, depending on the circumstances. The Rights expire on June 30, 2013 and may be redeemed by us for $0.001 per Right.

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Short-Term Borrowings - Commitment Fees (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Disclosure Commitment Fees [Abstract]
Commitment fees	$ 126	$ 80

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Income Taxes (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Provision for Income Taxes

The provision for income taxes was comprised of the following:

Three months ended April 30,	2012		2011
Income tax expense	$	781	$	611

Effective Tax Rate and Period Specific Income Tax Expense (Benefit)

Accounting guidance requires for interim reporting that we evaluate our provision for income tax expense (benefit) based on our projected results of operations for the full year, and record an adjustment in the quarter. Because some of our consolidated entities have losses for which no tax benefit is recognized, their provisions for income tax expense (benefit) must be separately evaluated.

Three months ended April 30,	2012			2011
Effective Tax Rate	3		%	(35		)%
Period specific items benefit	$	(1,327	)	$	(1,334	)

XML

Summary of the Components of the Special Charges (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Disclosure Summary Of Components Of Special Charges [Abstract]
Employee severance and related costs	$ 988	$ 1,147
Other costs	159	3,400
Total special charges	$ 1,147	$ 4,547

XML

Term Receivables and Trade Accounts Receivable (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Term Receivable and Trade Accounts Receivable Balances

Term receivable and trade accounts receivable balances were as follows:

As of	April 30, 2012		January 31, 2012
Trade accounts receivable	$	117,981	$	133,494
Term receivables, short-term	$	236,938	$	221,430
Term receivables, long-term	$	212,665	$	220,355

Credit Risk Assessment for Long-term Receivables

The credit risk assessment for our long-term receivables was as follows:

As of	April 30, 2012		January 31, 2012
S&P credit rating:
AAA+ through BBB-	$	134,324	$	130,545
BB+ and lower	18,211		15,161
	152,535		145,706
Internal credit assessment	60,130		74,649
Total long-term term receivables	$	212,665	$	220,355

Change in Allowance for Doubtful Accounts

The following shows the change in allowance for doubtful accounts:

Allowance for doubtful accounts	Beginning balance		Charged  to expense		Deductions(1)			Ending balance
Three months ended April 30, 2012	$	4,432	$	153	$	(48	)	$	4,537

(1)Specific account write-offs and foreign exchange.

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Notes Payable - Principal Amount, Unamortized Debt Discount, Net Carrying Amount of the Liability Component, and Carrying Amount of the Equity Component of the 4.00% Debentures (Detail) (USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Debt Instrument [Line Items]
Net carrying amount of the liability component	$ 215,876	$ 214,573
4.00% Debentures due 2031
Debt Instrument [Line Items]
Principal amount	253,000	253,000
Unamortized debt discount	(38,481)	(39,776)
Net carrying amount of the liability component	214,519	213,224
Equity component	$ 43,930	$ 43,930

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Credit Risk Assessment for Long-term Receivables (Detail) (USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term receivables, long-term	$ 212,665	$ 220,355
S&P credit rating, AAA+ through BBB-
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term receivables, long-term	134,324	130,545
S&P credit rating, BB+ and lower
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term receivables, long-term	18,211	15,161
S&P credit rating
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term receivables, long-term	152,535	145,706
Internal credit assessment
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term receivables, long-term	$ 60,130	$ 74,649

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Fair Value Measurement Level 3 Unobservable Inputs (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012
Unobservable Inputs [Abstract]
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, Low	$ 0
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 7,686
Business Combination Contingent Consideration Discount Rate Range Of Outcomes Value Low	14.00%
Business Combination Contingent Consideration Discount Rate Range Of Outcomes Value High	16.00%
business combination contingent consideration timing of cash flows range of outcomes low	1
business combination contingent consideration timing of cash flows range of outcomes value high	6

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Notes Payable - Recognized Amounts in Interest Expense in the Condensed Consolidated Statement of Operations Related to the 6.25% Debentures (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Debt Instrument [Line Items]
Interest expense at the contractual interest rate	$ 4,594	$ 17,440
6.25% Debentures due 2026, issued 2006
Debt Instrument [Line Items]
Interest expense at the contractual interest rate	0	2,900
Amortization of debt discount	$ 0	$ 793

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Supplemental Cash Flow Information - Additional Information (Detail) (Frontline, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012
Frontline
Schedule of Cash Flow, Supplemental [Line Items]
Returns received on investment	$ 950

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Other Income (Expense), Net (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Component of Other Expense, Nonoperating [Line Items]
Interest Income	$ 475	$ 534
Foreign currency exchange loss	(215)	(651)
Other, net	(177)	(358)
Other income (expense), net	$ 83	$ (475)

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Short-Term Borrowings - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012
Short-term Debt [Line Items]
Termination date for senior, unsecured revolving credit facility	April 27, 2015
Revolving credit facility, maximum borrowing capacity	$ 125,000
Minimum
Short-term Debt [Line Items]
Commitment fee on unused revolving credit facility	0.40%
Maximum
Short-term Debt [Line Items]
Commitment fee on unused revolving credit facility	0.50%
Covenant Requirement
Short-term Debt [Line Items]
Credit facility limits, aggregate amount available for dividend and repurchase of stock	$ 50,000
Credit facility limits, aggregate amount available for dividend and repurchase of stock, percentage of cumulative net income	70.00%
Revolving credit facility terms of covenants	The revolving credit facility limits the aggregate amount we can pay for dividends and repurchases of our stock over the four year term of the facility to $50,000 plus 70% of our cumulative net income.
Line of Credit
Short-term Debt [Line Items]
Adjusted quick ratio, lower limit	1
Percentage of net current account receivable ratio included in cash and account receivable ratio	42.00%
Term of revolving credit facility (in years)	4 years
Description of interest payment option	We have the option to pay interest based on: (i) London Interbank Offered Rate (LIBOR) with varying maturities commensurate with the borrowing period we select, plus a spread of between 2.25% and 3.25% based on a pricing grid tied to a financial covenant, or (ii) A base rate plus a spread of between 1.25% and 2.25%, based on a pricing grid tied to a financial covenant.
Revolving credit facility financial and other covenants	This revolving credit facility contains certain financial and other covenants, including the following: • Our adjusted quick ratio (ratio of the sum of cash and cash equivalents, short-term investments, and net current receivables to total current liabilities) shall not be less than1.00; • Our tangible net worth (stockholders’ equity less goodwill and other intangible assets) must exceed the calculated required tangible net worth as defined in the credit agreement; • Our leverage ratio (ratio of total liabilities less subordinated debt to the sum of subordinated debt and tangible net worth) shall be less than 2.00; • Our senior leverage ratio (ratio of total debt less subordinated debt to the sum of subordinated debt and tangible net worth) shall not be greater than 0.90; and • Our minimum cash and accounts receivable ratio (ratio of the sum of cash and cash equivalents, short-term investments, and 42.0% of net current accounts receivable, to outstanding credit agreement borrowings) shall not be less than 1.25.
Line of Credit | Federal Funds Rate
Short-term Debt [Line Items]
Debt instrument, basis spread on variable rate	0.50%
Line of Credit | One Month LIBOR
Short-term Debt [Line Items]
Debt instrument, basis spread on variable rate	1.00%
Line of Credit | Minimum
Short-term Debt [Line Items]
Cash and accounts receivable ratio, lower limit	1.25
Line of Credit | Minimum | LIBOR
Short-term Debt [Line Items]
Debt instrument, basis spread on variable rate	2.25%
Line of Credit | Minimum | Base Rate
Short-term Debt [Line Items]
Debt instrument, basis spread on variable rate	1.25%
Line of Credit | Maximum
Short-term Debt [Line Items]
Leverage ratio, upper limit	2
Senior leverage ratio, upper limit	0.9
Line of Credit | Maximum | LIBOR
Short-term Debt [Line Items]
Debt instrument, basis spread on variable rate	3.25%
Line of Credit | Maximum | Base Rate
Short-term Debt [Line Items]
Debt instrument, basis spread on variable rate	2.25%

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Fair Value Measurement

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Fair Value Measurement

Fair Value Measurement— The FASB's authoritative guidance for the hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our market assumptions. The fair value hierarchy consists of the following three levels:

•Level 1—Quoted prices for identical instruments in active markets;

• Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable; and

•Level 3—One or more significant inputs to the valuation model are unobservable.

We use an income approach to determine the fair value of our foreign currency exchange contracts. The net gains or losses for foreign currency exchange contracts designated as cash flow hedges, which are linked to a specific transaction, are reported in accumulated other comprehensive income in stockholders' equity until the forecasted transaction occurs or the hedge is no longer effective. Once the forecasted transaction occurs or the hedge is no longer effective, we reclassify the gains or losses attributable to the foreign currency exchange contracts to our consolidated statement of operations. Foreign currency exchange contracts are recorded at fair value utilizing observable market inputs at measurement date and standard valuation techniques.

We recognize changes in fair value for foreign currency exchange contracts entered into to offset the variability in exchange rates on certain short-term monetary assets and liabilities in other income (expense), net, in our consolidated statement of operations. The fair value of foreign currency exchange contracts is included in other receivables, if the balance is an asset, or accrued liabilities, if the balance is a liability, on our consolidated balance sheet.

The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2012:

	Fair Value			Level 1		Level 2		Level 3
Foreign currency exchange contracts	$	328		$	—	$	328	$	—
Contingent consideration	(5,153		)	—		—		(5,153		)
Total	$	(4,825	)	$	—	$	328	$	(5,153	)

The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2012:

	Fair Value			Level 1		Level 2		Level 3
Foreign currency exchange contracts	$	882		$	—	$	882	$	—
Contingent consideration	(6,120		)	—		—		(6,120		)
Total	$	(5,238	)	$	—	$	882	$	(6,120	)

In connection with certain acquisitions, payment of a portion of the purchase price is contingent upon the acquired business’ achievement of certain revenue goals. As of April 30, 2012, of the total recorded balance, $772 was included in accrued liabilities and $4,381 was included in other long-term liabilities on our condensed consolidated balance sheet. As of January 31, 2012, of the total recorded balance, $510 was included in accrued liabilities and $5,610 was included in other long-term liabilities on our condensed consolidated balance sheet.

We have estimated the fair value of our contingent consideration as the present value of the expected payments over the term of the arrangements. The fair value measurement of our contingent consideration as of April 30, 2012 encompasses the following significant unobservable inputs:

Unobservable Inputs	Range
Total estimated contingent consideration	$0		-	$7,686
Discount rate	14	%	-	16%
Timing of cash flows (in years)	1		-	6

Changes in the fair value of our contingent consideration are primarily driven by changes in the estimated amount and timing of payments, resulting from changes in the forecasted revenues of the acquired businesses. Significant changes in any of the inputs in isolation could result in a fluctuation in the fair value measurement of contingent consideration. Changes in fair value are recognized in operating income in the period in which the change is identified. During the three months ended April 30, 2012, we recorded decreases in contingent consideration resulting in a net gain of $537 to special charges in our condensed consolidated statement of operations. The adjustments to the liability were due to changes in the timing and amounts of the expected payments.

The following table summarizes contingent consideration activity:

Balance as of January 31, 2012	$	6,120
Payments	(478		)
Adjustments	(537		)
Interest accretion	48
Balance as of April 30, 2012	$	5,153

The following table summarizes the fair value and carrying value of notes payable:

As of	April 30, 2012		January 31, 2012
Fair value of notes payable	$	273,190	$	259,821
Carrying value of notes payable	$	215,876	$	214,573

We based the fair value of notes payable on the quoted market price or rates available to us for instruments with similar terms and maturities. Of the total carrying value of notes payable, $1,357 as of April 30, 2012 and $1,349 as of January 31, 2012 was classified as current on our condensed consolidated balance sheets.

The carrying amounts of cash equivalents, short-term investments, trade accounts receivable, net, term receivables, short-term borrowings, accounts payable, and accrued liabilities approximate fair value because of the short-term nature of these instruments or because amounts have been appropriately discounted.

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Revenue Recognized from Related Party (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Related Party Transaction [Line Items]
Revenue from customers	$ 9,002	$ 17,306
Percentage of total revenue	3.60%	7.50%

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Change in Allowance for Doubtful Accounts (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012
Allowance for Doubtful Accounts Receivable [Roll Forward]
Beginning Balance	$ 4,432
Charged to expense	153
Deductions	(48)	[1]
Ending Balance	$ 4,537

[1] Specific account write-offs and foreign exchange.

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Net Income (Loss) Per Share (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Computation of Basic and Diluted Net Loss Per Share

The following provides the computation of basic and diluted net income (loss) per share:

Three months ended April 30,	2012		2011
Net income (loss) attributable to Mentor Graphics shareholders	$	28,182	$	(2,353	)
Weighted average common shares used to calculate basic net income (loss) per share	109,907		111,769
Employee stock options, restricted stock units, and employee stock purchase plan	3,336		—
Weighted average common and potential common shares used to calculate diluted net income (loss) per share	113,243		111,769
Basic net income (loss) per share attributable to Mentor Graphics shareholders	$	0.26	$	(0.02	)
Diluted net income (loss) per share attributable to Mentor Graphics shareholders	$	0.25	$	(0.02	)

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Employee Stock and Savings Plans (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Stock Compensation Expense Recognized

The following table summarizes stock compensation expense recognized:

Three months ended April 30,	2012		2011
Cost of revenues	$	319	$	267
Operating expenses:
Research and development	2,117		2,139
Marketing and selling	1,549		1,615
General and administration	1,162		1,659
Equity plan-related compensation expense	$	5,147	$	5,680

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Net Income (Loss) Per Share - Additional Information (Detail) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Disclosure Net Income Loss Per Share Additional Information [Abstract]
Shares of common stock excluded from the computation of diluted net income (loss) per share (in shares)	3,022	6,959

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Term Receivables and Trade Accounts Receivable - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Disclosure Term Receivables And Trade Accounts Receivable Additional Information [Abstract]
Billing Period (in days)	30 days
Net proceeds from sale of receivables	$ 7,457	$ 11,403

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Special Charges (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Summary of the Components of the Special Charges

The following is a summary of the components of the special charges:

Three months ended April 30,	2012		2011
Employee severance and related costs	$	988	$	1,147
Other costs	159		3,400
Total special charges	$	1,147	$	4,547

Changes in Accrued Special Charges

The following table shows changes in accrued special charges during the three months ended April 30, 2012:

	Accrued special charges as of		Charges during the three months ended		Payments during the three months ended			Accrued special charges as of
	January 31, 2012		April 30, 2012		April 30, 2012			April 30, 2012		(1	)
Employee severance and related costs	$	3,668	$	988	$	(2,326	)	$	2,330
Other costs	2,811		159		(135		)	2,835
Total accrued special charges	$	6,479	$	1,147	$	(2,461	)	$	5,165

⁽¹⁾  Of the $5,165 total accrued special charges as of April 30, 2012, $2,101 represented the long-term portion of accrued lease termination fees and other facility costs, net of sublease income and other long-term costs. The remaining balance of $3,064 represented the short-term portion of accrued special charges.

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Other Income (Expense), Net (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Other Income (Expense), Net

Other income (expense), net was comprised of the following:

Three months ended April 30,	2012			2011
Interest income	$	475		$	534
Foreign currency exchange loss	(215		)	(651		)
Other, net	(177		)	(358		)
Other income (expense), net	$	83		$	(475	)

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Summary of Significant Accounting Policies

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include our financial statements and those of our wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

We do not have off-balance sheet arrangements, financings, or other similar relationships with unconsolidated entities or other persons, also known as special purpose entities. In the ordinary course of business, we lease certain real properties, primarily field sales offices, research and development facilities, and equipment as described in Note 7. “Commitments and Contingencies.”

Revenue Recognition

We report revenue in two categories based on how the revenue is generated: (i) system and software and (ii) service and support.

System and software revenues – We derive system and software revenues from the sale of licenses of software products, emulation hardware systems, and finance fee revenues from our long-term installment receivables resulting from product sales. We primarily license our products using two different license types:

1. Term licenses – We use this license type primarily for software sales. This license type provides the customer with the right to use a fixed list of software products for a specified time period, typically three years, with payments spread over the license term, and does not provide the customer with the right to use the products after the end of the term. Term license arrangements may allow the customer to share products between multiple locations and remix product usage from the fixed list of products at regular intervals during the license term. We generally recognize product revenue from term license arrangements upon product delivery and start of the license term. In a term license agreement where we provide the customer with rights to unspecified or unreleased future products, we recognize revenue ratably over the license term.

2. Perpetual licenses – We use this license type for software and emulation hardware system sales. This license type provides the customer with the right to use the product in perpetuity and typically does not provide for extended payment terms. We generally recognize product revenue from perpetual license arrangements upon product delivery assuming all other criteria for revenue recognition have been met.

We include finance fee revenues from the accretion of the discount on long-term installment receivables in system and software revenues.

Service and support revenues – We derive service and support revenues from software and hardware post-contract maintenance or support services and professional services, which include consulting, training, and other services. We recognize revenues ratably over the support services term. We record professional service revenues as the services are provided to the customer.

We determine whether product revenue recognition is appropriate based upon the evaluation of whether the following four criteria have been met:

1. Persuasive evidence of an arrangement exists – Generally, we use either a customer signed contract or qualified customer purchase order as evidence of an arrangement for both term and perpetual licenses. For professional service engagements, we generally use a signed professional services agreement and a statement of work to evidence an arrangement. Sales through our distributors are evidenced by an agreement governing the relationship, together with binding purchase orders from the distributor on a transaction-by-transaction basis.

2. Delivery has occurred – We generally deliver software and the corresponding access keys to customers electronically. Electronic delivery occurs when we provide the customer access to the software. We may also deliver the software on a compact disc. With respect to emulation hardware systems, we transfer title to the customer upon shipment. Our software license and emulation hardware system agreements generally do not contain conditions for acceptance.

3. Fee is fixed or determinable – We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We have established a history of collecting under the original contract with installment terms without providing concessions on payments, products, or services. Additionally, for installment contracts, we determine that the fee is fixed or determinable if the arrangement has a payment schedule that is within the term of the licenses and the payments are collected in equal or nearly equal installments, when evaluated on a cumulative basis. If the fee is not deemed to be fixed or determinable, we recognize revenue as payments become due and payable.

Significant judgment is involved in assessing whether a fee is fixed or determinable. We must also make these judgments when assessing whether a contract amendment to a term arrangement (primarily in the context of a license extension or renewal) constitutes a concession. Our experience has been that we are able to determine whether a fee is fixed or determinable for term licenses. If we no longer were to have a history of collecting under the original contract without providing concessions on term licenses, revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable. Such a change could have a material impact on our results of operations.

4. Collectibility is probable – To recognize revenue, we must judge collectibility of the arrangement fees on a customer-by-customer basis pursuant to our credit review process. We typically sell to customers with whom there is a history of successful collection. We evaluate the financial position and a customer’s ability to pay whenever an existing customer purchases new products, renews an existing arrangement, or requests an increase in credit terms. For certain industries for which our products are not considered core to the industry or the industry is generally considered troubled, we impose higher credit standards. If we determine that collectibility is not probable based upon our credit review process or the customer’s payment history, we recognize revenue as payments are received.

Multiple element arrangements involving software licenses – For multiple element arrangements involving software and other software-related deliverables, vendor-specific objective evidence of fair value (VSOE) must exist to allocate the total fee among all delivered and non-essential undelivered elements of the arrangement. If undelivered elements of the arrangement are essential to the functionality of the product, we defer revenue until the essential elements are delivered. If VSOE does not exist for one or more non-essential undelivered elements, we defer revenue until such evidence exists for the undelivered elements, or until all elements are delivered, whichever is earlier. If VSOE of all non-essential undelivered elements exist but VSOE does not exist for one or more delivered elements, we recognize revenue using the residual method. Under the residual method, we defer revenue related to the undelivered elements based upon VSOE and we recognize the remaining portion of the arrangement fee as revenue for the delivered elements, assuming all other criteria for revenue recognition are met. If we can no longer establish VSOE for non-essential undelivered elements of multiple element arrangements, we defer revenue until all elements are delivered or VSOE is established for the undelivered elements, whichever is earlier.

We base our VSOE for certain elements of an arrangement upon the pricing in comparable transactions when the element is sold separately. We primarily base our VSOE for term and perpetual support services upon customer renewal history where the services are sold separately. We also base VSOE for professional services and installation services for emulation hardware systems upon the price charged when the services are sold separately.

Multiple element arrangements involving hardware – For multiple element arrangements involving our emulation hardware systems, we allocate revenue to each element based on the relative selling price of each deliverable. In order to meet the separation criteria to allocate revenue to each element we must determine the standalone selling price of each element using a hierarchy of evidence. The authoritative guidance requires that, in the absence of VSOE or third-party evidence (TPE), a company must develop an estimated selling price (ESP). ESP is defined as the price at which the vendor would transact if the deliverable was sold by the vendor regularly on a standalone basis. A company should consider market conditions as well as entity-specific factors when estimating a selling price.

When VSOE or TPE does not exist, we base our ESP for certain elements in arrangements on either costs incurred to manufacture a product plus a reasonable profit margin or standalone sales to similar customers. In determining profit

margins, we consider current market conditions, pricing strategies related to the class of customer, and the level of penetration we have with the customer. In other cases, we may have limited sales on a standalone basis to the same or similar customers and/or guaranteed pricing on future purchases of the same item. If we are not able to develop ESP for one or more elements or we are unable to demonstrate value on a standalone basis of an element, we could be required to combine elements which could impact the timing of revenue recognition if not delivered together.

Noncontrolling Interest with Redemption Feature

As of April 30, 2012, our balance sheet includes a noncontrolling interest resulting from a business combination in which we acquired majority ownership in a privately-held company. In conjunction with this business combination, we also entered into an agreement which allows the other owners of the company to require us to purchase their noncontrolling interest at a future date for a price based on a formula defined in the agreement. The noncontrolling interest adjusted for this redemption feature is presented on the condensed consolidated balance sheet under the caption “Noncontrolling interest with redemption feature.” Because the redemption of the noncontrolling interest is outside of our control, we have presented this interest outside of stockholders’ equity.

The noncontrolling interest with redemption feature is recognized at the greater of:

i. The calculated redemption value as of the balance sheet date, as if it were redeemable; or

ii. The initial noncontrolling interest value adjusted for the noncontrolling interest holders' share of:

a. cumulative net income (loss); and

b. other changes in accumulated other comprehensive income.

Adjustments based on the calculated redemption value are recorded directly to retained earnings. To the extent this adjustment is considered to be material, we would adjust the numerator in our earnings per share calculation in the current period.

The results of the majority-owned subsidiary are presented in our consolidated results with an adjustment reflected on the face of our statement of operations and the face of our statement of comprehensive income for the noncontrolling investors’ interest in the results of the subsidiary.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.” ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP. ASU 2011-04 became effective prospectively for interim and annual reporting periods beginning on or after December 15, 2011. We adopted this guidance on February 1, 2012 as required. As this guidance only amends disclosure requirements, the adoption did not impact the Company's consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 increases the prominence of other comprehensive income in the financial statements and gives entities the option to present the components of net income and comprehensive income as either a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present other comprehensive income in the statement of changes in stockholders’ equity. ASU 2011-05 became effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this guidance on February 1, 2012 as required. The adoption of this guidance did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The only impact was on the presentation of comprehensive income in the consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions subject to a master netting arrangement. ASU 2011-11 is intended to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (IFRS). ASU 2011-11 is effective retrospectively for annual reporting periods beginning on or after January 31, 2013 and interim periods within those annual periods. We do not anticipate a material impact on our financial statements upon adoption, other than additional disclosures.

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Related Party Transactions (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Revenue Recognized from Related Party

he following table shows revenue recognized from these customers:

Three months ended April 30,	2012			2011
Revenues from customers	$	9,002		$	17,306
Percentage of total revenues	3.6		%	7.5		%

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Fair Value Measurement - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Jan. 31, 2012
Disclosure Fair Value Measurement Additional Information [Abstract]
Fair value of contingent consideration included in accrued liabilities	$ 772	$ 510
Fair value of contingent consideration included in other long term liabilities	4,381	5,610
Decrease in contignet consideration	(537)
Current portion of notes payable	$ 1,357	$ 1,349

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Notes Payable - Additional Information (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended			1 Months Ended	3 Months Ended					1 Months Ended	3 Months Ended	1 Months Ended	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011	Apr. 30, 2012 4.00% Debentures due 2031	Apr. 30, 2011 4.00% Debentures due 2031 Convertible Subordinated Debt	Apr. 30, 2012 4.00% Debentures due 2031 Convertible Subordinated Debt	Apr. 30, 2012 4.00% Debentures due 2031 Convertible Subordinated Debt Redemption period April 1, 2018	Apr. 30, 2012 4.00% Debentures due 2031 Convertible Subordinated Debt Redemption period April 1, 2021	Apr. 30, 2012 4.00% Debentures due 2031 Convertible Subordinated Debt Redemption period April 1, 2026	Apr. 30, 2012 6.25% Debentures due 2026, issued 2006	Mar. 31, 2006 6.25% Debentures due 2026, issued 2006 Convertible Subordinated Debt	Apr. 30, 2011 6.25% Debentures due 2026, issued 2006 Convertible Subordinated Debt	Apr. 30, 2010 Term Loan due 2013	Apr. 30, 2011 Term Loan due 2013	Apr. 30, 2012 Other Notes Payable	Nov. 30, 2009 Other Notes Payable
Debt Instrument [Line Items]
Loan expiration period, in years												3 years
Description of interest payment period				Interest on the 4.00% Debentures is payable semi-annually in April and October.						Interest on the 6.25% Debentures was payable semi-annually in March and September.		Accrued interest payments were payable quarterly in February, May, August, and November.
Circumstances for the redemption of Debentures					The market price of our common stock exceeding 120% of the conversion price; A call for redemption of the 4.00% Debentures; Specified distributions to holders of our common stock; If a fundamental change, such as a change of control, occurs; During the two months prior to, but not on, the maturity date; or The market price of the 4.00% Debentures declining to less than 98% of the value of the common stock into which the 4.00% Debentures are convertible.
Issued Debt				$ (253,000)								$ 20,000
Convertible debentures to common stock, conversion price					$ 20.538
Convertible debentures to common stock, total number of share					12,319
Market price of common stock exceeding percent of the conversion price					120.00%
Market price of debentures declining to maximum percent of the value of the common stock					98.00%
Debentures redemption price percentage	100.00%
Debt instrument amortization description					The unamortized debt discount will be amortized to interest expense using the effective interest method through March 2018.
Debt discount amortization period end					2018-03
Redemption price						100.00%	100.00%	100.00%
Debt effective interest rate					7.25%
Redeemed amount of debt											196,509		18,500
Loss on early extinguishment of debt before tax	0	3,518									11,192		312
Write-off of net unamortized debt discount											6,190
Premium on redemption											3,518
Write-off of unamortized debt issuance costs											$ 1,484
Interest rate			4.00%						6.25%						3.875%
Other Notes Payable, due date														Nov. 17, 2012

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Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Revenues:
System and software	$ 149,356	$ 139,645
Service and support	98,562	90,390
Total revenues	247,918	230,035
Cost of revenues:
System and software	14,790	16,077
Service and support	28,414	25,211
Amortization of purchased technology	2,179	3,357
Total cost of revenues	45,383	44,645
Gross margin	202,535	185,390
Operating expenses:
Research and development	71,046	69,368
Marketing and selling	79,752	77,924
General and administration	16,649	16,785
Equity in earnings of Frontline	(587)	(1,017)
Amortization of intangible assets	1,706	1,610
Special charges	1,147	4,547
Total operating expenses	169,713	169,217
Operating income	32,822	16,173
Other income (expense), net	83	(475)
Interest expense	(4,594)	(17,440)
Income (loss) before income tax	28,311	(1,742)
Income tax expense	781	611
Net income (loss)	27,530	(2,353)
Less: Loss attributable to noncontrolling interest	(652)	0
Net income (loss) attributable to Mentor Graphics shareholders	$ 28,182	$ (2,353)
Net income (loss) per share:
Basic (in dollars per share)	$ 0.26	$ (0.02)
Diluted (in dollars per share)	$ 0.25	$ (0.02)
Weighted average number of shares outstanding:
Basic (in shares)	109,907	111,769
Diluted (in shares)	113,243	111,769

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Short-Term Borrowings (Detail) (USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Disclosure Short Term Borrowings [Abstract]
Collections of previously sold accounts receivable	$ 3,360	$ 9,373
Other borrowings	4,979	5,244
Short-term borrowings	$ 8,339	$ 14,617

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Operating Cash Flows:
Net income (loss)	$ 27,530	$ (2,353)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property, plant, and equipment	8,331	7,750
Amortization of intangible assets and debt costs	5,482	6,651
Dividends received from unconsolidated entities, net of equity in income (loss)	350	(2)
Loss on debt extinguishment	0	(3,518)
Write-off of debt discount and debt issuance costs	0	8,010
Stock-based compensation	5,147	5,680
Deferred income taxes	837	(563)
Changes in other long-term liabilities	348	(1,506)
Other	18	28
Changes in operating assets and liabilities, net of effect of acquired businesses:
Trade accounts receivable, net	90	36,157
Prepaid expenses and other	(2,047)	(3,259)
Term receivables, long-term	7,710	(6,930)
Accounts payable and accrued liabilities	(60,066)	(61,698)
Income taxes payable	(1,996)	(4,016)
Deferred revenue	14,411	3,271
Net cash provided by (used in) operating activities	6,145	(9,262)
Investing Cash Flows:
Purchases of property, plant, and equipment	(11,604)	(6,345)
Acquisitions of businesses and equity interests, net of cash acquired	(453)	(2,036)
Net cash used in investing activities	(12,057)	(8,381)
Financing Cash Flows:
Proceeds from issuance of common stock	3,567	7,368
Repurchase of common stock	0	(24,997)
Tax benefit from share options exercised	139	0
Net decrease in short-term borrowings	(6,069)	(6,624)
Debt and equity issuance costs	0	(8,575)
Proceeds from notes payable and revolving credit facility	0	253,000
Repayments of notes payable and revolving credit facility	(1,871)	(219,919)
Net cash provided by (used in) financing activities	(4,234)	253
Effect of exchange rate changes on cash and cash equivalents	(1,542)	758
Net change in cash and cash equivalents	(11,688)	(16,632)
Cash and cash equivalents at the beginning of the period	146,499	133,113
Cash and cash equivalents at the end of the period	$ 134,811	$ 116,481

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Net Income (Loss) Per Share - Computation of Basic and Diluted Net Loss Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Disclosure Computation Of Basic And Diluted Net Loss Per Share [Abstract]
Net income (loss) attributable to Mentor Graphics shareholders	$ 28,182	$ (2,353)
Weighted average common shares used to calculate basic net income (loss) per share (in shares)	109,907	111,769
Employee stock options, restricted stock units and employee stock purchase plan (in shares)	3,336	0
Weighted average common and potential common shares used to calculate diluted net income (loss) per share (in shares)	113,243	111,769
Basic net income (loss) per share attributable to Mentor Graphics shareholders (in dollars per share)	$ 0.26	$ (0.02)
Diluted net income (loss) per share attributable to Mentor graphics shareholders (in dollars per share)	$ 0.25	$ (0.02)

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Segment Reporting (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Revenues Related to Operations in Geographic Regions

Revenues related to operations in the geographic regions were:

Three months ended April 30,	2012		2011
Revenues:
North America	$	129,110	$	90,323
Europe	52,631		52,197
Japan	24,983		41,634
Pacific Rim	41,194		45,881
Total revenues	$	247,918	$	230,035

Revenue Information by Products and Services

Revenues information is as follows:

Three months ended April 30,	2012		2011
Revenues:
IC Design to Silicon	$	103,189	$	86,288
Integrated System Design	55,676		51,609
Scalable Verification	56,310		58,742
New & Emerging Products	15,405		17,968
Services & Other	17,338		15,428
Total revenues	$	247,918	$	230,035

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Income Taxes - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Disclosure Income Taxes Additional Information [Abstract]
Effective Tax Rate	3.00%	(35.00%)
Period specific items benefit	$ (1,327)	$ (1,334)
Forecasted tax rate	7.00%
EffectiveIncome Tax Rate Forecast	7.00%
U.S. federal statutory rate	35.00%
Income taxes associated with uncertain income tax positions	$ 32,532

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Segment Reporting

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Segment Reporting

Segment Reporting—Our Chief Operating Decision Makers (CODMs), which consist of the Chief Executive Officer and the President, review our consolidated results within one operating segment. In making operating decisions, our CODMs primarily consider consolidated financial information accompanied by disaggregated revenue information by geographic region.

We eliminate all intercompany revenues in computing revenues by geographic regions. Revenues related to operations in the geographic regions were:

Three months ended April 30,	2012		2011
Revenues:
North America	$	129,110	$	90,323
Europe	52,631		52,197
Japan	24,983		41,634
Pacific Rim	41,194		45,881
Total revenues	$	247,918	$	230,035

For the three months ended April 30, 2012, one customer accounted for 20% of our total revenues. For the three months ended April 30, 2011, one customer accounted for 21% of our total revenues.

We segregate revenues into five categories of similar products and services. Each category includes both product and related support revenues. Revenues information is as follows:

Three months ended April 30,	2012		2011
Revenues:
IC Design to Silicon	$	103,189	$	86,288
Integrated System Design	55,676		51,609
Scalable Verification	56,310		58,742
New & Emerging Products	15,405		17,968
Services & Other	17,338		15,428
Total revenues	$	247,918	$	230,035

Certain reclassifications have been made between categories in the fiscal 2012 presentation to be consistent with the fiscal 2013 presentation.

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Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis (Detail) (Fair Value, Measurements, Recurring, USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency exchange contracts	$ 328	$ 882
Contingent consideration	(5,153)	(6,120)
Total	(4,825)	(5,238)
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency exchange contracts	328	882
Contingent consideration	0	0
Total	328	882
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency exchange contracts	0	0
Contingent consideration	(5,153)	(6,120)
Total	$ (5,153)	$ (6,120)

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Fair Value Measurement (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2012:

	Fair Value			Level 1		Level 2		Level 3
Foreign currency exchange contracts	$	328		$	—	$	328	$	—
Contingent consideration	(5,153		)	—		—		(5,153		)
Total	$	(4,825	)	$	—	$	328	$	(5,153	)

The following table presents information about financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2012:

	Fair Value			Level 1		Level 2		Level 3
Foreign currency exchange contracts	$	882		$	—	$	882	$	—
Contingent consideration	(6,120		)	—		—		(6,120		)
Total	$	(5,238	)	$	—	$	882	$	(6,120	)

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis, Valuation Techniques [Table Text Block]

The fair value measurement of our contingent consideration as of April 30, 2012 encompasses the following significant unobservable inputs:

Unobservable Inputs	Range
Total estimated contingent consideration	$0		-	$7,686
Discount rate	14	%	-	16%
Timing of cash flows (in years)	1		-	6

Summary of Level 3 Activity

The following table summarizes contingent consideration activity:

Balance as of January 31, 2012	$	6,120
Payments	(478		)
Adjustments	(537		)
Interest accretion	48
Balance as of April 30, 2012	$	5,153

Summary Of Fair Value and Carrying Value of Notes Payable

The following table summarizes the fair value and carrying value of notes payable:

As of	April 30, 2012		January 31, 2012
Fair value of notes payable	$	273,190	$	259,821
Carrying value of notes payable	$	215,876	$	214,573

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Revenues Related to Operations in Geographic Regions (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Revenues:
Total revenues	$ 247,918	$ 230,035
North America
Revenues:
Total revenues	129,110	90,323
Europe
Revenues:
Total revenues	52,631	52,197
Japan
Revenues:
Total revenues	24,983	41,634
Pacific Rim
Revenues:
Total revenues	$ 41,194	$ 45,881

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General

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

General

General—The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with United States (U.S.) generally accepted accounting principles (GAAP) and reflect all material normal recurring adjustments. However, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the condensed consolidated financial statements include adjustments necessary for a fair presentation of the results of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2012.

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Any changes in estimates will be reflected in the financial statements in future periods.

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Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Net income (loss)	$ 27,530	$ (2,353)
Other comprehensive income (loss), net of tax:
Change in unrealized gain on derivative instruments	453	457
Change in accumulated translation adjustment	(781)	9,084
Change in pension liability	(3)	0
Other comprehensive income	27,199	7,188
Less: comprehensive loss attributable to the noncontrolling interest	(673)	0
Comprehensive income attributable to Mentor	$ 27,872	$ 7,188

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Special Charges

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Special Charges

Special Charges—The following is a summary of the components of the special charges:

Three months ended April 30,	2012		2011
Employee severance and related costs	$	988	$	1,147
Other costs	159		3,400
Total special charges	$	1,147	$	4,547

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. Employee severance and related costs include severance benefits, notice pay, and outplacement services. These rebalance charges generally represent the aggregate of numerous unrelated rebalance plans which impact several employee groups, none of which is individually material to our financial position or results of operations. We determine termination benefit amounts based on employee status, years of service, and local statutory requirements. We communicate termination benefits to the affected employees prior to the end of the quarter in which we record the charge. Special charges may also include expenses incurred related to acquisitions, excess facility costs, and asset related charges.

Approximately 38% of the employee severance and related costs for the three months ended April 30, 2012 were paid during the period. We expect to pay the remainder during the fiscal year ending January 31, 2013.

Substantially all of the employee severance and related costs for the three months ended April 30, 2011 were paid during the fiscal year ending January 31, 2012. There have been no significant modifications to the amount of these charges.

Other special charges for the three months ended April 30, 2011 included costs of $3,102 related to consulting fees associated with our fiscal 2012 proxy contest.

Accrued special charges are included in accrued liabilities and other long-term liabilities in the condensed consolidated balance sheets. The following table shows changes in accrued special charges during the three months ended April 30, 2012:

	Accrued special charges as of		Charges during the three months ended		Payments during the three months ended			Accrued special charges as of
	January 31, 2012		April 30, 2012		April 30, 2012			April 30, 2012		(1	)
Employee severance and related costs	$	3,668	$	988	$	(2,326	)	$	2,330
Other costs	2,811		159		(135		)	2,835
Total accrued special charges	$	6,479	$	1,147	$	(2,461	)	$	5,165

⁽¹⁾  Of the $5,165 total accrued special charges as of April 30, 2012, $2,101 represented the long-term portion of accrued lease termination fees and other facility costs, net of sublease income and other long-term costs. The remaining balance of $3,064 represented the short-term portion of accrued special charges.

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Document and Entity Information	3 Months Ended
	Apr. 30, 2012	Jun. 04, 2012
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Apr. 30, 2012
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Trading Symbol	MENT
Entity Registrant Name	MENTOR GRAPHICS CORP
Entity Central Index Key	0000701811
Current Fiscal Year End Date	--01-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		109,734,729

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Other Income (Expense), Net

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Other Income (Expense), Net

Other Income (Expense), Net—Other income (expense), net was comprised of the following:

Three months ended April 30,	2012			2011
Interest income	$	475		$	534
Foreign currency exchange loss	(215		)	(651		)
Other, net	(177		)	(358		)
Other income (expense), net	$	83		$	(475	)

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Current assets:
Cash and cash equivalents	$ 134,811	$ 146,499
Restricted cash	0	4,237
Trade accounts receivable, net of allowance for doubtful accounts of $4,537 as of April 30, 2012 and $4,432 as of January 31, 2012	354,919	354,924
Other receivables	14,527	11,085
Inventory	7,253	8,136
Prepaid expenses and other	23,430	24,751
Deferred income taxes	13,590	17,803
Total current assets	548,530	567,435
Property, plant, and equipment, net of accumulated depreciation of $283,832 as of April 30, 2012 and $280,053 as of January 31, 2012	152,026	148,019
Term receivables	212,665	220,355
Goodwill	527,591	527,102
Intangible assets, net of accumulated amortization of $176,067 as of April 30, 2012 and $172,182 as of January 31, 2012	24,671	28,569
Other assets	63,670	59,195
Total assets	1,529,153	1,550,675
Current liabilities:
Short-term borrowings	8,339	14,617
Current portion of notes payable	1,357	1,349
Accounts payable	16,746	17,261
Income taxes payable	2,365	2,538
Accrued payroll and related liabilities	57,751	112,349
Accrued and other liabilities	30,000	34,284
Deferred revenue	207,974	191,540
Total current liabilities	324,532	373,938
Notes payable	214,519	213,224
Deferred revenue	12,649	14,883
Income tax liability	32,532	34,257
Other long-term liabilities	33,533	39,033
Total liabilities	617,765	675,335
Commitments and contingencies (Note 7)
Noncontrolling interest with redemption feature	9,291	9,266
Stockholders' equity:
Common stock, no par value, 300,000 shares authorized as of April 30, 2012 and January 31, 2012; 110,126 shares issued and outstanding as of April 30, 2012 and 109,346 shares issued and outstanding as of January 31, 2012	784,211	775,362
Retained earnings	89,516	62,032
Accumulated other comprehensive income	28,370	28,680
Total stockholders' equity	902,097	866,074
Total liabilities and stockholders' equity	$ 1,529,153	$ 1,550,675

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Notes Payable

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Notes Payable

Notes Payable

Notes payable consist of the following:

As of	April 30, 2012		January 31, 2012
4.00% Debentures due 2031	$	214,519	$	213,224
Other	1,357		1,349
Notes payable	$	215,876	$	214,573

4.00% Debentures due 2031: In April 2011, we issued $253,000 of 4.00% Convertible Subordinated Debentures (4.00% Debentures) due 2031 in a private placement pursuant to SEC Rule 144A under the Securities Act of 1933. Interest on the 4.00% Debentures is payable semi-annually in April and October.

The 4.00% Debentures are convertible, under certain circumstances, into our common stock at a conversion price of $20.538 per share for a total of 12,319 shares as of April 30, 2012. These circumstances include:

• The market price of our common stock exceeding 120% of the conversion price;

• A call for redemption of the 4.00% Debentures;

• Specified distributions to holders of our common stock;

• If a fundamental change, such as a change of control, occurs;

• During the two months prior to, but not on, the maturity date; or

• The market price of the 4.00% Debentures declining to less than 98% of the value of the common stock into which the 4.00% Debentures are convertible.

Upon conversion of any 4.00% Debentures, a holder will receive:

(i) Cash up to the principal amount of the 4.00% Debentures that are converted; and

(ii) Cash or shares of common stock, at our election, for the excess, if any, of the value of the converted shares over the principal amount.

If a holder elects to convert their 4.00% Debentures in connection with a fundamental change in the company that occurs prior to April 5, 2016, the holder will also be entitled to receive a make whole premium upon conversion in some circumstances.

We may redeem some or all of the 4.00% Debentures for cash on or after April 5, 2016 at the following redemption prices expressed as a percentage of principal, plus any accrued and unpaid interest:

Period	Price
Beginning on April 5, 2016 and ending on March 31, 2017	101.143	%
Beginning on April 1, 2017 and ending on March 31, 2018	100.571	%
On April 1, 2018 and thereafter	100.000	%

The holders, at their option, may redeem the 4.00% Debentures in whole or in part for cash on April 1, 2018, April 1, 2021, and April 1, 2026, and in the event of a fundamental change in the company. In each case, our repurchase price will be 100% of the principal amount of the 4.00% Debentures plus any accrued and unpaid interest.

As the 4.00% Debentures contain a conversion feature that allows the debt to be settled in cash upon conversion, we separately account for the implied liability and equity components of the 4.00% Debentures. The principal amount, unamortized debt discount, net carrying amount of the liability component, and carrying amount of the equity component of the 4.00% Debentures are as follows:

As of	April 30, 2012			January 31, 2012
Principal amount	$	253,000		$	253,000
Unamortized debt discount	(38,481		)	(39,776		)
Net carrying amount of the liability component	$	214,519		$	213,224
Equity component	$	43,930		$	43,930

The unamortized debt discount will be amortized to interest expense using the effective interest method through March 2018.

We recognized the following amounts in interest expense in the condensed consolidated statement of operations related to the 4.00% Debentures:

Three months ended April 30,	2012		2011
Interest expense at the contractual interest rate	$	2,530	$	759
Amortization of debt discount	$	1,295	$	404

The effective interest rate on the 4.00% Debentures was 7.25% for the three months ended April 30, 2012.

6.25% Debentures due 2026: During the three months ended April 30, 2011, we redeemed the remaining $196,509 principal amount of the 6.25% Convertible Subordinated Debentures (6.25% Debentures) due 2026 utilizing proceeds received from the issuance of the 4.00% Debentures and cash on hand. In connection with this redemption, we incurred a before tax net loss on the early extinguishment of debt of $11,192, which included a $6,190 write-off of net unamortized debt discount, a $3,518 premium on redemption of the 6.25% Debentures, and a write-off of $1,484 for the unamortized debt issuance costs. This loss is included in interest expense on the condensed consolidated statement of operations. No balance remained outstanding following this redemption.

We recognized the following amounts in interest expense in the condensed consolidated statements of operations related to the 6.25% Debentures:

Three months ended April 30,	2012		2011
Interest expense at the contractual interest rate	$	—	$	2,900
Amortization of debt discount	$	—	$	793

Term Loan due 2013: In April 2010, we entered into a three-year term loan (Term Loan) for $20,000 to repay borrowings under our revolving credit facility used to purchase office buildings in Fremont, California. During the three months ended April 30, 2011, we repaid the remaining obligation of $18,500 under the Term Loan utilizing proceeds received from the issuance of the 4.00% Debentures. In connection with this repayment, we incurred a before tax net loss on the early retirement of debt of $312, representing the write-off of the unamortized debt issuance costs. This loss is included in interest expense on the condensed consolidated statement of operations. No balance remained outstanding following this repayment.

Other Notes Payable: In November 2009, we issued a subordinated note payable as part of a business combination. The note bears interest at a rate of 3.875% and is due in full along with all accrued interest on November 17, 2012.

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Short-Term Borrowings

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Short-Term Borrowings

Short-Term Borrowings

Short-term borrowings consisted of the following:

As of	April 30, 2012		January 31, 2012
Collections of previously sold accounts receivable	$	3,360	$	9,373
Other borrowings	4,979		5,244
Short-term borrowings	$	8,339	$	14,617

In April 2011, we entered into a syndicated, senior, unsecured, four-year revolving credit facility that terminates April 27, 2015. The revolving credit facility has a maximum borrowing capacity of $125,000. Under this revolving credit facility, we have the option to pay interest based on:

(i) London Interbank Offered Rate (LIBOR) with varying maturities commensurate with the borrowing period we select, plus a spread of between 2.25% and 3.25% based on a pricing grid tied to a financial covenant, or

(ii) A base rate plus a spread of between 1.25% and 2.25%, based on a pricing grid tied to a financial covenant.

The base rate is defined as the higher of:

(i) The federal funds rate, as defined, plus 0.5%,

(ii) The prime rate of the lead bank, or

(iii) One-month LIBOR plus 1.0%.

As a result of these interest rate options, our interest expense associated with borrowings under this revolving credit facility will vary with market interest rates. In addition, commitment fees are payable on the unused portion of the revolving credit facility at rates between 0.40% and 0.50% based on a pricing grid tied to a financial covenant.

We paid commitment fees as follows:

Three months ended April 30,	2012		2011
Commitment fees	$	126	$	80

This revolving credit facility contains certain financial and other covenants, including the following:

• Our adjusted quick ratio (ratio of the sum of cash and cash equivalents, short-term investments, and net current receivables to total current liabilities) shall not be less than1.00;

• Our tangible net worth (stockholders’ equity less goodwill and other intangible assets) must exceed the calculated required tangible net worth as defined in the credit agreement;

• Our leverage ratio (ratio of total liabilities less subordinated debt to the sum of subordinated debt and tangible net worth) shall be less than 2.00;

• Our senior leverage ratio (ratio of total debt less subordinated debt to the sum of subordinated debt and tangible net worth) shall not be greater than 0.90; and

• Our minimum cash and accounts receivable ratio (ratio of the sum of cash and cash equivalents, short-term investments, and 42.0% of net current accounts receivable, to outstanding credit agreement borrowings) shall not be less than 1.25.

The revolving credit facility limits the aggregate amount we can pay for dividends and repurchases of our stock over the four year term of the facility to $50,000 plus 70% of our cumulative net income.

We were in compliance with all financial covenants as of April 30, 2012. If we were to fail to comply with the financial covenants and do not obtain a waiver from our lenders, we would be in default under the revolving credit facility and our lenders could terminate the facility and demand immediate repayment of all outstanding loans under the revolving credit facility.

We had no borrowings against the revolving credit facility during the three months ended April 30, 2012 and 2011.

Short-term borrowings include amounts collected from customers on accounts receivable previously sold on a non-recourse basis to financial institutions. These amounts are remitted to the financial institutions in the following quarter.

We generally have other short-term borrowings, including multi-currency lines of credit, capital leases, and other borrowings. Interest rates are generally based on the applicable country’s prime lending rate.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Principles of Consolidation

Principles of Consolidation

The condensed consolidated financial statements include our financial statements and those of our wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

We do not have off-balance sheet arrangements, financings, or other similar relationships with unconsolidated entities or other persons, also known as special purpose entities. In the ordinary course of business, we lease certain real properties, primarily field sales offices, research and development facilities, and equipment as described in Note 7. “Commitments and Contingencies.”

Revenue Recognition

Revenue Recognition

We report revenue in two categories based on how the revenue is generated: (i) system and software and (ii) service and support.

System and software revenues – We derive system and software revenues from the sale of licenses of software products, emulation hardware systems, and finance fee revenues from our long-term installment receivables resulting from product sales. We primarily license our products using two different license types:

1. Term licenses – We use this license type primarily for software sales. This license type provides the customer with the right to use a fixed list of software products for a specified time period, typically three years, with payments spread over the license term, and does not provide the customer with the right to use the products after the end of the term. Term license arrangements may allow the customer to share products between multiple locations and remix product usage from the fixed list of products at regular intervals during the license term. We generally recognize product revenue from term license arrangements upon product delivery and start of the license term. In a term license agreement where we provide the customer with rights to unspecified or unreleased future products, we recognize revenue ratably over the license term.

2. Perpetual licenses – We use this license type for software and emulation hardware system sales. This license type provides the customer with the right to use the product in perpetuity and typically does not provide for extended payment terms. We generally recognize product revenue from perpetual license arrangements upon product delivery assuming all other criteria for revenue recognition have been met.

We include finance fee revenues from the accretion of the discount on long-term installment receivables in system and software revenues.

Service and support revenues – We derive service and support revenues from software and hardware post-contract maintenance or support services and professional services, which include consulting, training, and other services. We recognize revenues ratably over the support services term. We record professional service revenues as the services are provided to the customer.

We determine whether product revenue recognition is appropriate based upon the evaluation of whether the following four criteria have been met:

1. Persuasive evidence of an arrangement exists – Generally, we use either a customer signed contract or qualified customer purchase order as evidence of an arrangement for both term and perpetual licenses. For professional service engagements, we generally use a signed professional services agreement and a statement of work to evidence an arrangement. Sales through our distributors are evidenced by an agreement governing the relationship, together with binding purchase orders from the distributor on a transaction-by-transaction basis.

2. Delivery has occurred – We generally deliver software and the corresponding access keys to customers electronically. Electronic delivery occurs when we provide the customer access to the software. We may also deliver the software on a compact disc. With respect to emulation hardware systems, we transfer title to the customer upon shipment. Our software license and emulation hardware system agreements generally do not contain conditions for acceptance.

3. Fee is fixed or determinable – We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We have established a history of collecting under the original contract with installment terms without providing concessions on payments, products, or services. Additionally, for installment contracts, we determine that the fee is fixed or determinable if the arrangement has a payment schedule that is within the term of the licenses and the payments are collected in equal or nearly equal installments, when evaluated on a cumulative basis. If the fee is not deemed to be fixed or determinable, we recognize revenue as payments become due and payable.

Significant judgment is involved in assessing whether a fee is fixed or determinable. We must also make these judgments when assessing whether a contract amendment to a term arrangement (primarily in the context of a license extension or renewal) constitutes a concession. Our experience has been that we are able to determine whether a fee is fixed or determinable for term licenses. If we no longer were to have a history of collecting under the original contract without providing concessions on term licenses, revenue from term licenses would be required to be recognized when payments under the installment contract become due and payable. Such a change could have a material impact on our results of operations.

4. Collectibility is probable – To recognize revenue, we must judge collectibility of the arrangement fees on a customer-by-customer basis pursuant to our credit review process. We typically sell to customers with whom there is a history of successful collection. We evaluate the financial position and a customer’s ability to pay whenever an existing customer purchases new products, renews an existing arrangement, or requests an increase in credit terms. For certain industries for which our products are not considered core to the industry or the industry is generally considered troubled, we impose higher credit standards. If we determine that collectibility is not probable based upon our credit review process or the customer’s payment history, we recognize revenue as payments are received.

Multiple element arrangements involving software licenses – For multiple element arrangements involving software and other software-related deliverables, vendor-specific objective evidence of fair value (VSOE) must exist to allocate the total fee among all delivered and non-essential undelivered elements of the arrangement. If undelivered elements of the arrangement are essential to the functionality of the product, we defer revenue until the essential elements are delivered. If VSOE does not exist for one or more non-essential undelivered elements, we defer revenue until such evidence exists for the undelivered elements, or until all elements are delivered, whichever is earlier. If VSOE of all non-essential undelivered elements exist but VSOE does not exist for one or more delivered elements, we recognize revenue using the residual method. Under the residual method, we defer revenue related to the undelivered elements based upon VSOE and we recognize the remaining portion of the arrangement fee as revenue for the delivered elements, assuming all other criteria for revenue recognition are met. If we can no longer establish VSOE for non-essential undelivered elements of multiple element arrangements, we defer revenue until all elements are delivered or VSOE is established for the undelivered elements, whichever is earlier.

We base our VSOE for certain elements of an arrangement upon the pricing in comparable transactions when the element is sold separately. We primarily base our VSOE for term and perpetual support services upon customer renewal history where the services are sold separately. We also base VSOE for professional services and installation services for emulation hardware systems upon the price charged when the services are sold separately.

Multiple element arrangements involving hardware – For multiple element arrangements involving our emulation hardware systems, we allocate revenue to each element based on the relative selling price of each deliverable. In order to meet the separation criteria to allocate revenue to each element we must determine the standalone selling price of each element using a hierarchy of evidence. The authoritative guidance requires that, in the absence of VSOE or third-party evidence (TPE), a company must develop an estimated selling price (ESP). ESP is defined as the price at which the vendor would transact if the deliverable was sold by the vendor regularly on a standalone basis. A company should consider market conditions as well as entity-specific factors when estimating a selling price.

When VSOE or TPE does not exist, we base our ESP for certain elements in arrangements on either costs incurred to manufacture a product plus a reasonable profit margin or standalone sales to similar customers. In determining profit

margins, we consider current market conditions, pricing strategies related to the class of customer, and the level of penetration we have with the customer. In other cases, we may have limited sales on a standalone basis to the same or similar customers and/or guaranteed pricing on future purchases of the same item. If we are not able to develop ESP for one or more elements or we are unable to demonstrate value on a standalone basis of an element, we could be required to combine elements which could impact the timing of revenue recognition if not delivered together.

Noncontrolling Interest with Redemption Feature

Noncontrolling Interest with Redemption Feature

As of April 30, 2012, our balance sheet includes a noncontrolling interest resulting from a business combination in which we acquired majority ownership in a privately-held company. In conjunction with this business combination, we also entered into an agreement which allows the other owners of the company to require us to purchase their noncontrolling interest at a future date for a price based on a formula defined in the agreement. The noncontrolling interest adjusted for this redemption feature is presented on the condensed consolidated balance sheet under the caption “Noncontrolling interest with redemption feature.” Because the redemption of the noncontrolling interest is outside of our control, we have presented this interest outside of stockholders’ equity.

The noncontrolling interest with redemption feature is recognized at the greater of:

i. The calculated redemption value as of the balance sheet date, as if it were redeemable; or

ii. The initial noncontrolling interest value adjusted for the noncontrolling interest holders' share of:

a. cumulative net income (loss); and

b. other changes in accumulated other comprehensive income.

Adjustments based on the calculated redemption value are recorded directly to retained earnings. To the extent this adjustment is considered to be material, we would adjust the numerator in our earnings per share calculation in the current period.

The results of the majority-owned subsidiary are presented in our consolidated results with an adjustment reflected on the face of our statement of operations and the face of our statement of comprehensive income for the noncontrolling investors’ interest in the results of the subsidiary.

Special Charges

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. Employee severance and related costs include severance benefits, notice pay, and outplacement services. These rebalance charges generally represent the aggregate of numerous unrelated rebalance plans which impact several employee groups, none of which is individually material to our financial position or results of operations. We determine termination benefit amounts based on employee status, years of service, and local statutory requirements. We communicate termination benefits to the affected employees prior to the end of the quarter in which we record the charge. Special charges may also include expenses incurred related to acquisitions, excess facility costs, and asset related charges.

Fair Value of Financial Instruments, Policy

The FASB's authoritative guidance for the hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our market assumptions. The fair value hierarchy consists of the following three levels:

•Level 1—Quoted prices for identical instruments in active markets;

• Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable; and

•Level 3—One or more significant inputs to the valuation model are unobservable.

We use an income approach to determine the fair value of our foreign currency exchange contracts. The net gains or losses for foreign currency exchange contracts designated as cash flow hedges, which are linked to a specific transaction, are reported in accumulated other comprehensive income in stockholders' equity until the forecasted transaction occurs or the hedge is no longer effective. Once the forecasted transaction occurs or the hedge is no longer effective, we reclassify the gains or losses attributable to the foreign currency exchange contracts to our consolidated statement of operations. Foreign currency exchange contracts are recorded at fair value utilizing observable market inputs at measurement date and standard valuation techniques.

We recognize changes in fair value for foreign currency exchange contracts entered into to offset the variability in exchange rates on certain short-term monetary assets and liabilities in other income (expense), net, in our consolidated statement of operations. The fair value of foreign currency exchange contracts is included in other receivables, if the balance is an asset, or accrued liabilities, if the balance is a liability, on our consolidated balance sheet.

Business Combination Contigent Consideration

In connection with certain acquisitions, payment of a portion of the purchase price is contingent upon the acquired business’ achievement of certain revenue goals. As of April 30, 2012, of the total recorded balance, $772 was included in accrued liabilities and $4,381 was included in other long-term liabilities on our condensed consolidated balance sheet. As of January 31, 2012, of the total recorded balance, $510 was included in accrued liabilities and $5,610 was included in other long-term liabilities on our condensed consolidated balance sheet.

We have estimated the fair value of our contingent consideration as the present value of the expected payments over the term of the arrangements.

Notes Payable Fair Value Determination

We based the fair value of notes payable on the quoted market price or rates available to us for instruments with similar terms and maturities.

Receivables, Policy

We include balances under term agreements that are due within one year in trade accounts receivable, net and balances that are due more than one year from the balance sheet date in term receivables, long-term. We discount the total product portion of the agreements to reflect the interest component of the transaction. We amortize the interest component of the transaction, using the effective interest method, to system and software revenues over the period in which payments are made and balances are outstanding. We determine the discount rate at the outset of the arrangement based upon the current credit rating of the customer. We reset the discount rate periodically considering changes in prevailing interest rates but do not adjust previously discounted balances.

Trade and Other Accounts Receivable, Unbilled Receivables, Policy

Trade accounts receivable include billed amounts whereas term receivables, short-term are comprised of unbilled amounts. Term receivables, short-term represent the portion of long-term installment agreements that are due within one year. Billings for term agreements typically occur 30 days prior to the contractual due date, in accordance with individual contract installment terms. Term receivables, long-term represent unbilled amounts which are scheduled to be collected beyond one year.

Financing Receivable Credit Quality

We perform a credit risk assessment of all customers using the Standard & Poor’s (S&P) credit rating as our primary credit-quality indicator. The S&P credit ratings are based on the most recent S&P score available. For customers that do not have an S&P credit rating, we base our credit risk assessment on an internal credit assessment which is based on selected short-term financial ratios. Our internal credit assessment is based upon results provided in the customers’ most recent financial statements.

Allowance For Uncollectible Accounts Receivable

We maintain allowances for doubtful accounts on trade accounts receivable and term receivables for estimated losses resulting from the inability of our customers to make required payments. We regularly evaluate the collectibility of our trade accounts receivable based on a combination of factors. When we become aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy or deterioration in the customer’s operating results, financial position, or credit rating, we record a specific reserve for bad debt to reduce the related receivable to the amount believed to be collectible. We also record unspecified reserves for bad debt for all other customers based on a variety of factors including length of time the receivables are past due, the financial health of the customers, the current business environment, and historical experience. Current economic conditions we consider include forecasted spending in the semiconductor industry, consumer spending for electronics, integrated circuit research and development spending, and volatility in gross domestic product. If these factors change or circumstances related to specific customers change, we adjust the estimates of the recoverability of receivables resulting in either additional selling expense or a reduction in selling expense in the period such determination is made.

Commitments and Contingencies, Policy

When we consider the potential loss from any dispute or legal matter probable and the amount or the range of loss can be estimated, we will accrue a liability for the estimated loss. To the extent there is a reasonable possibility (within the meaning of ASC 450 Contingencies) that losses could exceed amounts already accrued, if any, and the additional loss or range of loss is able to be estimated, we would disclose the additional loss or range of loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, we base accruals on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation matters and may revise estimates.

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Related Party Transactions

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Related Party Transactions

Related Party Transactions—Certain members of our Board of Directors also serve on the board of directors for some of our customers. Management believes the transactions between these customers and us were carried out on an arm’s-length basis. As of April 30, 2012 and January 31, 2012, accounts receivable from these customers were not significant. The following table shows revenue recognized from these customers:

Three months ended April 30,	2012			2011
Revenues from customers	$	9,002		$	17,306
Percentage of total revenues	3.6		%	7.5		%

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Incentive Stock Rights

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Incentive Stock Rights

Incentive Stock Rights—Our Board of Directors has the authority to issue incentive stock in one or more series and to determine the relative rights and preferences of the incentive stock. On June 24, 2010, we adopted an Incentive Stock Purchase Rights Plan and declared a dividend distribution of one right for each outstanding share of common stock, payable to holders of record on July 6, 2010. On December 23, 2011 our Board of Directors amended the Stock Purchase Rights Plan to, among other things, extend the expiration date of the rights and increase the exercise price of each right. As long as the rights are attached to our common stock, we will issue one right with each new share of common stock so that all such shares will have attached rights. Under certain conditions, each right may be exercised to purchase 1/10,000 of a share of Series B Junior Participating Incentive Stock at a purchase price of sixty-five dollars, subject to adjustment. The rights are not presently exercisable and will only become exercisable if a person or group acquires or commences a tender offer to acquire 15% or more of our common stock. If a person or group acquires 15% or more of the common stock, each right will be adjusted to entitle its holder to receive, upon exercise, common stock (or, in certain circumstances, other assets of ours) having a value equal to two times the exercise price of the right, or each right will be adjusted to entitle its holder to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the right, depending on the circumstances. The rights expire on June 30, 2013 and may be redeemed by us for $0.001 per right. The rights do not have voting or dividend rights and have no dilutive effect on our earnings.

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Special Charges - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012		Apr. 30, 2011	Jan. 31, 2012
Disclosure Special Charges Additional Information [Abstract]
Percentage of termination benefit paid during the period	38.00%
Costs related to advisory fees			$ 3,102
Accrued special charges ending balance	5,165	[1]		6,479
Long-term portion of accrued lease termination fees and other facility costs, net of sublease income	2,101
Short-term portion of accrued special charges	$ 3,064

[1] Of the $5,165 total accrued special charges as of April 30, 2012, $2,101 represented the long-term portion of accrued lease termination fees and other facility costs, net of sublease income and other long-term costs. The remaining balance of $3,064 represented the short-term portion of accrued special charges.

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Commitments and Contingencies

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Leases

We lease a majority of our field sales offices and research and development facilities under non-cancelable operating leases. In addition, we lease certain equipment used in our research and development activities. This equipment is generally leased on a month-to-month basis after meeting a six-month lease minimum. There have been no significant changes to the future minimum lease payments due under non-cancelable operating leases disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2012.

Indemnifications

Our license and services agreements generally include a limited indemnification provision for claims from third parties relating to our intellectual property. The indemnification is generally limited to the amount paid by the customer, a multiple of the amount paid by the customer, or a set cap. As of April 30, 2012, we were not aware of any material liabilities arising from these indemnification obligations.

Legal Proceedings

From time to time we are involved in various disputes and litigation matters that arise in the ordinary course of business. These include disputes and lawsuits relating to intellectual property rights, contracts, distributorships, and employee relations matters. Periodically, we review the status of various disputes and litigation matters and assess our potential exposure. When we consider the potential loss from any dispute or legal matter probable and the amount or the range of loss can be estimated, we will accrue a liability for the estimated loss. To the extent there is a reasonable possibility (within the meaning of ASC 450 Contingencies) that losses could exceed amounts already accrued, if any, and the additional loss or range of loss is able to be estimated, we would disclose the additional loss or range of loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, we base accruals on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation matters and may revise estimates. We believe that the outcome of current litigation, individually and in the aggregate, will not have a material effect on our results of operations.

In some instances, we are unable to reasonably estimate any potential loss or range of loss. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have. There are many reasons that we cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding; damages sought that are unspecific, unsupportable, unexplained or uncertain; discovery not having been started or incomplete; the complexity of the facts that are in dispute; the difficulty of assessing novel claims; the parties not having engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and/or the often slow pace of litigation.

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Employee Stock and Savings Plans

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Employee Stock and Savings Plans

Employee Stock and Savings Plans

Stock Options Plans and Stock Plans

Our 2010 Omnibus Incentive Plan (Incentive Plan) is administered by the Compensation Committee of our Board of Directors and permits accelerated vesting of outstanding options, restricted stock units, restricted stock awards, and other equity incentives upon the occurrence of certain changes in control of our company. Stock options and restricted stock units under the Incentive Plan are generally expected to vest over four years. Stock options have an expiration date of ten years from the date of grant and an exercise price no less than the fair market value of the shares on the date of grant.

Employee Stock Purchase Plans

We have an employee stock purchase plan (ESPP) for U.S. employees and an ESPP for certain foreign subsidiary employees. The ESPPs provide for six-month offerings commencing on January 1 and July 1 of each year with purchases on June 30 and December 31 of each year. Each eligible employee may purchase up to six thousand shares of stock on each purchase date (but no more than an annual offering date total fair market value of $25) at prices no less than 85% of the lesser of the fair market value of the shares on the offering date or on the purchase date.

Stock-Based Compensation Expense

The following table summarizes stock compensation expense recognized:

Three months ended April 30,	2012		2011
Cost of revenues	$	319	$	267
Operating expenses:
Research and development	2,117		2,139
Marketing and selling	1,549		1,615
General and administration	1,162		1,659
Equity plan-related compensation expense	$	5,147	$	5,680

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Net Income (Loss) Per Share

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Net Income (Loss) Per Share

Net Income (Loss) Per Share—We compute basic net income (loss) per share using the weighted average number of common shares outstanding during the period. We compute diluted net income (loss) per share using the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of common shares issuable upon vesting of restricted stock units, common shares issuable upon exercise of stock options, and purchase rights from ESPPs using the treasury stock method, and common shares issuable upon conversion of the convertible subordinated debentures, if dilutive.

The following provides the computation of basic and diluted net income (loss) per share:

Three months ended April 30,	2012		2011
Net income (loss) attributable to Mentor Graphics shareholders	$	28,182	$	(2,353	)
Weighted average common shares used to calculate basic net income (loss) per share	109,907		111,769
Employee stock options, restricted stock units, and employee stock purchase plan	3,336		—
Weighted average common and potential common shares used to calculate diluted net income (loss) per share	113,243		111,769
Basic net income (loss) per share attributable to Mentor Graphics shareholders	$	0.26	$	(0.02	)
Diluted net income (loss) per share attributable to Mentor Graphics shareholders	$	0.25	$	(0.02	)

We excluded from the computation of diluted net income (loss) per share stock options, restricted stock units, and ESPP purchase rights to purchase 3,022 shares of common stock for the three months ended April 30, 2012 compared to 6,959 for the three months ended April 30, 2011. The stock options, restricted stock units, and ESPP purchase rights were anti-dilutive either because we incurred a net loss for the period or the stock options or ESPP purchase rights were determined to be anti-dilutive as a result of applying the treasury stock method.

The effect of the conversion of the 4.00% Debentures was anti-dilutive and therefore excluded from the computation of diluted net income (loss) per share. We assume that the 4.00% Debentures will be settled in common stock for purposes of calculating the dilutive effect of the 4.00% Debentures.

The conversion features of the 4.00% Debentures, which allow for settlement in cash or a combination of cash and common stock, are further described in Note 6. “Notes Payable.”

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Effective Tax Rate and Period Specific Income Tax Expense (Benefit) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Effective Tax Rate and Period specific Income Tax Expense (Benefit)
Effective Tax Rate	3.00%	(35.00%)
Period specific items benefit	$ (1,327)	$ (1,334)

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Information Concerning Supplemental Disclosures of Cash Flow Activities (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Cash paid, net for:
Interest	$ 5,400	$ 8,538
Income taxes	$ 2,723	$ 2,353

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Provision for Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Disclosure Provision For Income Taxes Abstract
Income tax expense	$ 781	$ 611

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Supplemental Cash Flow Information (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Information Concerning Supplemental Disclosures of Cash Flow Activities

The following provides information concerning supplemental disclosures of cash flow activities:

Three months ended April 30,	2012		2011
Cash paid, net for:
Interest	$	5,400	$	8,538
Income taxes	$	2,723	$	2,353

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Notes Payable - Recognized Amounts in Interest Expense in the Condensed Consolidated Statement of Operations Related to the 4.00% Debentures (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Debt Instrument [Line Items]
Interest expense at the contractual interest rate	$ 4,594	$ 17,440
4.00% Debentures due 2031
Debt Instrument [Line Items]
Interest expense at the contractual interest rate	2,530	759
Amortization of debt discount	$ 1,295	$ 404

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Supplemental Cash Flow Information

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Supplemental Cash Flow Information

Supplemental Cash Flow Information—The following provides information concerning supplemental disclosures of cash flow activities:

Three months ended April 30,	2012		2011
Cash paid, net for:
Interest	$	5,400	$	8,538
Income taxes	$	2,723	$	2,353

As part of the Valor Computerized Systems, Ltd. acquisition in fiscal 2011, we acquired an investment in Frontline PCB Solutions Limited Partnership (Frontline). During the three months ended April 30, 2012, we received returns on investment of $950 from Frontline which is included in net cash provided by operating activities in our condensed consolidated statement of cash flows.

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Short-Term Borrowings (Tables)

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Short-term Borrowings

Short-term borrowings consisted of the following:

As of	April 30, 2012		January 31, 2012
Collections of previously sold accounts receivable	$	3,360	$	9,373
Other borrowings	4,979		5,244
Short-term borrowings	$	8,339	$	14,617

Commitment Fees

We paid commitment fees as follows:

Three months ended April 30,	2012		2011
Commitment fees	$	126	$	80

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Notes Payable - Redemption Prices Expressed as a Percentage of Principal, Plus any Accrued and Unpaid Interest (Detail)	Apr. 30, 2012
Debt Instrument [Line Items]
Redemption Price	100.00%
4.00% Debentures due 2031 | Convertible Subordinated Debt | Redemption Period Beginning on April 5, 2016 and ending on March 31, 2017
Debt Instrument [Line Items]
Redemption Price	101.143%
4.00% Debentures due 2031 | Convertible Subordinated Debt | Redemption Period Beginning on April 1, 2017 and ending on March 31, 2018
Debt Instrument [Line Items]
Redemption Price	100.571%
4.00% Debentures due 2031 | Convertible Subordinated Debt | Redemption Period On April 1, 2018 and thereafter
Debt Instrument [Line Items]
Redemption Price	100.00%

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Term Receivable and Trade Accounts Receivable Balances (Detail) (USD $) In Thousands, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade and term receivables	$ 354,919	$ 354,924
Term receivables, long-term	212,665	220,355
Trade accounts receivable
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade and term receivables	117,981	133,494
Term receivables, short-term
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade and term receivables	$ 236,938	$ 221,430

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Apr. 30, 2012	Jan. 31, 2012
Trade accounts receivable, allowance for doubtful accounts	$ 4,537	$ 4,432
Property, plant, and equipment, accumulated depreciation	283,382	280,053
Intangible assets, accumulated amortization	$ 176,067	$ 172,182
Common stock, no par value	$ 0	$ 0
Common stock, shares authorized	300,000	300,000
Common stock, shares issued	110,126	109,346
Common stock, shares outstanding	110,126	109,346

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Term Receivables and Trade Accounts Receivable

3 Months Ended

Apr. 30, 2012

Term Receivables and Trade Accounts Receivable [Abstract]

Term Receivables and Trade Accounts Receivable

Term Receivables and Trade Accounts Receivable—We have long-term installment receivables that are attributable to multi-year, multi-element term license sales agreements. We include balances under term agreements that are due within one year in trade accounts receivable, net and balances that are due more than one year from the balance sheet date in term receivables, long-term. We discount the total product portion of the agreements to reflect the interest component of the transaction. We amortize the interest component of the transaction, using the effective interest method, to system and software revenues over the period in which payments are made and balances are outstanding. We determine the discount rate at the outset of the arrangement based upon the current credit rating of the customer. We reset the discount rate periodically considering changes in prevailing interest rates but do not adjust previously discounted balances.

Term receivable and trade accounts receivable balances were as follows:

As of	April 30, 2012		January 31, 2012
Trade accounts receivable	$	117,981	$	133,494
Term receivables, short-term	$	236,938	$	221,430
Term receivables, long-term	$	212,665	$	220,355

Trade accounts receivable include billed amounts whereas term receivables, short-term are comprised of unbilled amounts. Term receivables, short-term represent the portion of long-term installment agreements that are due within one year. Billings for term agreements typically occur 30 days prior to the contractual due date, in accordance with individual contract installment terms. Term receivables, long-term represent unbilled amounts which are scheduled to be collected beyond one year.

We perform a credit risk assessment of all customers using the Standard & Poor’s (S&P) credit rating as our primary credit-quality indicator. The S&P credit ratings are based on the most recent S&P score available. For customers that do not have an S&P credit rating, we base our credit risk assessment on an internal credit assessment which is based on selected short-term financial ratios. Our internal credit assessment is based upon results provided in the customers’ most recent financial statements.

The credit risk assessment for our long-term receivables was as follows:

As of	April 30, 2012		January 31, 2012
S&P credit rating:
AAA+ through BBB-	$	134,324	$	130,545
BB+ and lower	18,211		15,161
	152,535		145,706
Internal credit assessment	60,130		74,649
Total long-term term receivables	$	212,665	$	220,355

We maintain allowances for doubtful accounts on trade accounts receivable and term receivables for estimated losses resulting from the inability of our customers to make required payments. We regularly evaluate the collectibility of our trade accounts receivable based on a combination of factors. When we become aware of a specific customer’s inability to meet its financial obligations, such as in the case of bankruptcy or deterioration in the customer’s operating results, financial position, or credit rating, we record a specific reserve for bad debt to reduce the related receivable to the amount believed to be collectible. We also record unspecified reserves for bad debt for all other customers based on a variety of factors including length of time the receivables are past due, the financial health of the customers, the current business environment, and historical experience. Current economic conditions we consider include forecasted spending in the semiconductor industry, consumer spending for electronics, integrated circuit research and development spending, and volatility in gross domestic product. If these factors change or circumstances related to specific customers change, we adjust the estimates of the recoverability of receivables resulting in either additional selling expense or a reduction in selling expense in the period such determination is made.

The following shows the change in allowance for doubtful accounts:

Allowance for doubtful accounts	Beginning balance		Charged  to expense		Deductions(1)			Ending balance
Three months ended April 30, 2012	$	4,432	$	153	$	(48	)	$	4,537

(1)Specific account write-offs and foreign exchange.

We enter into agreements to sell qualifying accounts receivable from time to time to certain financing institutions on a non-recourse basis. We received net proceeds from the sale of receivables of $7,457 for the three months ended April 30, 2012 compared to $11,403 for the three months ended April 30, 2011.

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Changes in Accrued Special Charges (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012
Restructuring Reserve [Roll Forward]
Accrued special charges beginning balance	$ 6,479
Charges	1,147
Payments	(2,461)
Accrued special charges ending balance	5,165	[1]
Employee severance and related costs
Restructuring Reserve [Roll Forward]
Accrued special charges beginning balance	3,668
Charges	988
Payments	(2,326)
Accrued special charges ending balance	2,330	[1]
Other costs
Restructuring Reserve [Roll Forward]
Accrued special charges beginning balance	2,811
Charges	159
Payments	(135)
Accrued special charges ending balance	$ 2,835	[1]

[1] Of the $5,165 total accrued special charges as of April 30, 2012, $2,101 represented the long-term portion of accrued lease termination fees and other facility costs, net of sublease income and other long-term costs. The remaining balance of $3,064 represented the short-term portion of accrued special charges.

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Revenue Information by Products and Services (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Revenues:
Total revenues	$ 247,918	$ 230,035
IC Design to Silicon
Revenues:
Total revenues	103,189	86,288
Integrated System Design
Revenues:
Total revenues	55,676	51,609
Scalable Verification
Revenues:
Total revenues	56,310	58,742
New & Emerging Products
Revenues:
Total revenues	15,405	17,968
Services & Other
Revenues:
Total revenues	$ 17,338	$ 15,428

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Notes Payable (Tables)

3 Months Ended

Apr. 30, 2012

Notes Payable

Notes payable consist of the following:

As of	April 30, 2012		January 31, 2012
4.00% Debentures due 2031	$	214,519	$	213,224
Other	1,357		1,349
Notes payable	$	215,876	$	214,573

Redemption Prices Expressed as a Percentage of Principal, Plus any Accrued and Unpaid Interest

We may redeem some or all of the 4.00% Debentures for cash on or after April 5, 2016 at the following redemption prices expressed as a percentage of principal, plus any accrued and unpaid interest:

Period	Price
Beginning on April 5, 2016 and ending on March 31, 2017	101.143	%
Beginning on April 1, 2017 and ending on March 31, 2018	100.571	%
On April 1, 2018 and thereafter	100.000	%

4.00% Debentures due 2031

Principal Amount, Unamortized Debt Premium (Discount), Net Carrying Amount of the Liability Component, and Carrying Amount of the Equity Component

The principal amount, unamortized debt discount, net carrying amount of the liability component, and carrying amount of the equity component of the 4.00% Debentures are as follows:

As of	April 30, 2012			January 31, 2012
Principal amount	$	253,000		$	253,000
Unamortized debt discount	(38,481		)	(39,776		)
Net carrying amount of the liability component	$	214,519		$	213,224
Equity component	$	43,930		$	43,930

Recognized Amounts in Interest Expense in the Condensed Consolidated Statement of Operations Related to Debentures

We recognized the following amounts in interest expense in the condensed consolidated statement of operations related to the 4.00% Debentures:

Three months ended April 30,	2012		2011
Interest expense at the contractual interest rate	$	2,530	$	759
Amortization of debt discount	$	1,295	$	404

6.25% Debentures due 2026, issued 2006

Recognized Amounts in Interest Expense in the Condensed Consolidated Statement of Operations Related to Debentures

We recognized the following amounts in interest expense in the condensed consolidated statements of operations related to the 6.25% Debentures:

Three months ended April 30,	2012		2011
Interest expense at the contractual interest rate	$	—	$	2,900
Amortization of debt discount	$	—	$	793

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Summary of Level 3 Activity (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Apr. 30, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	$ 6,120
Payments	(478)
Adjustments	(537)
Interest accretion	48
Balance at end of period	$ 5,153

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Income Taxes

3 Months Ended

Apr. 30, 2012

Notes To Financial Statements [Abstract]

Income Taxes

Income Taxes—The provision for income taxes was comprised of the following:

Three months ended April 30,	2012		2011
Income tax expense	$	781	$	611

Generally, the provision for income taxes is the result of the mix of profits and losses earned in various tax jurisdictions with a broad range of income tax rates, withholding taxes (primarily in certain foreign jurisdictions), changes in tax reserves, and the application of valuation allowances on deferred tax assets. Accounting guidance requires for interim reporting that we evaluate our provision for income tax expense (benefit) based on our projected results of operations for the full year, and record an adjustment in the quarter. Because some of our consolidated entities have losses for which no tax benefit is recognized, their provisions for income tax expense (benefit) must be separately evaluated.

Three months ended April 30,	2012			2011
Effective Tax Rate	3		%	(35		)%
Period specific items benefit	$	(1,327	)	$	(1,334	)

For the three months ended April 30, 2012, our effective tax rate is 3% inclusive of $1,327 net favorable period specific items that are primarily due to a reduction in liabilities for uncertain tax positions. Without period specific items, our effective tax rate is 7% for the three months ended April 30, 2012. We project an effective tax rate of 7% inclusive of period specific items for the year ended January 31, 2013.

Our full year effective tax rate differs from tax computed at the U.S. federal statutory rate of 35% primarily due to:

•The benefit of lower tax rates on earnings of foreign subsidiaries;

•Reduction in reserves for uncertain tax positions;

•Forecasted utilization of net operating loss carryforwards for which no previous benefit was recognized; and

•The application of tax incentives for research and development.

These differences are partially offset by:

•Non-deductible employee stock purchase plan compensation expense; and

•Withholding taxes in certain foreign jurisdictions.

Actual results may differ significantly from our current projections. Further, on a quarterly basis, our effective tax rate could fluctuate considerably and could be adversely affected to the extent earnings are higher or lower than anticipated in countries where we have corresponding higher or lower statutory rates.

As of April 30, 2012, we had a liability of $32,532 for income taxes associated with uncertain income tax positions. All of these tax positions are classified as long-term liabilities in our condensed consolidated balance sheet, as we generally do not anticipate the settlement of the liabilities will require payment of cash within the next twelve months. Further, certain liabilities may result in the reduction of deferred tax assets rather than settlement in cash. We are not able to reasonably estimate the timing of any cash payments required to settle these liabilities and do not believe that the ultimate settlement of these liabilities will materially affect our liquidity.